Via The Diplomat, an interesting look at the Iran-Pakistan pipeline project:

During his trip to Pakistan last month, U.S Secretary of State John Kerry warned Pakistan that it could face U.S. sanctions if it continues to pursue plans to build a pipeline and import natural gas from Iran. Pakistani Prime Minister Nawaz Sharif has been reluctant to comply with Washington’s demand that it squash its pipeline plans, stressing Pakistan’s current energy crisis and the importance of repairing ties with Iran. Indeed, some in Iran and Pakistan have taken to calling the project the “peace pipeline.”

Initially conceived in the 1950s as the Iran-Pakistan-India Project, the 2,775 km natural gas pipeline runs from the South Pars gas field in Asalouyeh, Iran, to a number of delivery points deep inside Pakistan. After falling by the wayside for many decades, it was revived in the late 1980s by the Indian intellectual Rajendra K. Pachauri and Ali Shams Ardekani, a former secretary general of Iran’s Chamber of Commerce, who proposed it to their respective governments in 1990. Since then, India has oscillated back and forth regarding its involvement in the pipeline project, ultimately dropping out in 2009.

Iran and Pakistan have persisted with the project. In 1995, the two countries signed an initial agreement outlining the construction of a pipeline from the South Pars gas field to Karachi, in southeastern Pakistan. Although progress was minimal for at least another decade, the project has taken on unprecedented urgency in recent years as Pakistan’s energy crisis has worsened and Iran has come under international sanctions that have greatly curtailed its ability to export its vast energy wealth.

The momentum for the pipeline finally culminated earlier this year when then-presidents Mahmoud Ahmadinejad and Asif Ali Zardari inaugurated the final construction phase of the pipeline.

Despite the fact that both states have a strong interest in seeing the pipeline succeed, the project faces a number of obstacles that could ultimately prove fatal to it.

For instance, although Iran has already built its side of the pipeline, Pakistan continues to struggle to secure enough financing to construct the side of the pipeline that falls within its borders.

One potential source of financing is Russian gas giant Gazprom, which has expressed interest in financing and building the Iran-Pakistan pipeline and has both the capital and the expertise to execute it. As the largest gas extractor in the world, Gazprom’s involvement could be a decisive factor in whether or not the pipeline will be completed by December 2014.  For Moscow, such a deal would be critical to ensure Europe’s gas markets remain safely in their palm. However, Gazprom has insisted that Pakistan approve its proposed contract without entertaining other bids on the project, which has so far doomed its participation.

As other sources of finances withered, Iran agreed to finance US$500 million of what is expected to be a US$1.25 billion or US$1.5 billion project. The Chinese firm Panyn Chi King Steel Ltd had previously offered to fund an additional $500 million, but recently pulled out after Islamabad refused to extend the bid validity period. As it stands now, Islamabad is hoping to convince Iran to finance the rest of the project.

The second challenge for the pipeline is the staunch opposition from the United States, and Washington’s threat to impose sanctions against Pakistan should it go through with it. The U.S. has sought to lure Pakistan away from the deal by proposing a number of alternative sources of energy. For example, Washington has offered assistance in constructing a liquefied natural gas terminal at either Port Bin Qasim or Gwadar Port, which would allow Pakistan to import the gas it would otherwise buy from Iran via the pipeline.

The U.S. has also pushed for an alternative pipeline that would deliver Central Asian gas to Pakistan via Afghanistan. Specifically, it would link Turkmenistan’s natural gas reserves to Pakistan and India by circumventing Iran completely. Notably, Washington has advocated such a pipeline since the 1990s, but the lack of security and stability in Afghanistan has prevented the project from getting off the ground. This is likely to continue to be the case, but Pakistan can hardly afford to come under U.S. sanctions given its need to secure loans from the International Monetary Fund, among other international sources.

The final obstacle to the pipeline is the lack of security within Pakistan. A large part of the roughly 800 km of pipeline within Pakistan transverses the turbulent province of Balochistan, which has waged an on-again, off-again insurgency against the central government in Islamabad for decades now. Anti-Iranian militant groups such as Jundallah also use Balochistan as a base from which to launch attacks inside Iran. Thus, even if the pipeline’s construction is finished, its ability to reliably deliver gas to an energy-starved Pakistan remains an open question.