Iran-Pakistan Pipeline: Is There Scope for Hope?

25 March 2014

Ayesha Khanyari

Research Intern, IPCS

The stalled Iran-Pakistan (IP) gas pipeline is symptomatic of the reshuffle in the bilateral relations between India and Iran and Saudi Arabia and Pakistan. As Iran shifts its focus towards India, Saudi Arabia has channelled its efforts towards strengthening ties with Pakistan.

The fate of this pipeline project has constantly faced uncertainty with Pakistan repeatedly running into problems be it due to its own financial shortcomings or due to pressure from the US. Tehran, on the other hand, is exhibiting signs of frustration. Iran successfully completed the construction of the required 900-kilometer stretch of the pipeline in its territory, and threatens to evoke the penalty clauses of the 2010 Ankara agreement between Tehran and Islamabad, over Pakistan’s delay in proceeding with construction. The agreement states that the construction of the pipeline is due to be completed by 2014 and if either side fails to meet the deadline, the defaulter will have to pay a penalty of $US 1 million a day.

The project was stalled after Tehran refused Islamabad the $2 billion financial support the latter had asked for building its side of the project. Additionally, Pakistan claims that the threat of US sanctions was a major impediment to the successful completion of the project.

To evaluate the future of the IP project, three important questions need answering:

Are the US sanctions solely responsible for the stalling? Has Pakistan completely given up the idea of actualising the project, or is there hope for it to materialise? Will India be willing to take the project forward?

The Saudi Factor

Incumbent Pakistani Prime Minister Nawaz Sharif, on assuming office, assured Iran that his government was committed to the IP pipeline project. Then what changed? Pakistani officials state that Western sanctions on Iran over its controversial nuclear programme spells the impossibility of the realisation of this project. The US fears that Iran will be able to check the growing influence of the US and exert political leverage in Pakistan, if the pipeline were to materialise. However, the issue of sanctions is not a new problem, and Pakistan was well aware of it even at the time of signing the agreement. 

Saudi Arabia is highly sceptical of the increasing US closeness towards Iran after the interim agreement over the nuclear issue was signed between Iran and the P5+1. It fears an unopposed Iran in the region and has embarked on its own diplomatic offensive to isolate Iran. The U-turn on the IP pipeline creates a rupture in the Islamabad-Tehran relationship owing to what Shahbab Jafry calls ‘riyal politics’ in hisarticle, ‘Saudi’s new riyal-politics’, published by Pakistan Today. “Riyadh will flush Pakistan with defence contracts and petrodollars in return for military, missile and perhaps nuclear technology,” he says.

The renewed Saudi-Pakistan relationship is symbiotic. Saudi Arabia needs Pakistan’s military support which is comparatively reliable and cheaper than other available sources. In exchange, the Saudis can help Pakistan save its struggling economy. Only recently, the Saudi government gave financial aid worth $ 1.5 billion to bolster Pakistan’s liquid foreign reserves.

The threat of the US sanctions can be a major obstacle for the pipeline project but the renewed Saudi- Pakistan relationship, explains the stalling better. It is in this context that all future projects Pakistan will consider working on, should be assessed by. 

Going back to the second question, will Pakistan resume the project ever? Pakistan, at this juncture, will be unwilling to upset its long-standing ally, Saudi Arabia. Prime Minister Nawaz Sharif has enduring ties with Riyadh and wishes to maintain them. Saudi Arabia, on the other hand, needs Pakistan to contain Iran. Furthermore, neither of the two countries wants to upset the US. They will not pursue a foreign policy antithetical to US interests. Thus, given the changes in the dynamics of the region, the future of the IP pipeline looks bleak.

Will India re-join the IP pipeline project?

Initially, the project included India as well, but New Delhi withdrew from the project in 2009 after signing a nuclear pact with Washington. As the region realigns itself, Iran is looking towards India. India has expressed interest to extend its support to a sub-sea natural gas pipeline project capable of bringing natural gas directly from West Asia to India. The South Asia Gas Enterprises has undertaken the Middle East to India Deepwater Pipeline (MEIDP) project to build the underwater transnational gas pipeline that will connect the gas-rich Gulf and West Asia region to India and cater to its rising energy needs. 

Recent developments reveal that while the IP pipeline is going nowhere, there have been positive developments in the region that provide fresh incentives to go forward with the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project. India will most likely work on making its way into the Central Asian markets via Iran and Afghanistan, bypassing Pakistan .At the moment, for India, projects such as the MEIDP and TAPI seem more tempting than rejoining the IP pipeline project.