Raisi In Pakistan And The Revival Of ‘Pipe’ Dreams – Analysis

By Shivam Shekhawat

Almost two months after ties between the two neighbours plummeted to a new low, the President of the Islamic Republic of Iran, Ebrahim Raisi, was in Pakistan for a three-day trip. From 22-24 April, he met his Pakistani counterpart along with meeting the Prime Minister, the Chief of Army Staff, and Pakistan’s provincial leadership.

The timing of this visit is significant—it’s the first by any head of state since Pakistan’s controversial general elections on 8 February and comes against the backdrop of what is happening in the Middle East (West Asia), the strikes by Iran, and the tension that has characterised the Pakistan-Iran bilateral relationship in the last few months. 

Actualising the relationship’s full potential

The focus of the visit was on augmenting cooperation, both on the economic and security fronts, since ties hit a historically new low in January. Eight agreements were signed between the two countries along with optimistic commitments on increasing bilateral trade. Lamenting the dismal state of the bilateral economic partnership, Iran urged more economic cooperation and resolved to bring bilateral trade to the tune of US$ 10 billion over the next five years. Raisi also highlighted the role of the border areas in increasing trade by opening up more border markets, following the Mand-Pishin market, which became functional last year. The meeting included discussions on the viability of following a barter system to offset the lack of efficient banking channels between the two countries and expediting talks on the Free Trade. 

The 28-point joint statement noted the presence of terrorists in Afghanistan, while making no reference to the terror groups that proliferate within the countries’ borders. The two leaders also cursorily mentioned the ‘tit-for-tat’ strikes that took place, indicating that both Tehran and Islamabad were concerned about how to tread forward. The Interior Ministers of the two countries agreed to ban terror groups within each other’s borders and enhance cooperation in border management and intelligence sharing. The Pakistan Army Chief during his meeting with the Iranian President defined the border between the two countries as a “border of peace and friendship” and committed to have regular consultations between the political and military leadership, to ensure that other groups don’t jeopardise the bilateral relationship. 

Refuelling old dreams: Resumption of the Iran-Pakistan Gas Pipeline

Even as the visit failed to chalk out any concrete agreement on economic cooperation or cooperation in energy and infrastructure projects, the reference made to the Iran-Pakistan Pipeline in the joint statement has invited speculation about the possible resumption of the long-defunct project. Back in February, the then caretaker Prime Minister, Anwar-ul-haq Kakar, green-lighted the construction of the first 80-kilometre stretch of the pipeline from Gwadar till the Iranian border. Shehbaz Sharif also called for the formation of an inter-ministerial committee to expedite the project. Initially expected to extend to India, the two countries began discussions on the project in the 1990s. India officially opted out in 2009 due to multiple reasons such as pricing issues, security concerns considering the history of bilateral ties between Pakistan and India, and the pressure from the United States (US) with which it had then signed the civil nuclear accord. Iran and Pakistan signed the framework agreement worth US$ 7.5 billion in 2009. The 2,775-kilometre pipeline stipulated the supply of 750 million to a billion cubic feet of natural gas from Iran’s South Pars gas field over a period of 25 years.

Since its inception, the project has been marred by a multitude of issues, both intrinsic to Pakistan’s structural setup and its external environment. India’s exit from the pipeline, the imposition of US sanctions on Iran and Pakistan’s dependence on the former, Islamabad’s fast dwindling energy reserves, and the quest to secure funding for its construction have all delayed the project’s progress over the years. While Tehran has completed the construction of a 900-km stretch for US$2 billion, the construction of the pipeline on the Pakistani side has been at a standstill.  It organised a ceremony, inaugurating the construction of the pipeline in 2013 but the project still failed to pick up. In 2014, Pakistan first asked for a ten-year extension and then abandoned the project fearing US sanctions. In 2019, it was informed about the legal action that Iran could take if it fails to respect its obligation. Pakistan presented Iran with a ‘Force Majeure and Excusing Event’ notice last year to evade its contractual obligation, which was rejected by Iran. 

Even though Islamabad now has time till September 2024 to finish the construction, its inability to walk the talk risks having to pay a penalty of US$ 18 billion. Pakistan’s energy crisis has worsened in the last few years, with only 19.5 trillion cubic feet of gas reserves left, sufficient for only 12 more years. It spent close to US$17 billion on energy imports last year. These compulsions may have propelled Pakistan to resume conversations on the issue even as the geopolitical environment doesn’t make it easy for Islamabad to follow through. 

Caught between  a rock and a hard place

The US has categorically warned all countries looking to get into business with Iran and reminded them of the sanctions that any such business would invite. It has registered its strong discontent with the pipeline and urged Pakistan to be aware of the risks involved. A new batch of sanctions were levied on Iran on 19 April after its strikes against Israel. The US also recently sanctioned suppliers to Pakistan’s ballistic missile programme with four of them being based in China and Belarus. While last month the Pakistan Foreign Ministry spokesperson denied the need to send a waiver request to the US, there are now reports that it has sent it. Thus, the same reasons which stalled the project before are affecting its progress now. 

As per a report of the Institute of Strategic Studies Islamabad, the financing for the pipeline is expected to come through the Gas Infrastructure Development Cess under the Special Investment Facilitation Council (SIFC), a ‘civil-military economic forum’ tasked with bringing in foreign investment in the country. The government has released US$ 152 million for the same. Concerns about the finalisation of the land in Gwadar and the already growing discontent amongst the local population vis-á-vis China’s actions and the prospects of Iran’s ability to provide adequate gas are also present. Even if Pakistan manages to use this amount and also provide for the remaining cost, the fear of sanctions will still pose difficulties. Some see support from external actors as the best bet for Pakistan to complete the construction of the pipeline and evade sanctions.

 From 2006 till 2018, reports about China’s imminent induction in the pipeline, with talks of it being extended to China from Gwadar or its support towards the construction of the pipeline itself have propped up on multiple occasions. In 2019, Iran said it was willing to extend the pipeline to China. But none of them materialised.  China volunteered to help mediate between the two countries when ties deteriorated at the beginning of this year. Beijing would, thus, view a thaw in their relationship as a positive development. Any progress on the pipeline would also be viewed favourably by Beijing even as it has itself vacillated on how it wants to be involved in its construction. Back in 2013, Iran also committed to provide a loan of US$ 500 million to complete the Pakistan side of the project by an Iranian firm; it has now agreed to provide ‘technical and engineering support.’ As per a report in the Third Pole, a Pakistani Senator also stated Russian interest in providing the initial US$160 million for the 80-km stretch of the pipeline. The visit saw no significant breakthrough in resolving the deeply embedded issues that the project faces. With elections pending in the US, the possibility of Washington letting Pakistan go ahead with the pipeline if at all it fructifies is also extremely bleak because of the attendant political risks. 

Many analysts saw Raisi’s trip as a means of getting support from Islamabad for what is happening in the region. While Raisi rebuffed any detractors of increased cooperation between the two countries, in an indirect snub to the US, Islamabad is still stuck in a logjam. An editorial in a Pakistani newspaper asked where the country will finally draw the line—that is how long till Islamabad decides to push back against international pressure? For now, it’s rather difficult to say if Pakistan has any space to push back. While it is in an unenviable position, having to choose between either getting sanctioned and moving forward with the pipeline or risk paying a hefty penalty, the choice isn’t so stark. With the country finally getting approval for the last tranche of the bailout from the International Monetary Fund and the government’s plan to reach out again for a new programme, the prospects of these projects reaching their fair conclusion are anyway not too high. And so even if Iran decides to give Islamabad more time, the latter will still struggle with putting the project on the wagon, reeling under multiple intersecting crises. Post the Saudi-Iran détente last year, Pakistan has a slightly bigger room to manoeuvre and both Tehran and Islamabad realise the indispensability of cordial relations in the aftermath of the crisis in January. However, a strong response from the US against the pipeline shows that Pakistan is still susceptible to the same geopolitical pressures that have constrained the relationship for so long.  

• About the author: Shivam Shekhawat is a Junior Fellow at the Observer Research Foundation.
• Source: This article was published by the Observer Research Foundation.