Dr. S. Bushra Batool
Iran-Pakistan (IP) gas pipeline, also known as Peace Pipeline, is a long-awaited project, envisaged to supply 750 million to a billion cubic feet of natural gas per day from Iran’s South Pars gas field to Pakistan over 25 years. Signed in June 2009 between Iran and Pakistan, the project was aimed to stretch over 1,900 kilometres, 1,150 km within Iran and 781 km within Pakistan, to be completed by 2014 and start operations by 1 January 2015. Delays on Pakistan’s side however, have stalled the project. Under the original agreement, Pakistan was obligated to pay $1 million per day in penalties to Iran starting from January 1, 2015, if the project was not completed. Plans to partially implement the project by constructing an 81-kilometre pipeline from Gwadar to the Iranian border also failed to materialize. Despite that Tehran says it has already invested $2 billion to construct the pipeline on its side of the border, making it ready to export the gas, Pakistan has faced delays and funding challenges for several years, derailing the process. In 2019, Pakistan and Iran revised their contract, stipulating that Pakistan would complete its segment of the pipeline by 2024.
Although the project would be a significant development between the two countries by supplying roughly 750 million cubic feet of gas per day to Pakistan and enhance connectivity between them, a number of challenges surround the project that hamper its completion. The security situation in Balochistan makes the situation volatile to complete the project especially in those areas where the pipeline is supposed to pass. Recently, militant insurgency has been frequently occurring in the resource-rich south-western province of Balochistan bordering Iran. In past month only, 70 people, including 23 civilians were reportedly killed and key infrastructural damage was made in a series of attacks, claimed by the Baloch Liberation Army (BLA). BLA is a militant group fighting against the government authorities sighting unfairly appropriating Balochistan’s rich gas and mineral reserves.
Reports estimate that 70% of the people in Balochistan are categorized as ‘multi dimensionally poor,’ suffering from multiple disadvantages due to poverty at the same time. In such a scenario, it makes the completion of this trans-border pipeline extremely difficult. In January 2024 also, the BLA was at the centre of allegations by Pakistan and Iran and led to tit-for-tat cross-border missile and air strikes between the two countries. The situation was however managed with no further escalation by both countries. Another grave concern in completion of pipeline project is the US sanctions on Iran. The question arises how the US has an influence in Pakistan’s domestic as well as international affairs. In domestic politics, the US has been accused for meddling in Pakistan’s domestic politics, charges that Washington denies. In international politics, since Pakistan has officially been an ally and a key partner to the US in fighting extremism in Afghanistan, it has strained Pakistan-Afghanistan relations at many instances.
In spite of Washington’s dependence on Pakistan to supply its troops during its long war in Afghanistan, the US has always been sceptical of Pakistan and accused Islamabad for playing a double game. In context of Iran-Pakistan gas pipeline, Iran has been highly disappointed of Pakistan, which due to the US pressure, still shows lack of any progress on the pipeline project. The US State Department spokesperson Matthew Miller during a briefing has warned Pakistan of the ramifications if Pakistan and said: “We will continue to enforce our sanctions against Iran. We also advise anyone considering a business deal with Iran to be aware of its possible ramifications, … we always advise everyone that doing business with Iran runs the risk of touching upon and coming in contact with our sanctions, and would advise everyone to consider that very carefully.” He further talked about how helping Pakistan addressing its energy shortage was a priority for the US, however, the US does not support Pakistan-Iran gas pipeline project from going forward.
Recently in September, reports suggest that Iran has given a final notice to Pakistan and warned to take legal action in the Paris Arbitration Court if Islamabad fails to construct its segment of the gas pipeline by the extended deadline of September 2024 or else heavy penalty. Although Pakistan has not confirmed any such reports, Pakistan Federal Minister for Petroleum Musadik Malik’s comments while responding to a question by a lawmaker on the floor of the house said: “This is a deeply complicated matter and involves international sanctions.”
Earlier also, he has spoken about Pakistan desire to present its case to the US and seek an exemption from sanctions as a mechanism adopted by Turkiye, Iraq, and Azerbaijan. About the reports of Iran imposing penalty on Pakistan for violating agreement to execute the pipeline project, he rejected the claim by saying that Iran never talked about $18 billion fine and that neither Iran, nor Pakistan had done any economic review in this regard. It is important to note that this is not a new figure though; there had been reports that if Pakistan doesn’t implement the project, Tehran has the option to move the Paris-based International Court of Arbitration, with potential contractual liability estimated to be $18bn. The Gas Sales Purchase Agreement (GSPA), signed in 2009 under French law, designates the Paris-based arbitration court as the forum for resolving disputes between the two nations. The court does not recognize US sanctions.
It is important to note here that there is a divergence of opinion on this matter in various policy circles and Pakistan Foreign Office has a slightly different perspective. According to media reports, the Ministry of Foreign Affairs (MoFA) in April 2024 had proposed to the Petroleum Division to move forward with the gas pipeline project without further delay, sighting it a very important energy project. There were even suggestions about the cost management also. As per cost estimates, $158 million were to be managed from Gas Infrastructure Development Cess (GIDC) funds, and up to Rs2.5 billion were to be provided during FY 2023-24. The requirement of remaining funds amounting to Rs42.5 billion were to be managed during FY 2024-25 on approval of the GIDC Board. Pakistan Foreign Ministry spokesperson Mumtaz Zahra Baloch, earleir in March also, had commented that the project was progressing “in conformity with our commitment to the Iran-Pakistan pipeline,” adding that Pakistan perceived no grounds for objections from external parties as the construction activities are confined within Pakistani territory.
This is all happening in such a hostile environment where the US is adamant in hts stace on IP gas pipeline. The US has also imposed sanctions on Chinese suppliers to Pakistan’s ballistic missile program, in September 2024 followed by October 2023. The Beijing Research Institute of Automation for Machine Building Industry, the US opined, had worked with Pakistan to procure equipment for testing rocket motors for the Shaheen-3 and Ababeel systems and potentially for larger systems. Although Pakistan tried presenting a Force Majeure and Excusing Event notice to the Iranian government for being unable to carry out the project and suspend its obligations under the GSPA, Iran insists that the agreement was bilaterally signed by the two countries while Pakistan being fully cognizant of the US sanctions risk, especially when India had withdrawn from the project for the same reason in the recent past.
With the extension of 180-day in deadline for Pakistan expiring in September 2024, Pakistan is yet to make any significant progress in the construction of its segment of the pipeline, putting serious question on Pakistan’s commitments and its seriousness about completion of this project. In addition to the security concerns in Balochistan province, the US sanctions on Iran has complicated Pakistan’s regional engagement with one of its immediate neighbours especially when Pakistan is in dire of any such arrangement to fulfil energy needs of its people.
The author is a Research Officer at Rabita Forum International (RFI).
