Pakistan’s energy resources are increasingly receding and consumption rising. The only solution to this problem is to import gas. The Iran-Pakistan (IP) gas pipeline provides the most viable option but international compulsions, especially pressure from Washington and sanctions on Iran, makes it problematic. So far, Islamabad remains firm in its position and is committed to the IP pipeline. Is Islamabad’s recent response to U.S. messages simply posturing in line with the recent state of Islamabad-Washington relations or a realistic assessment of the available options and choices?

BACKGROUND: Geographically, Pakistan is located at the junction of South, Central and West Asia. It borders Afghanistan, China, India and Iran. Being the sixth most populous country in the world, with depleting energy resources and increasing urbanization and industrialization, it is in constant need of exploring new sources of energy supply. Natural gas is the main source of energy used in the domestic, commercial and industrial sectors in the country and serves almost half of Pakistan’s energy needs. At present, Pakistan has almost 840 billion cubic meters of proven natural gas reserves. However, even if the demand does not increase, consumption at the current rate would result in a total exhaustion of local gas reserves by 2028-30. Pakistan’s only solution to this growing problem is to import gas.

There are two proposed pipelines that can serve the purpose: the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline and the Iran-Pakistan (IP) pipeline. The 1,735 kilometer TAPI pipeline, enjoying Asian Development Bank support, was envisaged in 1995 through an agreement between Pakistan and Turkmenistan. The project was marred by the competing company policies of Argentinean Bridas and American Unocal companies along with Saudi Arabia’s Delta, who all lobbied for the contract to construct the pipeline. However, due to regional instability, the pipeline project never took off and was abandoned by all concerned parties, although it is now experiencing a revival. (See 19 January 2011 issue of the CACI Analyst)

Discussions on the Iran-Pakistan pipeline started in 1994 between Islamabad and Tehran. On Tehran’s suggestion, New Delhi was included in the proposed pipeline project and it became the Iran-Pakistan-India pipeline. In February 1999, an agreement between Tehran and New Delhi was signed. It was then also called the peace pipeline as it was viewed as a joint India-Pakistan venture which would bring peace and prosperity between the two traditional rivals. The project was delayed by the 1999 coup in Pakistan; however, it soon came back on track. According to various media sources, Tehran was also keen to involve China in the project.

India abandoned the IPI in 2009 after signing a civilian nuclear deal with USA, and the final destination of the pipeline remains unclear. While both TAPI and IP have faced various problems, they provide Pakistan with two options for addressing its energy problems. The technical and security related data suggest that the IP pipeline is the more practical and feasible option for Pakistan of the two. This is, however, where the real problem begins. Islamabad increasingly finds itself trapped between its mounting energy requirements, regional compulsion as Iran is a strategic neighbor who cannot be ignored, and an increasing international opposition towards the pipeline project which is seen in the west primarily through a geopolitical prism.

IMPLICATIONS: The U.S. considers Iran a major irritant in its Middle East policy and views its nuclear program as a threat. In this context, the IP project can be considered a source of funding for Tehran, which can be used to further its nuclear and regional ambitions. Therefore, Washington is encouraging Islamabad to pursue the TAPI pipeline. Other than blocking a major source of capital to Iran, Washington’s inclination towards TAPI can also be explained by its desire to break Moscow’s erstwhile monopoly over Central Asian energy resources. Despite Washington’s active backing for TAPI, the project presents certain problems which cannot be ignored. Although Pakistan and Turkmenistan, who signed a gas purchase agreement in 2010, have started working on this US$ 8 billion project, it will take at least five years to complete. TAPI has to pass through Afghanistan whose situation and future remains uncertain. Another important issue is that after Turkmenistan’s deals with Iran and China coupled with the fact that it continues to be the largest supplier of gas to Russia, there are doubts whether Turkmenistan can meet its commitments to TAPI.

The IP pipeline, on the other hand, has important advantages. First, it is shorter. Second, Iran has already almost finished its part of the required infrastructure and a feasibility study for the IP pipeline in underway on the Pakistani side. Islamabad believes that it can construct the Pakistani part of the pipeline by December 2013. If Pakistan decides otherwise or terminates the project, it will have to pay US$ 2 million per day as per the 2009 gas purchase agreement between Iran and Pakistan. For Islamabad, another benefit of the IP pipeline is that there is no Afghanistan in between, which Islamabad views as becoming increasingly anti-Pakistan. Recent developments in Kabul-Islamabad relations are a case in point. The IP pipeline will in all likelihood contribute to Pakistan’s economy even before the gas supply begins. According to observers, it would create thousands of jobs and generate positive activity in various industries such as land development, cement, and construction industries etc.

So far, Islamabad has continued to stress that it will go ahead with the IP pipeline project despite Washington’s pressures to do otherwise. It also suggested that sanctions do not affect the project. However, Washington has made its position very clear. According to media reports, U.S. Secretary of State Hillary Clinton warned Islamabad of sanctions if it goes ahead on the IP pipeline project. Addressing the House Appropriation Subcommittee on Foreign Operations, she stated that embarking on the IP pipeline project is in violation of the Iran Sanctions Act. She also stated that it will adversely affect Pakistan’s already shaky economy. In addition, funding for the IP pipeline has already become problematic. Earlier this year, Pakistan’s own Oil and Gas Development Corporation (OGDC) and the National Bank of Pakistan decided to withdraw from the project stating its likely adverse implications for their foreign partnerships and businesses.

CONCLUSIONS: Pakistan is in urgent need of new and reliable as well as secure gas reserves and the IP pipeline is a practical and feasible option. However, considering the current international environment and developments, Islamabad should explore other options as well. At the same time, it needs to retain its relationship with Iran and avoid abandoning Iran altogether. In other words, the major task for foreign policy makers in Islamabad is to address the international compulsions and regional alignments and maintain a fine balance in its relations with Washington and Tehran. While the IP pipeline should remain in the cards, Islamabad should actively pursue the TAPI pipeline, the Qatar pipeline and other options.

AUTHOR’S BIO: Rizwan Zeb is based at the Centre for Muslim States and Societies (CMSS), University of Western Australia.