Uncertainty over Iran-Pakistan pipeline

Ayesha Alam

Rabi' al-Awwal 01, 1435 2014-01-02

News & Analysis

by Ayesha Alam (News & Analysis, Crescent International Vol. 42, No. 11, Rabi' al-Awwal, 1435)

Pakistan under Nawaz Sharif is trying to wriggle out of its commitment to build the gas pipeline from Iran. Sharif has close links with the Saudis and the Americans. Neither wants the pipeline.

While news of the Iran nuclear deal fanned world headlines at the close of December 2013, a quieter group of headlines has also been making rounds in the media. This concerns the fate of the Iran-Pakistan pipeline (IPP) that promised to deliver the liquid wealth of Iran’s South Pars gas field to Pakistan’s energy starved demographics, and thence for delivery possibly further east to India as well as to international markets.

Pakistan is encountering a severe energy crisis. This has had a major negative impact on industrial production as well as the daily life of its 180 million people. Rolling blackouts in major population centers often last up to 20 hours. Industrial production has been disrupted and many industrialists have simply shut down factories and moved on to areas with better services and facilities. The Iran-Pakistan pipeline was billed as bringing relief to Pakistan’s economic drought but uncertainty has surrounded the project in recent weeks.

It is also an original Pakistani venture that is now being threatened by Pakistan’s dangerous reliance on the US and Saudi Arabia. Malik Aftab Ahmed Khan, a young Pakistani engineer originally envisioned the idea in the 1950s and published an article titled “Persian Pipeline” in a military journal published by the Military College of Engineering, Risalpur.

Iran, however, cannot spare cash for this project when it is already facing severe economic distress in view of prolonged US sanctions that have seriously affected its oil revenues. President Hassan Rohani’s budget plan for the coming year acknowledges job creation as a priority and stated that inflation was a challenge that had to be immediately addressed. Clearly, Iran expects Pakistan to fulfill its own end of the deal.

The IPP is an economic lifeline for both countries — a geopolitical coup that delivers Iranian oil to international ports, and an all-significant competitor with TAPI, the US’ precarious bid to pipe down oil from Turkmenistan, through Afghanistan and Pakistan to India. The economic gains that the IPP offers to both Pakistan and Iran is potentially a game-reset button in Muslim East and Central Asian politics. Even India, which had bowed out of the pipeline deal after the US weaned it away with the 2008 nuclear deal, has been standing on the sidelines, watching the progress — ready to join in again if and when the project reaches completion.

Regrettably, the operative word in the last sentence is “if.” It seems as if Pakistani Prime Minister Nawaz Sharif’s ties with Saudi Arabia and the United States have placed the future of the pipeline in doubt. While the former president Asif Ali Zardari also had strong ties with the US, the pressures on Pakistan’s faltering economy — along with the anti-Pakistan bent of US policy — gave him enough spine to stand up to US pressure against the IP friendship pipeline. Former Iranian President Ahmedinijad and Zardari had even announced inauguration of the final construction phase of the project in March 2013.

Sharif is a political creation of General Zia-ul-Haq, the Pakistani dictator who allied with the Saudis in the 1980s to open deadly militia training camps all over Pakistan to fight the US’ Cold War. In addition, after Sharif was expelled from the country following General Musharraf’s coup in 1999 that overthrew his civilian government, Sharif was granted refuge in Saudi Arabia and accommodated in a grand palace. This rendered the ties between the Saudi ruling elite and the Sharif family even closer. The net effect of Sharif’s electoral win in May 2013, believed to have been helped by Saudi largesse, threatens to render Pakistan into a client state of Saudi Arabia.

The IPP affair is exposing the domestic and international fault lines engulfing both Pakistan and Iran. Recently, Iran’s Deputy Oil Minister Ali Majedi released a terse statement declaring Iran has no obligation to finance the Pakistani side of the project. “Pakistani officials were told in recent talks that, given the sanctions, Iran is not able to finance construction of the pipeline [in Pakistan] and has no obligation to do so,” he said.

Iran has already invested $2 billion in the project — and expects Pakistan to fulfill its side of the agreement. During negotiations between the two countries, Pakistan had requested a $500 million loan from Iran in order to implement construction to which Iran had initially agreed. On its side, Tehran has nearly completed the pipeline. Majedi complained that Pakistan has done little to construct its own section of the project. Islamabad was originally required to complete construction of the pipeline on its territory by the end of 2014, but has not even begun construction.

Majedi’s tone reflected displeasure bordering on irritation. “If a contractor is chosen today and pipeline construction begins today, it will take four years to complete it. Should Pakistan fail to take gas by the end of next year, Iran will demand compensation under the terms of the contract,” he said. Pakistan hastened to ask for an extension on the 2014 deadline, and Iran agreed. There appears significant will in the region, even if it is expressed covertly, for the project’s success. A foreign country that prefers to remain anonymous (perhaps Russia or China?) has offered Pakistan $1 billion towards completing the project, and Sharif’s own stated aims of seeking “trade not aid” and supporting Pakistani industry should provide enough incentive.

Both Russia and China fit the bill for the “anonymous” donor — they are opponents of TAPI and the pan-Asian extension of the US energy empire. News sources suggest that the offer was made by Russia — stymied in its race to Karachi during the Cold War as a conduit for oil, the old vanguard of the Soviet Union has regarded TAPI’s progress across Central Asia with suspicion and hostility. China too is a supporter of the IPP as it complements its own push to develop Gwadar, the deepwater port in Baluchistan, as a transportation, refinement, and shipping hub. If Gwadar is successfully developed, a branch of the IPP can be extended down to the coastal port — an initiative that can deepen Sino-Iranian economic relations.

Even various European countries, which are looking to secure their own energy future in this Great Race of the 21st century, are supportive. After Pakistan made clear that it lacks the funds or infrastructure to build the pipeline, Majedi suggested that various European companies can be involved in the IP project to assist Pakistan. “It is even possible that these companies purchase gas from Iran as intermediary and sell it to the Pakistanis,” Majedi added.

However, the problem remains the same — Saudi Arabia, bent on expanding its scope of influence at the expense of Iran has pressured Sharif to stymie the IPP. Saudi Prince Waleed bin Talal characterized Sharif as “very much Saudi Arabia’s man in Pakistan”; and shortly after Sharif won the election, Saudi Arabia announced a “bailout package” to Pakistan that promised 100,000 barrels of crude oil and about 15,000 tons of furnace oil per day from Saudi Arabia on deferred payment for three years. This price tag for buying out Pakistan is valued at $12 to $15 billion. In addition, Sharif is turning toward Pakistan’s hotly debated nuclear industry, promising to build more reactors in the country. While the nuclear option pleases the Pakistani military and the public at large, which see it as a national bulwark against India, it also links with Pakistan’s dysfunctional political alliances.

The IPP is not just about energy supply and demand, although it is a natural, it is also a regional solution to the economic problems of both Iran and Pakistan. It is a move toward non-alignment — a map of the Muslim East and Asia in which countries enjoy the independence to determine their own future, rather than reacting to the whims and desires of US hegemony. Non-alignment is potentially a global movement and countries such as Russia, China, Brazil, and Venezuela are ready to invest in it. Of course, it is also the target of the US’ “pivot toward Asia,” its grasp to conquer the markets and energy futures of the continent’s great population centers.

Pakistan’s struggle for non-alignment is a titanic battle — the US and Saudi Arabia have invested vast treasures to keep the country a political subject of their imperial interests. The groundswell of support for Imran Khan, the cricket star-turned-politician who urged Pakistan’s divestment from the US, indicates popular exhaustion and ire with its fickle, exploitative ally. Pakistan’s alliance with Saudi Arabia has also had disastrous consequences for the country — General Zia ul-Haq worked with the Saudis to spread Taliban-training camps across Pakistan, to fight US Cold War battles by proxy.

Non-alignment is an attractive option for South Asia as a whole. Should the IPP succeed despite Saudi Arabia and the US, it is highly likely that India will rejoin the venture and petition to extend the pipeline down to Delhi, as was originally intended. The IPP, originally envisioned by Malik Aftab Ahmed Khan, was concretely conceptualized in 1989 by Indian and Iranian officers, who viewed the project as a friendship and development venture. As India’s recent row with the US over its diplomat (who was disrobed by US authorities following a domestic dispute) indicates, it regards itself as a regional powerhouse that will not hesitate to draw the line before the US over its national interests or pride.

Iran has made it clear that it expects Pakistan to live up to its end of the bargain, regardless of the Sharif oligarchy that is ruling Pakistan like its own personal business venture. On Iran’s side, the euphoria over the nuclear deal with the US is giving way to a weary realization that its economy and sovereignty are still under proxy war, regardless of any agreements signed on paper. Should Sharif succumb to Saudi pressure and abrogate the IPP, Pakistan would face even greater tragedy — it is like a man starving to death in plain sight of food and water. Hijacked by foreign powers, it is unable to get regional help, allies, and resources to gain a way out of its structural failures.