Updated: Jun 11
Pakistan's gas reserves are depleting rapidly – according to an estimate, Pakistan has only 12 years of explored reserves left, which means that the country’s future is at stake; because, due to legion dependency on other opted resources (LNG), the foreign exchange reserves are stricken badly, and to manage the continuous flow of trade account, Pakistan has no option but to seek gas through pipelines from other countries such as TAPI or Iran Pak gas pipeline. Its economic conditions are not favorable that the country could afford LNG imports in the longer run.
Analyzing the need for any flagship gas supply project, in 2009, Pakistan agreed to pursue the gas pipeline project named “Pak-Iran Gas Project” with its neighbor Iran. The project could be proved a panacea (if completed) because the geological settings endowed Iran with massive crude reserves; moreover, the cost of construction of the project was comparatively low owing to its immediate neighborhood with Iran, and the already established domestic gas pipeline network from Baluchistan to other parts of the country.
The terms of the project were that it had to be completed by Dec 2014, and Iran had to deliver 21.5 million cubic meters of gas per day to Pakistan after the completion. However, things didn’t happen as perceived; due to international sanctions on Iran, and Pakistan's strategic interest aligned with Saudi Arabia (a concrete ideological and geo-political foe of Iran). Resultantly, although Iran had completed the laying of the gas pipeline on its side, Pakistan’s side of the pipeline remained incomplete because of a lack of interest and effort.
However, this article is about the reasons that were behind this unsuccessful venture. Moreover, about the future strategic solutions and moves, those Pakistan will foster.
The Impact of Sanctions on the Iran Pak gas pipeline project:
Iranian pursuit of becoming a nuclear-armed state, not just affecting its economic progress, but also many countries, whom it can be mutually benefitted by doing bilateral and multilateral trades, cannot harness the gains. It has been clear that western rhetoric is harsh when it comes to Iranian matters. Likewise, Pakistan, despite it had done the agreement, the stick-and-carrot moves by the US, became one of the reasons that Pakistan had to give up the projects. The US, earlier, warned Pakistan about the consequences of involving in trade with Iran. Now, if the project is somehow reinitiated again, Pakistan, perhaps, must have to face economic coercion. Therefore, the doors are closed because Pakistan cannot play on both sides of Iranian matters unless the sanction is removed.
No private firms & investors are ready to take the risk:
Pakistan's economic conditions don’t allow it to infiltrate money into the Iran Pak gas pipeline construction project on its side. Therefore, it has to seek other players in-game. However, most international firms aren’t ready to invest in the project. Firstly, due to the fear of the US; as most of the giant international firms are engaged in business transnationally, there is no chance that they would take the risk by investing in any controversial project.
However, Chinese companies could be a possible solution, but as Pakistan is itself not showing interest in the project; therefore, it can be inferred that the rationale behind is something else.
Saudi-Arabian influence on Pakistan:
Pakistan and Saudi Arabia enjoy very closed ideological, strategic, and economic relations. Due to religious sectarian alignment, Saudi was always considered more than a friend in Pakistan. Throughout history, both countries have had the same stance on Kashmir and the Palestinian issue. Moreover, during the Soviet invasion of Afghanistan, Pakistan and Saudi became strategically more closed – Saudi heavily funded Pakistan to promote Salafism in the country. Furthermore, whenever, the economic conditions become start worsening, Pakistan seeks Saudi’s help. However, the growing tensions in the middle-east brought Saudi and Pakistan into military bilateral ties. For example, the Saudi military is trained by Pakistani armed forces, and many Pakistani soldiers serve in Saudi as well. On the other hand, Saudi’s relations with Iran are antipathetic; in that case, Saudi’s maneuvering in Pakistan’s strategic relations with Iran is prominent.
Pakistan‘s growing reliance on LNG:
Pakistan found another way to fulfill its gas demand (LNG import). The US assured Pakistan aid and fund to not pursue the Iran Pak gas pipeline project, but to build Liquefied Natural Gas (LNG) capacity in the energy infrastructure. Therefore, private investors and firms in the LNG market in Pakistan. Resultantly, the Iran gas pipeline had to be side-lined.
The dissensions between Iran and Pakistan on the Iran Pak gas pipeline project:
According to the agreement, Pakistan had to lay the pipeline on its side before Jan 2015. However, due to the above-mentioned reasons, the project was procrastinated. One of the agreed terms was of the project agreement “If Pakistan does not complete the project before Jan 2015, it has to pay $1 million to Iran per day. The clause is very harsh if seeing Pakistan’s economic conditions, but it shows Iran forecasted outcome of the project – Iran had evaluated that the project is risky – therefore, it made sure that its investment would be offset by the $1 million clause. However, Pakistan didn’t pay the amount to Iran for its delay. Resultantly, Iran warned Pakistan if it doesn’t pay the penalty, Iran would have to file suit against Pakistan in the International Court of Justice (ICJ). The penalty, which Iran was claiming, was around $1.2 billion – nearly the cost of completion of the project.
Now, Pakistan has been trapped in a very uncertain situation; because if any talk would have to be foreseen, Iran would force Pakistan to pay penalty first. However, nothing like this happens, and the trust of Iran has been harmed. Therefore, a very prudent negotiation table would have to be set; otherwise, it is a catch-22 situation for Pakistan.
Any other option is available for Pakistan to out from the gas crisis?
TAPI is another option, which is left to Pakistan, to solve the gas crisis. Because due to economic instability and heavy reliance on imports, the LNG is not a sustainable solution. Moreover, Turkmenistan, like Iran, has abundant gas reserves, and it can provide enough gas at a very affordable price in the future. Therefore, the policy-makers are determined to complete the project as soon as possible. However, there is some hindrance to the TAPI project, but overall it is the next possible solution.