Pakistan and Iran have finally signed a formal pipeline deal. The two countries signed a sovereign guarantee on 13th June that commits Iran to supplying natural gas to Pakistan from 2014 onwards. The long-awaited agreement comes in an amended package: India is not part of this agreement, as was originally planned when the pipeline project was formulated in the 1990s. It has been a long road to agreement for the so-called ‘peace pipeline’, but, even as the ink dries on the export deal, cracks are showing, as this week Pakistan defended itself against claims that new UN sanctions against Iran would affect the pipeline deal.
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Pakistan is, of course, incredibly hungry for energy. Daily shortages of up to 5000 mW and frequent power outages damage domestic industry and have caused public protests. Pakistan’s growing energy crisis means that it must secure additional sources of energy; the country plans to use the Iranian gas to boost its power sector.
Iran’s immense South Pars field will provide, from 2014, some 750 million ft3/d of natural gas to Pakistan in the US$ 7.6 billion deal. This amounts to nearly 20% of Pakistan’s current gas production. Iran has the second largest gas reserves in the world and currently produces 600 million m3 of natural gas, of which 440 million m3 is consumed domestically. Iran plans to raise output to 900 million m3 over the next three years and will require much investment in industry to do so.
Iranian officials have stated the government’s intention to position oil and gas development as its priority: Deputy Oil Minister Hossein Noqre-Kar Shirazi told reporters that each phase of South Pars field development needs a US$ 2.5 - 3 billion investment.
Iran has already laid 900 km of the 1000 km of pipeline planned for its territory, as part of the deal. Pakistan will now begin construction of the 700 km of pipeline running from its border with Iran to its gas transmission network, at a cost of US$ 1.65 billion.
However, the glaring omission of India from the deal is classic pipeline politics, and a history worth examining. Iran and Pakistan decided in 2009 to go ahead with the pipeline proposal without the participation of India, after tripartite negotiations proved unfruitful. India’s hesitance over certain of its concerns hampered progress: it disputed the price of gas; the safety of the pipeline in Pakistan’s territory; and the high transit fee demanded by Pakistan. These stumbling blocks delayed the pipeline for years and India was accused of bowing to US pressure not to invest in Iranian ventures. The US has placed sanctions on trade with Iran in opposition to Iran’s nuclear programme.
Pakistani Foreign Ministry spokesman Abdul Basit recently made a statement that “as far as our gas pipeline project is concerned, that is purely a commercial agreement”. He made clear that “the recent anti-Iran sanctions at the Security Council will have no effect on the pipeline contract”, pointing out that the sanctions are focused on Iran’s nuclear programme, while the pipeline agreement is an economic issue.
Following the signing of the deal, Richard Holbrooke, US President Obama’s special envoy to Afghanistan and Pakistan at first stated that the US had no objection to Pakistan obtaining natural gas from Iran, considering its energy crisis.
However, a day later, Holbrooke qualified this by reminding Pakistan that Iran was still under sanctions and saying that the US had “cautioned the Pakistanis not to over-commit themselves”.
It seems that the final resolution of the peace pipeline is still unsatisfactory in the eyes of a few.