Iran has issued a firm warning to Pakistan, demanding the completion of its section of the cross-border gas pipeline. Failure to comply, Iran asserts, will result in international arbitration proceedings and potentially billions of dollars in penalties. This latest escalation in the long-standing dispute over the 1,900-kilometer (1,180-mile) pipeline highlights its crucial role in Pakistan’s energy future, particularly as its own gas reserves are projected to dwindle within a decade.
Iran emphasizes its $2 billion investment in building its 1,150-km segment of the pipeline, inaugurated in 2013. However, Pakistan’s portion remains unfinished due to US sanctions imposed on Tehran related to its nuclear program. Last year, Islamabad invoked a force majeure clause to suspend its contractual obligations, citing uncontrollable circumstances, but Tehran swiftly rejected this claim. In February, Pakistan initiated construction on the initial 80-kilometer phase of the pipeline within its territory. Despite this, no further progress has been made, prompting Iran’s ultimatum.
The US has actively discouraged Pakistan’s participation in the project. In March, Donald Lu, the US Assistant Secretary of State for South and Central Asian Affairs, cautioned Pakistan against importing gas from Iran, a nation possessing some of the world’s largest reserves. This pressure has put Pakistan in a difficult position, facing a delicate balance between avoiding US sanctions and the potential for substantial financial penalties.
Pakistan’s deadline for completing the project, a 10-year extension granted in 2014, is set to expire this month. Failing to meet this deadline could lead to a court case. Experts, citing contractual penalties, believe Pakistan could face fines as high as $18 billion. This hefty sum, coupled with Pakistan’s recent agreement to a $7 billion International Monetary Fund (IMF) bailout, adds significant pressure to the situation.
Pakistan is actively exploring options, acknowledging the seriousness of the situation. However, officials have dismissed the $18 billion figure as speculation. The US sanctions are a key component of Washington’s broader strategy to isolate Iran, and the pipeline project has become a casualty of this strategy.
The sanctions have created a black market for Iranian natural gas, with estimates suggesting that up to $1 billion worth is smuggled into Pakistan annually. Obstacles remain for Pakistan’s ability to secure a sanctions waiver from the US, as the country’s economic fragility and reliance on the IMF limit its leverage.
This situation highlights the intricate geopolitical considerations surrounding the project. Pakistan faces the challenging task of navigating between its energy needs, international commitments, and the delicate balance of its relationship with both Iran and the United States.
