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Home Archive June 2009 Issue Issue Content Iran-Pakistan Pipeline: Iran's New Economic Lifeline

Iran-Pakistan Pipeline: Iran's New Economic Lifeline

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While the world's eyes are focused on Iran and Pakistan, little attention has been paid to the two countries' recent decision to move ahead with their plans to connect their economies via a 1,300-mile natural gas pipeline  to export some 150 million cubic meters of Iran's South Pars field gas to Pakistan per day. The 25-year deal which was signed in the sidelines of a regional summit that brought together Iranian President Mahmud Ahmadinejad and Pakistani President Asif Ali Zardari in Tehran on May 24 may seem like a standard energy project. It isn't. This deal could have profound implications for the geopolitics of energy in the 21-century, for the future of south Asia as well as for America’s ability to check Iran's hegemony in the Persian Gulf.

For both Iran and Pakistan the pipeline project would be highly beneficial. Iran sees in the pipeline not only an economic lifeline at a time when the US and its European allies are trying to weaken it economically but also an opportunity, should the pipeline be extended to either India or China, to create an unbreakable long term political and economic dependence of billions of Chinese and Indian customers on its gas. Pakistan, for its part, views the pipeline as the solution to its energy security challenge. Pakistan's domestic gas production is falling and its import dependence is growing by leaps and bounds. By connecting itself with the world's second largest gas reserve, Pakistan would guarantee reliable supply for decades to come. If the pipeline were to be extended to India it could also be an instrument for stability in the often tense Pakistan-India relations. Under any scenario of pipeline expansion which makes Pakistan a transit state Islamabad stands to gain from transit fees hundreds of millions of dollars every year.

IPI Pipeline

Implications for the great powers 

For the Obama administration the signing of the pipeline deal is a diplomatic setback which could undermine its policy of weakening Iran economically. Unlike the Bush Administration which was free to vocally oppose the project, including some unequivocal statements in opposition to the project by Secretary of State Condoleezza Rice, the Obama team chose to remain mute on the issue be it in order to facilitate rapprochement with Tehran or due to its reluctance to burden US-Pakistan relations at a volatile time when the Taliban is at Islamabad’s gate. Should the worst happen and a Taliban style regime take over Pakistan, the economies of the world’s most radical Shiite state and that of what could be the world’s most radical Sunni state would be connected to each other for decades to come like conjoined twins.

While for America the pipeline is an anathema, for Russia it is an opportunity. For several months now, Moscow has been concerned that Iranian gas might compete with Russian exports on the European market. A constituency within the European Union that seeks to lessen its dependence on Russia has been advocating the construction of the Nabucco pipeline to pump Caspian Sea gas to Europe which would bypass Russia. It is therefore in Russia's interest to derail the Nabucco project by diverting Iran’s gas away from Europe and locking it to the Asian market which for Russia is secondary (80% of Gazprom's export profits come from the Western European market). To this end Gazprom is keen to participate in the Iran-Pakistan pipeline project. "We are ready to join the project as soon as we receive an offer," Russia's deputy energy minister Anatoly Yankovsky said. This makes the Iran-Pakistan pipeline an irresolvable bone of contention between Washington and Moscow. While for the US the pipeline is a net geopolitical loss, for Russia it is another way to perpetuate its stranglehold over Europe. China also stands to potentially gain from the pipeline. Iranian gas will flow to the Balochistan province port of Gwadar, built with Chinese financing, in the Arabian Sea from where the gas could either be shipped to China either as LNG or run through a proposed pipeline going north, also financed by China, along the south-north Karakoram Highway, the highest paved international road in the world, connecting China's Xinjiang region with Pakistan’s northern areas across the Karakoram mountain range.

But for all the regional powers the Iran-Pakistan pipeline could have the most impact on India. It would take an extension of only 376 miles to bring Iranian gas to India. This would be a game changing strategic setback as it would create an unacceptable energy dependence of India on Iran. To date, India has been hesitant to join the project and entrust its energy future in the hands of its unstable neighbors. The deterioration in the India-Pakistan relations following the terror attacks in Mumbai has effectively taken the project off the table. Disagreements over the pricing system and the transit fees also caused India to lose interest. But all this could easily change in the future as India’s energy crunch deepens - some 400 million Indians already suffer from energy poverty – and this is exactly what both Iran and Pakistan want to achieve.

All’s not lost
While the start date for construction of the much-delayed pipeline is planned for September 2009 to be completed in June 2014, much can still happen to prevent the project from materializing. First, despite  Russian interest it is still not clear that the two sides will be able to raise the full $7.5 billion required to complete the project. Second, Balochistan, where the pipeline is supposed to run, is one of Pakistan’s poorest and most restive provinces. In recent years, it has been a battleground of militias belonging to Baloch tribes who hate the government of Tehran as much as they hate the one in Islamabad. Taliban or al-Qaida members who have reportedly moved from the tribal border region to Balochistan and who are known for their dislike of both governments may find common ground with the Baloch. One can be rest assured that the Baloch Liberation Army that for years has conducted sporadic attacks against water pipelines, power transmission lines and gas installations and al-Qaida members who perfected the art of pipeline sabotage in Iraq would not spare the Iran-Pakistan pipeline, causing delays in construction and perhaps even termination of the project altogether.

Another complicating factor is the volatility of the Iran-Pakistan relations. Only days after the signing of the agreement a Pakistan-based militant organization, Jundullah (Soldiers of God) claimed responsibility for the May 28 deadly suicide attack inside the Ameer al-Momenin mosque in Zahedan, Iran, that killed 25 people and wounded 125 others. Jundullah’s cross border terrorist activities have created tension between Tehran and Islamabad which could undermine the two countries’ joint economic projects. Following the attack Iran closed the border crossing with Pakistan and has reportedly warned the Pakistani ambassador to Tehran on that Islamabad’s failure to act against the Jundullah network in Balochistan could jeopardize the future of the pipeline project.

TAPI to the rescue?
US open support for opposition groups who might be willing to undermine the project is unthinkable as any collaboration – overt or covert – would severely cripple our relations with Islamabad. What the US can do is minimize the pipeline’s damage to its strategic objectives by ensuring that it ends in Pakistan and does not extend further into India, as both Iran and Pakistan wish. And this is precisely what the Obama administration should preempt today. The first thing for the administration to remember in this respect is that there is more than one way to supply gas to India and there are even more ways to alleviate India's energy poverty beyond natural gas. A rival gas-pipeline project -- the Turkmenistan-Afghanistan-Pakistan-India (TAPI) – which would carry gas from Daulatabad in Turkmenistan via Herat and Kandahar in Afghanistan to Multan in central Pakistan is one such alternative. The project, which is already supported by the Asian Development Bank, can supply as much gas, at a lower construction cost and can be extended to Fazilka on the Pakistan-India border and hence provide gas to India for only $500 million. At a later stage TAPI could be expanded even further to connect other fields in Central Asia to Gwadar, turning the new port into one of the world's most important energy hubs. Because TAPI is not as vulnerable to the financial or political opposition that the Iran-Pakistan pipeline could experience due to Iran’s status of pariah state, it is more likely to enjoy financial backing from international financial institutions.

But in order for TAPI to become a realistic and appealing alternative to Iran-Pakistan pipeline Afghanistan must be stabilized. There are many reasons why the Obama administration is focused on defeating the Taliban in what is now known as the AFPAK (Afghanistan-Pakistan) theater, now one of them would be to prevent Pakistan from developing economic dependence on Iran. Another way to ensure India’s gas supply is liquefied natural gas (LNG). Construction of LNG terminals along the coasts of the Indian subcontinent would allow India a diversity of supply rather than dependence on a single source. Other projects to increase energy cooperation with India are also an imperative for US foreign policy. It is in the interest of the US to help India increase its share of nuclear power and renewable electricity but to achieve the aforementioned strategic objective it is also in the interest of the US that India’s electricity sector remains tied to coal rather than to gas. Pressuring India to curtail its use of coal for power generation may help reduce carbon emissions but it could force India to shift to cleaner burning natural gas and hence drive it right into the welcoming arms of Iran. This is one of those situations in which environmental and security considerations do not coincide. Whatever the solution to India’s energy predicament one thing is clear: without active US participation in the effort to alleviate India’s energy poverty Iran could soon become to India what Russia is to Europe. As for Pakistan, recipient of $1billion-plus yearly of US aid, it is still not too late to mull its energy security strategy and examine alternatives to Iranian gas. In this, Pakistan should consider not only the risk of compromising its relations with the US but also that of facilitating the nuclearization of Iran and subsequently the entire Middle East.

Gal Luft is the Executive Director of the Institute for the Analysis of Global Security and publisher of the Journal of Energy Security



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