Pakistan & Iran New Goalposts

Pakistan & Iran New Goalposts

Iran is a strong and considerate neighbour of Pakistan. Although, at times, the bilateral relationship becomes tense, the relationship is accommodating and genuine.

Pakistan has always endeavoured to maintain a special bond with Iran. This is evident from the Economic Cooperation Organization (ECO) — erstwhile Regional Cooperation for Development. Moreover, installing the Iran-Pakistan Gas Pipeline, in spite of the UN sanctions on Iran, is a manifestation of the imperative desire to further strengthen the brotherly ties. The Arab Spring, Iran’s growing influence in the Islamic World, and the historic agreement with the P5+1 has further amplified the importance of Iran as the deal is pragmatic, crucial, and a major step towards peace in the region.

Pakistan’s position, too, is bolstered after this agreement. The threat of sanctions on any country doing business with Iran and the future of the nation’s energy deficiencies loomed heavily on the decision-making of the government. Ahmedinejad regime had taken its toll not only on Iran’s citizens, but also on Iran’s trading partners and its neighbours especially Pakistan. President Obama’s phone call to President Rouhani during the United Nations General Assembly session became the catalyst for a sincere process of negotiation towards a long-term nuclear agreement.

For Pakistan, this is another worthwhile opportunity that should not be missed.

Pakistan must not take this opportunity with complacence. It is to be understood that fraternal obligations of being next-door neighbours and common religious adherence don’t necessarily translate into easy rials and rupees. The focal point would always be national interests and state priorities. Despite the dire ramifications of the economic sanctions and in spite of being branded as a global pariah by Western powers, the political, security and diplomatic considerations would count heavily on the bilateral relationship and these could be the basis for developing a renewed approach towards the trade and investment decisions.
Nowadays, whenever the discussion centres on Pak-Iran relationship, the IP Gas Pipeline is highlighted. The project has become a matter of prestige, survival and determination for both countries. The ground-breaking ceremony of the Pipeline was performed on March 11, 2013 by the then presidents of both countries — Asif Ali Zardari and Mahmoud Ahmedinejad. The total cost of the project is estimated at $7.50 billion with the cost on the Pakistani side of about $1.25 billion. The project would supply 750mcft gas daily through its 1700-km length from January 2015. It is estimated that at least 4000MW of electricity could be generated through this gas. Iran has completed the 900-km pipeline up to the border while Pakistan is still unsure when the project would see fruition.

Pakistan agreed to the pipeline project knowing well that due to international sanctions on Iran, there was scant possibility of the project becoming a reality in near future. All factors were against this pipeline and the non-availability of external financing has put a damper on it as well. Although government ministers routinely assert that the project is all set to take off, the ground reality is starkly different. No doubt this project is a doable alternative but the fact remains that there is no international support. Iran is also hesitating to provide full funding for laying the pipeline inside Pakistan.

However, there is a positive response to the US-backed Turkmenistan, Afghanistan, Pakistan, India (TAPI) gas pipeline. News suggest a possible revisit of the agreed rates and pipeline funding in Pakistani territory under the Gas Sales Purchase Agreement (GSPA). However, the price which is set at 87% of crude oil — which translates into $12 mmbtu — is three times higher than the local gas price of $4.5 mmbtu.

The US, Israel, and other countries launched a concerted campaign to deter Iran from going nuclear. The embargo enforced by the UN proved effective and it hurt the Iranians in many ways. Though Pakistan seems strongly committed to fulfilling its obligations regarding the IP gas pipeline and the expected supply of electricity, the various restrictions, including those imposed by the State Bank of Pakistan, have made decision making quite difficult.

Pakistan must keep an eye on India’s growing influence in Iran and Afghanistan. New Delhi did not waste any time in jumpstarting its plans as soon as the nuclear deal was signed. India has financed the $100 million highway from Iran’s Chabahar Port to Herat in Afghanistan and has pledged another $100 million for upgrading the Chabahar Port. Moreover, India is exempted by the US from procuring oil from Iran. It is, therefore, imperative that the Pakistani policymakers, businessmen, and the politicians come up with a common and practical strategy to offset any Indian influence that is damaging or impeding Pakistan-Iran relationship.

The internal situation in Iran became complicated with the official devaluation of the Rial by 100%, with a soaring inflation rate, with citizens being deprived of basic amenities, with the looming threat of war, with the foreign exchange reserves being squeezed, with high unemployment due to lack of investment in productive units, and with the economy having all symptoms to implode. However, cheap petrol and energy, reliance on cash transfers for 97% of the population, and the focused government efforts are going to boost the confidence of the investors.

Pakistan and Iran have to sincerely look towards the future. Iran, while facing sanctions, has to rely on neighbours to maintain economic sanity. Pakistan offers the ideal set up for Iranians in many aspects. Iran must bring about a fundamental change in trade relations with Pakistan since it is in Iran’s advantage to accord preferential treatment to Pakistanis products and services. Apart from rice, wheat, fruits, etc., Iran can procure textiles, leather, minerals, services, and also other commodities from Pakistan. Moreover, Iran can invest in agriculture and livestock that would cater to the Iranian consumers’ needs.

Pakistan is facing a severe financial crisis and Iran should accept an agreement for the supply of petroleum products on a deferred or barter basis. This too would be in the mutual interest of both the countries. Pakistan and Iran must take full advantage of ECO, OIC, as well as D-8 forums.

Pakistan too should extensively lobby with UN as well as the US to exempt Pakistan from conditionalities of the trade embargo, and treat Pakistan as a nation that badly needs Iranian gas and electricity.

The geo-political situation is undergoing a remarkable paradigm shift. Iran has become a prominent player in this new configuration. The Arab Spring had inclusive ramifications not only on countries like Egypt, Libya, Tunisia, Syria or Bahrain, but in some ways, on the whole Muslim Ummah. The change of guard in Iran, where hardliner Mahmoud Ahmedinejad was replaced as President by Hassan Rouhani, has also introduced new dynamics in Iran’s national agenda. The landmark nuclear deal between Iran and the P5+1 infused a radical change from the belligerent Iranian attitude. Although the nuclear deal is a probationary one for about six months, it is hoped that strict adherence by Tehran would enable the United Nations to lift the unsympathetic economic sanctions and Iran would be able to maintain an enhanced trade regime.

 Pakistan and Iran have to sincerely look towards the future. Iran, while facing sanctions, has to rely on neighbours to maintain economic sanity. Pakistan offers the ideal set up for Iranians in many aspects.

Iran under President Rouhani has displayed pragmatism that will usher in an encouraging environment. The recent visits of the Iranian Foreign Minister to various Muslim capitals have also emboldened the desires of the Muslim Ummah to have peace and prosperity among Islamic countries. At the same time, the rising status of Iran has eclipsed the threatening braggadocio of Israel. The new status of Iran may also reduce the proxy war between Iran and Saudi Arabia that has led to sectarian extremism in Pakistan. Moreover, this bodes well for Pakistan too as Iran would be an alternative supplier of oil at a comparable price.

Pakistan and Iran have to become major players in the region. The goalposts have moved but the bond of brotherhood, cooperation, and economic survival still remains firm. The future is favourable for both the countries since the menacing albatross of economic sanctions may soon be removed. The caveat, as always, is that Pakistan must be ready to play on the front foot and take all measures to craft a much stronger and mutually beneficial bilateral relationship. There is no other alternative. Iran is the next leader of the Muslim Ummah and is, fortunately, right across the border for Pakistan.

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