The Iranian-Pakistani agreement to export gas, via a pipeline that extends from Iran's South Pars field to Pakistan, can be seen as a major political and economic achievement for both countries. To be sure, after nearly 20 years of negotiations, Iran and Pakistan managed to overcome the obstacles that had delayed the signing of the agreement in the past. For Iran, the importance of this achievement lies in the fact that it has managed to enter new markets for its gas exports, after many European and Asian markets boycotted Iranian exports because of Western-imposed sanctions. Furthermore, the agreement has taken place in a period of time that is supposed to see the implementation of tough Western-led sanctions on Iran, which means that the U.S. has failed to enforce these sanctions. The agreement is also another example of Iran's success in expanding its influence regionally by taking advantage of common economic interests with neighboring countries. The agreement also constitutes a failure for the United States in executing a rival project which it backed for a long time, namely, the construction of a pipeline to export gas from Turkmenistan to West Asia (Afghanistan, Pakistan and India) instead of the Iranian pipeline. But, like any huge project of this kind, one must expect some drawbacks, such as Iran's initial attempt to export gas to India through Pakistan. The unsuccessful attempt to include India in the project has meant that Iran failed to enter one of the most promising Asian markets. The initial idea was to supply gas to India, and the early stages of negotiations focused on how to deliver gas to the latter via Pakistan, without Pakistan shutting down the pipeline when disputes erupt between the two countries – an otherwise frequent occurrence. Meanwhile, spending 20 years negotiating over a single agreement must be a record time spent negotiating the construction of a pipeline between two neighboring countries. Observers are concerned about the ability to protect the pipeline, especially the section that passes in the restive area of Baluchistan, where separatist movements and smuggling gangs are active, and also the possibility of sabotage from time to time. Most of the sections of the pipeline on the Iranian side have been completed (about 900 km). The agreement signed on the 11th of March was over the construction of the Pakistani section (780 km). The aim of the pipeline is to directly link the South Pars field, which is the Iranian part of the Qatari mega North field, to a neighboring Asian country that has a huge market. Subsequently, it is hoped that this pipeline would be used to deliver Iranian gas to promising Western Asian markets in the future. The project plan indicates that the capacity of the pipeline will be 21.5 million cubic meters, and will be able to generate about 3000-4000 megawatts of electricity. It is worth mentioning that Pakistan loses $12 billion annually as a result of power outages in its factories. The project is expected to be completed within two years, and is estimated to cost $7.5 billion ($5 billion for the Pakistani section). According to reports, China is willing to grant Pakistan a loan of $500 million to cover costs of the project on its territory. Negotiations over the construction of the pipeline, dubbed the “Peace Pipeline," had begun two decades go (1994). Negotiations were halted several times because of U.S. pressure and Western economic sanctions imposed on Iran, as well as disputes over the project's economics. In 2009, India pulled out from the project, citing security and financial concerns. But in reality, New Delhi had caved in to U.S. pressure and opted to accept the alternatives offered by Washington, including signing an agreement for civil nuclear cooperation. Some experts attribute Pakistan's approval to go ahead with the project to the deterioration in the relations with America. But in fact, Washington did not give enough options to the Pakistani government, especially after the U.S. offered assistance in alternative energy (nuclear energy) to its neighbor and biggest foe India, and also with the approach of the elections. Pakistan therefore had to choose between increasing power outages due to fuel shortage and growing discontent at home, or coping with U.S. ire. The U.S. warned that the project may lead to sanctions on Pakistan, related to the sanctions on the Iranian nuclear program. The official spokesperson for the U.S. State Department said if the deal is finalized for a proposed Iran-Pakistan pipeline, it would raise serious concerns under U.S's Iran Sanctions Act. "We have made that absolutely clear to our Pakistani counterparts," she added. However, Pakistani Foreign Minister Hina Rabbani Khar ruled out U.S. sanctions on the country, and said that the U.S. knows well the nature of relations between Pakistan and neighboring Iran and the importance of these relations, and proclaimed that the Iran-Pakistan pipeline would be a “harbinger of good news for peace and cooperation." Pakistan feels it is in dire need of natural gas to feed its electric plants. Indeed, power went out across the country last month. And in the week Pakistan signed the agreement with Iran, Pakistan also agreed to import about 1.5 million tons per year of liquefied Qatari gas. The agreement with Qatar was supposed to be signed earlier, but there was a dispute over the price. According to a Pakistan official, a lower price was agreed upon in the end, but did not specify it. Pakistan produces around 4.2 billion cubic feet of gas per day, which is much lower than the country's consumption rate of 6.6 billion per day. Sources indicate that by 2020, the country will need to import 66 billion cubic meters of natural gas per year, to secure the fuel the country's power plants will need by then. This means that additional quantities of gas will have to be imported, on top of what Pakistan will import pursuant to current agreements; or new fields will have to be discovered in the country. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
