China hangs fire on Iran-Pakistan pipeline
By Stephen Blank
For over a decade, Iran, Pakistan and India (IPI) have taken pains at
negotiating a major pipeline deal whereby Iran would send natural gas from its
territory to the region. Yet geopolitical and commercial issues have repeatedly
prevented the deal's fruition despite Tehran's growing need to diversify gas
sales to Asian markets and Asian countries desire to find a stable, reliable
source of gas supplies.
In recent years, India's participation in this project has become more
uncertain, which is partly responsible for the long delay that the project has
suffered. Iran's repeated attempts to raise the price of gas, US pressure on
India to refrain from participating in the pipeline, external skepticism about
Iranian capability to fill the pipeline as it promises, Indian concerns about
the overall stability of Pakistan, and in particular, the possibility of
terrorism in
Pakistan's Balochistan province through which the pipeline would travel, all
contributed to India's angst.
Iran recently warned India that there is a limit to its patience in waiting for
New Delhi to decide. Iran was apparently able to present this ultimatum because
it believes that it now has the "China card" in its deck. In early February,
Iranian Foreign Minister Manucher Mottaki reportedly said Iran was ready to
start the pipeline at any time - even without India - and urged Pakistan not to
heed US pressure against the pipeline as China could soon replace India in the
deal.
Iranian President Mahmud Ahmadinejad and his Pakistani counterpart, Asif Ali
Zardari, signed a US$7.5 billion agreement in Tehran on May 23, 2009, to
transfer gas from Iran to Pakistan. According to the deal, Iran will initially
transfer 30 million cubic meters of gas per day to Pakistan, but will
eventually increase the transfer to 60 million cubic meters per day. The
pipeline will be supplied from the South Pars field. The initial capacity of
the pipeline will be 22 billion cubic meters (bcm) of natural gas per annum,
which is expected to be raised later to 55 bcm.
After many months of negotiations, on February 11, 2010, Islamabad and Tehran
were able to finalize the agreement on the issues, including the issuance by
Pakistan of a "comfort letter" that provided Iran with the assurance that India
- or China - could be brought into the project later. The two parties have
vowed to sign the formal agreement by March 8 in Ankara, Turkey. The News
reported:
Under the comfort letter, the government of Pakistan would
allow the third country to import gas through [the] IP [Iran-Pakistan] line in
case any country in future comes to join the project, but the permission will
be subject to the gas tariff and transit fee to be worked out as per best
practices of that time.
Chinese interests in the IPI Pipeline
Perhaps the most interesting aspect of Iran's most recent announcement is that
China has yet to comment publicly on the pipeline except that it is studying
the Pakistani proposal. That was early in 2008. Chinese Foreign Minister Yang
Jiechi said at that time: "We are seriously studying Pakistan's proposal to
participate in the IPI gas pipeline project".
Pakistan clearly wants China to join the pipeline for many reasons. Islamabad
desperately needs the gas that might not come if there is no third party to
make the deal profitable to Iran. Second, it would gain much revenue from the
transit fees for the gas going to China and benefit considerably from the
ensuing construction of infrastructure within Pakistan. Third, it would further
solidify its "all-weather" relations with China. Those goals have always been
part of Pakistan's foreign policy and explain not only its interest in the
original pipeline plan but also its previous invitations to China to join the
project. The prospect of an invitation to China was also used in the past to
galvanize India's decision-making process regarding the pipeline.
Throughout the spring of 2008, former Pakistani president General Pervez
Musharraf and his government frequently courted Chinese leaders to join the
pipeline project, a pitch that Musharraf also tied to an earlier proposal of
establishing a corridor linking Pakistan to China through rail, road and fiber
optics. At that time, China promised to consider the proposal and then asked
for more information, but did nothing else, leaving the issue in abeyance.
Subsequently, Pakistani media reports claimed that China was keen on joining
the pipeline and would send a delegation to negotiate the deal, but clearly,
nothing came of it.
In 2009, Iran's ambassador to India, Seyid Mehdi Nabizadeh, told Indian
journalists that China was interested in the pipeline, but he too refused to
confirm if talks with China were taking place. Based on this precedent, it may
be possible that these Pakistani and Iranian gambits were spurious to begin
with and its purpose was to pressure India or entice China into joining the
pipeline project.
There is considerable interest among external observers in the pipeline and
Chinese officials have sporadically expressed an interest in it. For example,
China's ambassador to India in 2006, Sun Yuxi, said China has no objections to
the IPI, while India's minister for state planning, MV Rajashekaran, also said
that once the pipeline is completed it could be extended to China [1]. Gazprom
(the Russian gas monopoly) and the Russian government have long since indicated
a desire to participate in sending oil and/or gas to the subcontinent through
the IPI. Indeed, Gazprom's man in Tehran, Abubakir Shomuzov, has even advocated
extending the IPI pipeline to China to tie Russia, China, India, Pakistan and
Iran together in a very big project having major strategic implications as well
as a huge number of consumers.
Presumably, such statements - if not plans - are intended to mollify Chinese
concerns about the possibility of Russian energy being diverted from it to
India. Nevertheless, if one correlates China's recent maneuvers in Central Asia
concerning pipelines with its deals with Iran, it is clear that China is
contemplating a pipeline network running from Iran either through Central Asia,
or prospectively through Pakistan and/or India to China.
In this context, the IPI pipeline poses several risks and opportunities for
Beijing. If India exited the pipeline, that would lessen Iran's leverage to
drive a hard bargain on gas prices. At the same time, as part of the overall
strategy to build pipelines from Iran to China, or at least to Gwadar in
Balochistan, from where gas or oil could be shipped directly to China, Chinese
participation would create a new overland energy link that could complement
China's energy diversification strategy.
Nevertheless, the project also faces several political and logistical
difficulties that could scuttle Chinese participation. The pipeline is planned
to traverse very difficult terrain in Pakistan's Gilgit region. That would
increase the costs and time required to eventually connect the pipeline to
Xinjiang. Moreover, the risks inherent in Pakistan and Iran also pose problems.
The massive investment required to link China to the pipeline would be
susceptible to many risks since it falls along a major fault line of political
instability; there could be large-scale terrorism in the territory of the
pipeline or more generally from a mass civil upheaval in Pakistan. In view of
these positive and negative aspects to the deal, some observers suggest that
Beijing might just be feigning interest in the IPI pipeline to get a better
deal in negotiations with Russia on relatively safer Siberia-China gas
pipelines [2].
Certainly the prospect of China obtaining a secure and stable supply of gas
from Iran would reduce its need to get that gas from Russia and give it even
more leverage over Russia in the current negotiations on gas pipelines from
Siberia to China than it already possesses [3].
There is another aspect to this deal. China has recently stuck its neck out for
Tehran in its call for continuing negotiations with Iran over its nuclear
enrichment programs irrespective of the fact that Tehran is clearly defying the
International Atomic Energy Agency and the offers of the six negotiating
partners (United States, Great Britain, France, Germany, sand Russia). On
February 24, 2010, Foreign Ministry spokesman Qin Gang stated that, "China
holds that the parties should continue to step up diplomatic efforts in a bid
to maintain and promote the process of dialogue and negotiations. China hopes
the parties demonstrate more flexibility and create conditions conducive to a
comprehensive and proper solution to the Iran nuclear issue through diplomatic
means."
Chinese sources also report that Iran is able to resist the United States
because the political situation in Iran is stabilizing. This suggests a more
optimistic view of the domestic situation in Iran than might be the case
elsewhere. Likewise, it appears that China suspects US motives in the region.
High-level visits by US Secretary of Energy Steven Chu to Saudi Arabia and by
another high-level Israeli delegation to China aim to wean China away from Iran
in return for the United States brokering increased oil exports from Saudi
Arabia to China. The Chinese media apparently considers this a trap to get
China to renounce its principles for transitory economic gain.
Conclusion
At the same time, if China did become a full partner in the IPI pipeline that
would offer it another opportunity to build on Beijing's so-called strategy of
building what has been called a "string of pearls" across the Indian Ocean.
Chinese officials have publicly stated their desire to turn the Chinese-built
Pakistani port of Gwadar into an energy hub. China also has substantial
interests in overland transport links in Pakistan through the Karakorum
Highway, and participation in the IP pipeline would extend those interests.
Indeed, many observers in New Delhi and Washington view Sino-Pakistani
collaborations to build naval facilities and oil refineries at Gwadar as a
prelude to the establishment of a Chinese naval base there. Whether this is
true or not, if China joins the IPI project, then the odds of China supporting
American efforts to isolate Iran would effectively be reduced to zero because
it would depend too much on Iranian gas, in addition to its recent oil
contracts to antagonize Iran by siding with Washington [4].
While we wait to see how China decides to play this issue, the United States
needs to understand that Beijing's decision to join or stand aloof from this
pipeline will have major geopolitical repercussions and comparable geo-economic
repercussions across Asia, another sign not only of the integration of south
and southwest Asia with East Asia, but also of China's rising importance as the
nexus of the Asian continent.
Notes
1. "The Energy Game," Heartland: Eurasian Review of Geopolitics, November,
2005, www.heartland.it
2. Zachary Fillingham, "India, China & the IPI Pipeline,"
www.geopoliicalmonitor.com, November 5, 2009.
3. Stephen Blank, "Russia's New Gas Deal With China: Background and
Implications," Northeast Asia Energy Forum, VI, No. 4, Winter, 2009, pp. 16-29.
4. Fillingham, op. cit.
(The views expressed here do not represent those of the US Army, Defense
Department, or the US Government.)
Dr Stephen Blank is a professor at the Strategic Studies Institute of the
US Army War College at Carlisle Barracks, PA. The views expressed here do not
represent those of the US Army, Defense Department, or the US Government.
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