Iran-Pakistan pipeline not a done deal
By Robert M Cutler
MONTREAL - Some small fanfare was given to the signature on May 24 between the
presidents of Iran and Pakistan of an agreement for the construction of a gas
pipeline running from the former's South Pars gas field through the latter's
unstable Balochistan province to population centers in the east of the country,
notably Lahore. This is the rump result of Iran's inability to come to terms
with India for the Iran-Pakistan-India (IPI) pipeline, as it was originally
proposed.
The most widely known reason for that failure is Iran's poor negotiating
strategy over the pricing scheme (for background, see
Delhi's options beyond Iran, Asia Times Online, March 28, 2006 ).
However, another contributing reason was the Indian government's concern over
the pipeline's security in transiting Balochistan in western Pakistan.
There has long been popular discontent there over the central
government's failure to take the local population into its confidence in the
development process of previous projects, provide significant social or
development assistance to them, or even provide them gas resources from the
deposits drilled in their territory. Roughly 450 of the Iran-Pakistan
pipeline's 1,300 miles would pass through Balochistan.
A third reason why the original IPI pipeline project failed was the November
26, 2008, terrorist attack in Mumbai. With reports of the indirect involvement
of Pakistan security services personnel, Indian opinion, always hesitant,
rapidly shifted against the prospect of a pipeline giving Pakistan the capacity
to shut off India's energy supplies by turning a tap. In the Indian view,
nothing would stop the Pakistani government from producing or fabricating an
incident in Balochistan where a pipeline attack could diminish or cut off gas
to India.
China looks forward to replacing India as a third partner to receive gas
transiting Pakistan. This could be delivered either as liquefied natural gas
(LNG) exported from the Chinese-financed Pakistan port of Gwadar or overland
through a pipeline parallel to the Karakoram Highway, also financed by China,
which runs through the north of the country into the Xinjiang region in western
China.
Russian companies would also like to assist the project's completion, as this
would diminish if not eliminate Iranian competition for European markets, the
prospect of which is a card that the European Union (EU) has been trying to
play against Gazprom. Although gas for the Nabucco pipeline would be slated at
least in the first instance to come from Turkmenistan, Iran has never been
ruled out and has been in the EU's strategic view for years.
However, it is not clear that prospects for the Iran-Pakistan pipeline are much
better than those for the IPI, despite its reduced scale and despite the signed
document. When India was in negotiations with Iran over the price of eventual
imports, it also had in mind the Turkish experience with Iran. (There is a gas
pipeline between the latter two countries that has never really operated at
full capacity) In that instance, Iran has unilaterally and repeatedly altered
its interpretation of established agreements concerning prices and quantities
as well as the quality of the product.
This experience and others have created a widespread perception in the industry
that the Iranian government regards such signed agreements as starting-points
for subsequent negotiations. Moreover, Iran's constitution explicitly forbids
its government to recognize international judicial or arbitration mechanisms;
as a result, the only recourse is Iran's judicial system (for background, see
Another trans-Caspian pipedream, Asia Times Online, October 24, 2007).
The bilateral Iran-Pakistan project is projected to cost US$7.5 billion, but
there is no indication where the funds for this will come from. The Asian
Development Bank does not support the project. Also Russia's Gazprom does not
have the deep pockets it once might have had.
Further, it is not clear that China's banks or its parastatal companies, which
still have to pay their own way on a commercial basis, would be interested to
sponsor the pipeline financially, in view of the fact that the prospect of
China receiving any gas is so distant and contingent. In this respect, the
Turkmenistan-Uzbekistan-Kazakhstan-China gas pipeline is a much better bet (for
background, see Gas
pipeline gigantism, Asia Times Online, July 17, 2008).
Finally, the effects of Iran's current unrest on the country's future economic
development must be considered. These effects are likely to be much more
serious than now suspected: only partial, sometimes anecdotal information is
currently available for Tehran alone. However, one must anticipate that fuller
information concerning destruction of physical economic assets throughout the
country, resulting from the indiscriminate use of physical coercion against the
public, will be shocking.
The purging of both teaching staff and students from universities plus
increasingly widespread vandalizing of houses and other forms of personal
property, not to mention public spaces and infrastructure, will take longer
than expected to recover from, assuming that functionally autonomous
paramilitary units can eventually be restrained and a semblance of civil order
restored.
A national economy cannot survive the destruction and demoralization of the
human resources upon which it depends; and that is what is now threatened in
Iran. Fallout from such a catastrophe will not exempt the energy sector, and
the Iran-Pakistan pipeline would accordingly suffer.
Dr Robert M Cutler (http://www.robertcutler.org), educated at the
Massachusetts Institute of Technology and the University of Michigan, has
researched and taught at universities in the United States, Canada, France,
Switzerland, and Russia. Now senior research fellow in the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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