The energy crisis in Pakistan has existed for a significant period. The government is unable to find a sustainable solution to fulfil the nation’s energy demands. In contrast, our neighbour to the West – Iran – has a natural gas surplus which it desires to sell. To the benefit of both parties, a natural gas pipeline was proposed to be constructed all the way from Asalouyeh, Iran, to Multan, Pakistan, spanning about 2,775 KM. The plan was agreed upon by both parties in 1995, and later Iran also invited India to join the plan to extend the gas pipeline from Pakistan to India, which was agreed upon in February 1999.
India was originally part of the plan in the late 1990s but withdrew in 2009 due to pricing and security concerns. However, from 1995 to date, no gas has been actually transported to Pakistan. Why was it so? Even though the project appeared to benefit both parties, including India, why has it not been implemented?
Although the idea was initially agreed upon in the 1990s, India withdrew from the project in 2009 due to pricing and security issues. Despite this, Iran and Pakistan decided to start the project in 2012, with plans to complete it by December 2014. It was agreed that Iran would develop its side of the pipeline, and Pakistan would develop theirs. Although progress was sluggish, Pakistan started working on its portion of the project in 2013. Iranians even expressed their concerns over Pakistan’s slow progress. In a letter from the Deputy Petroleum Minister of Iran to the government of Pakistan, he said that after a government-to-government agreement between the two countries, they were supposed to select entities for the construction of the latter part of the pipeline. Pakistan still hasn’t officially nominated Tadbir Energy and local subcontractors to start work on the Pakistani half of the pipeline. In February 2014, the Minister of Petroleum and Natural Resources of Pakistan announced to the National Assembly that the project was currently off the table for Pakistan. Iran, citing their own concerns, imposed a $1 million penalty on Pakistan for each day of project delay.
What were the reasons for Pakistan’s delays?
There were multiple reasons, the foremost being Iran’s sanctions by the United States and other Western powers. If Pakistan does collaborate with Iran on this project, it can result in possible US sanctions or even tariffs. Furthermore, Iran and Saudi Arabia have been rivals for influence in the middle east, such a deal can damage Pakistan’s relations with Saudi Arabia. Saudia offered Pakistan alternatives, which too were never put into effect. China too remains reluctant to help out with this project, despite being strategic partners for both these nations.
By 2019, Iran’s side of the project had been completed, yet Pakistan’s side “remained under construction”. Nevertheless, on 23 February 2024, Pakistan approved the construction of the Iran–Pakistan gas pipeline amid fear of a potential 18 billion US dollar penalty for failing to complete the project on time.
Currently, Pakistan’s energy basket is highly dependent on imports. The country spends nearly $17 to $20 billion on energy imports annually, a massive strain on its balance of payments. Furthermore, Pakistan’s own natural gas reserves are depleting at a rate of 6% per year. Natural gas makes up a large share of Pakistan’s energy mix (over one-third, according to various estimates), including electricity generation. As Pakistan’s own reserves deplete, the country is becoming increasingly dependent on imports, specifically from Qatar. Iran has the second-largest natural gas reserves in the world, and for Pakistan, its supplies can replace expensive LPG imports and help bridge the energy deficit.
However, there were also some alternatives to the gas pipeline project between Pakistan and Iran. One proposed alternative was the TAPI pipeline (Turkmenistan, Afghanistan, Pakistan, and India), but it faces many security risks from Afghanistan and financing hurdles. Domestic efforts in Pakistan are also underway, such as the Thar Coal Development, but they keep facing constant delays and financing hurdles. Projects based on the China-Pakistan Economic Corridor (CPEC) have contributed to short-term respite, but they are typically based on coal and oil, which have made Pakistan’s import situation worse.
Completing the project could have significant regional implications. For Iran, the pipeline could provide hard currency and geopolitical leverage, but its isolation will persist. For Pakistan, the non-compliance with the United States would outweigh immediate energy needs.
In conclusion, though the project promises an immediate solution to Pakistan’s energy issues, the possible opposition from the United States outweighs the immediate crisis. Furthermore, if Pakistan fails to implement the project, the additional cost of approximately $18 billion on the pipeline could be a fatal blow. In summary, the government of Pakistan agreed to the project headfirst, without considering its implications.
