US opposes Iran-Pakistan gas pipeline

By Sarath Kumara

9 July 2010

Despite opposition from the US, Pakistan signed an agreement with Iran on June 13 to go ahead with a $US7.6 billion gas pipeline between the two countries that will provide a desperately-needed supply of energy to Pakistan from 2014. The deal cuts across Washington’s efforts to isolate Iran economically through UN Security Council sanctions and its own unilateral penalties against Tehran’s nuclear programs.

The agreement signed between the Iranian Gas Export Company and the Pakistan Inter State Gas Limited will provide 21.5 million cubic metres of gas daily to Pakistan. The pipeline will run from Iran’s large South Pars gas field. Islamabad will carry out a feasibility study over the next year for its section of the pipeline before beginning construction.

US special envoy to Pakistan and Afghanistan, Richard Holbrooke, has warned that the pipeline agreement could fall foul of Congressional legislation aimed at penalising foreign companies doing business with Tehran, including those engaged in Iran’s energy sector. He told the media on June 20 that it would be “a disaster” if “an agreement was reached which then triggered something under the law.”

The US has been pressing Pakistan since January to drop the plan. India, which was also to have been involved, has already done so. Holbrooke told Petroleum Minister Syed Naveed Qamar the US would assist Pakistan in obtaining Liquefied Natural Gas (LNG) and electricity from Tajikistan via Afghanistan if it abandoned the Iranian pipeline project. To date, Islamabad has not backed down.

President Obama last week signed into law the Comprehensive Iran Sanctions, Accountability, and Divestment Act (see: “Harsh new US penalties against Iran”) that could potentially impact heavily on Pakistan and Pakistani companies. Under the legislation, the US can bar foreign companies from the American financial system and markets if they continue to do business with black-banned Iranian entities, sell refined petroleum products to Iran, or are involved in the energy sector.

The imposition of penalties is not automatic under the US legislation, but it is not clear whether President Obama will provide Pakistan with a waiver. Any attempt by Washington to punish Pakistani companies involved in the pipeline deal will only compound an already fraught relationship. The Obama administration has pressed Islamabad to wage a proxy war against Islamist fighters in Pakistan’s border areas as part of intensified efforts to shore up the US-led occupation of neighbouring Afghanistan. Much-needed US economic aid has been tied to these continuing Pakistani military operations.

The Pakistani government does not want a confrontation with the Obama administration. At the same time, it has to address the country’s severe energy shortages. Prime Minister Yousuf Raza Gilani told the media on June 22 that while the country was bound by UN sanctions on Iran, it was “not bound to follow” unilateral US measures. Last week Foreign Minister Shah Mehmood Qureshi confirmed that the “Pakistan-Iran gas pipeline project had been finalised despite problems and pressures.”

Pakistan needs an estimated electricity generation capacity of 4,000 to 5,000 MW greater than the present 16,500 MW. Industry has been badly hit by rolling electricity blackouts that have worsened during the hot summer months. Government-imposed power cuts of 8 to 12 hours a day have become the norm, with an increasing number of unannounced cuts. Public anger over the lack of electricity has boiled over into protests in many parts of the country, some of which have blocked main roads and led to violent clashes with police.

The country’s 2008-2009 Economic Survey released with the budget last month noted: “[T]he cumulative effect of the energy crisis on the economy is estimated at upward of 2 percent of GDP during 2009-2010 alone.” The impact is particularly significant as Pakistan’s economic growth slumped to 2 percent for 2008-09 as a result of the global downturn and according to World Bank estimates will only reach 3.7 percent for 2009-10.

Pakistan is under pressure from the global financial markets to slash its public debt and budget deficits. According to the country’s central bank, the total debt to GDP ratio hit 61 percent last month, crossing the 60 percent ceiling mandated by the Fiscal Responsibility and Debt Limitation Act. The external debt to GDP ratio is 30 percent—a growing portion of which is to the International Monetary Fund.

By proceeding with the Iranian pipeline, Islamabad can posture as taking a stand against US pressure. Having complied with every US demand to intensify military operations against Islamist insurgents, the government is widely regarded as a stooge for Washington. In addition to unleashing the Pakistani military, Islamabad has tacitly allowed the US to conduct unmanned drone missile strikes inside Pakistani territory that have killed scores of civilians.

The Pakistani government is coming into conflict with the US on another energy front. Beijing and Islamabad have announced plans for China to build two nuclear power reactors in the province of Punjab. The agreement is controversial as Pakistan has developed nuclear weapons and has refused to sign the Nuclear Non-Proliferation Treaty (NPT). The 46-nation Nuclear Suppliers Group, which includes China, is barred from providing nuclear technology or fuel to any country that has not signed the NPT.

The US has provided a precedent by signing a bilateral agreement with Pakistan’s regional rival, India, that circumvents the NPT. Under the India-US nuclear accord, India can purchase commercial nuclear reactor technology and fuel without having to sign the NPT or subject its military program and nuclear arsenal to any scrutiny. Under pressure from Washington, the Nuclear Suppliers Group agreed to grant India an exemption.

After pressing for a similar deal from Washington without success, Pakistan has turned to China, a longtime ally against India, for access to nuclear technology and assistance. Far from granting an exemption for Pakistan at its meeting in New Zealand last month, members of the Nuclear Suppliers Group called on China to give more details of its deal with Pakistan. While the US did not openly object to the Pakistan agreement, the British government declared that “the time is not yet right for a civil nuclear deal with Pakistan.”

These manoeuvres underscore the hypocrisy and cynicism surrounding the US-led campaign. Iran is a signatory to the NPT and denies having plans to build nuclear weapons. All of its nuclear facilities are subject to regular inspections by the International Atomic Energy Agency. Yet Iran is targetted with increasingly harsh sanctions and repeated threats of military strikes. India and Pakistan—both US allies—have refused to sign the NPT and have built nuclear weapons, but are being offered nuclear technology and fuel.

The US is exploiting the nuclear issue as a means of pressuring Tehran and establishing a regime more compliant with US economic and strategic ambitions to dominate the crucial energy-rich regions of Central Asia and the Middle East. China’s nuclear offer to Pakistan is another indication of the growing rivalry of the major powers—particularly Washington and Beijing—in this sensitive region.

China is heavily involved in more than 120 other projects in Pakistan. In return, Pakistan has allowed China to build port facilities at Gwadar in Baluchistan. The port is part of Beijing’s efforts to secure its sea routes from Africa and the Middle East that are vital to the transport of energy supplies and other raw materials for the Chinese economy.

China is also attempting to secure alternative land routes to bypass the Malacca Strait, which is vulnerable to US naval power. Beijing signed a deal in June with Burma for an oil and gas pipeline from Burmese ports to southwest China. It has expressed interest in extending the Iran-Pakistan pipeline to China. Another possibility would be a pipeline from the port of Gwadar through to southern China.

The growing influence of China in Pakistan is regarded with suspicion and hostility by India as well as the US. New Delhi’s decades-old border dispute with Beijing is still unresolved. Over the past decade, India has secured a strategic partnership with the US, which is keen to use it as a counterweight against China. However, India is concerned that the US reliance on Pakistan to stabilise its Afghan occupation is shifting the balance back in favour of Islamabad. China’s involvement only adds to the tensions in an already volatile situation in a key strategic area of the globe.

12 Comments

Filed under Afghanistan, Iran, Pakistan, USA

12 responses to “US opposes Iran-Pakistan gas pipeline

  1. Tilsim

    This is a very emotive issue, given the energy crisis.

    Can’t see the US getting any support from any quarter in Pakistan for it’s stance.

    However guess Holbrook et al have to go through the motions with Pakistan and then get Congress to provide some sort of exemption.

  2. Suvrat

    While resisting US pressure is commendable, I believe the price at which this deal is closed will make it economically unviable especially if oil prices increase

  3. Parvez

    The price is 80% of oil. It is not a bad deal. Maybe some people will get a cut under the table.

  4. Mustafa Shaban

    Very good article! The author talks about the double standards of US. Also the author forgot to relate the double standards to Israel as well which is not an signatory of NPT and has secret nuclear facilities and has 300-400 nukes. Good article!

  5. Quantum_Singularity

    @Parvez

    “The price is 80% of oil. It is not a bad deal.”

    The pipeline ships natural gas not oil. Also the price gas rises and falls with energy market.

  6. Suvrat

    Below is an the article written by SA Aiyar in TOI regarding the pricing mechanism. While it talks about India, it is equally applicable to Pakistan:

    The US has pioneered shale gas technology. This has created a glut, sending gas prices plummeting from $13/mmbtu (million British thermal units) four years ago to just $4/mmbtu today, even as the price of oil has more than doubled. By contrast, the IPI formula links the gas price to oil prices. This implies that India will have to pay $10/mmbtu at today’s oil price of $70/barrel, and a whopping $20/mmbtu for gas if oil returns to its 2008 peak of $150/barrel. India cannot possibly accept such a price formula when shale gas technology has sent prices plummeting.

    It must insist that the Gulf countries abandon the old price link between gas and oil, and accept the new low prices established at trading hubs like Henry Hub in Louisiana. Iran, Qatar and other Gulf countries are aghast at the emergence of shale gas as a rival, and want to stick to the gas-oil price link. India must refuse to do any gas deals with them until they drop the link.

    Shale has long been known to contain gas, but this does not flow from a normal well since shale is not porous. The new technology cracks open shale with sand and water under high pressure, opening up the formation and allowing gas to flow. The share of shale gas in the US gas production has shot up from zero to 8% in the last decade. One single deposit, the Barnett Shale in Texas, produces 1.1 trillion cubic feet per year, and other deposits (Bakken, Haynesville) could be as productive.

    Four years ago, US companies thought a gas price of at least $6/mmbtu was needed to make the extraction of shale gas viable. But as technology has improved, shale gas has become viable in some cases at just $3/mmbtu. Indeed, Anadarko Petroleum thinks it can produce gas from the Marcellus shale at just $2.50/mmbtu.

  7. Parvez

    Suvrat, price of gas in US is of no consequence to India/Pak market. The proper comparison is delivered price. Let the suppliers build infrastructure and compete.

  8. Suvrat

    Parvez, it is not only the US price that is affected but also the international price that has gone down due to Shale gas discovery. It also means the prices of the oil and the natural gas will on a different trajectory which makes the 80% oil clause too expensive in the long run for Pakistan

  9. This gas is delivered to homes to provide warmth. Many heaters, gas heaters free-standing, and kitchens using natural gas as fuel. The production of electricity with natural gas as the process used to generate electricity using coal. Can be used to heat water and produce steam, then water. The system is an effective method to produce electricity, but can be even more effective through the use of a combined cycle system.

  10. PMA

    “India’s desire to compete with China for access to Burma’s vast natural gas resources”

    27 July 2010: Burma’s Than Shwe welcomed with red carpet in Delhi. Reclusive Burmese junta leader General Than Shwe has received a red carpet welcome in the Indian capital, on a state visit condemned by rights groups.

    He is meeting Indian PM Manmohan Singh in Delhi on a rare five-day trip that aims to deepen the economic and strategic ties between the two nations.

    The Burmese leader laid a wreath at the mausoleum of Indian independence leader and non-violence hero, Mahatma Gandhi. He and his wife were gifted a fabric printed with Mahatma Gandhi’s “Seven Social Sins”

    On Monday, pro-democracy protesters demonstrated against the visit. They shouted slogans and carried posters in Delhi labelling the leader, whose regime crushed pro-democracy protests led by Burmese monks three years ago, a murderer and dictator.

    On Tuesday, the general was accorded a full ceremonial welcome at the presidential palace in Delhi, although the traditional guard of honour was missing because rain forced the event indoors.

    Burma’s junta, which has ruled for nearly 50 years, is accused of widespread human rights abuses. Until the mid-1990s, Delhi was a supporter of Aung San Suu Kyi, Burma’s imprisoned pro-democracy leader.

    But analysts say India’s desire to compete with China for access to Burma’s vast natural gas resources has since outweighed concerns over human rights.

    Correspondents say concerns over insurgencies and drug trafficking along India and Burma’s shared 1,000-mile (1,600km) border are also likely to be discussed.

    Than Shwe is expected to seek India’s endorsement for his country’s first elections since 1990, which the military regime has said will be held later this year.

    Western nations have labelled the proposed ballot a sham, while Aung San Suu Kyi’s opposition party has been forced to disband after refusing to take part.

  11. PMA

    July 24, 2010

    Pakistani PM Keen to Visit Iran

    TEHRAN (FNA)- Pakistani Prime Minister Yousuf Raza Gilani is willing to pay a visit to Iran in the near future, Iranian Ambassador to Islamabad Mashaallah Shakeri announced on Saturday.

    “The Pakistani prime minister… said that he is ready to visit the Islamic Republic of Iran as soon as possible,” Shakeri told FNA, elaborating on the issues raised during his recent meeting with Gilani.

    He said that during the meeting, Gilani also underlined development of cooperation between the two countries and mentioned that Iran’s high potentials in different fields and also Pakistan’s capacities can facilitate expansion of mutual trade cooperation between the two sides.

    According to the envoy, Gilani had also announced his country’s readiness to use Iran’s experiences in a bid to develop Pakistan’s infrastructures and underlined the necessity for rapid implementation of Iran-Pakistan joint gas pipeline project and export of Iran’s electricity to Pakistan.

    Gilani’s remarks alluded to a multi-billion-dollar pipeline which is due to take Iran’s rich gas reserves to his energy hungry nation.

    The 2700-kilometer long pipeline was to supply gas to Pakistan and India which are suffering a lack of energy sources, but India later evaded talks. Last year Iran and Pakistan declared they would finalize the agreement bilaterally if India continued to be absent in meetings.

    According to the project proposal, the pipeline will begin from Iran’s Assalouyeh Energy Zone in the south and stretch over 1,100 km through Iran. In Pakistan, it will pass through Baluchistan and Sindh but officials now say the route may be changed if China agrees to the project.

    The gas will be supplied from the South Pars field and will reach Pakistan through a $7.4 billion pipeline.

    Tehran and Islamabad also sealed a final contract for the start of Iran’s gas exports to Pakistan through the multi-billion-dollar pipeline in spring 2014.

    The last annex of the agreement for export of Iran’s gas to Pakistan was signed on June 13 by Iranian Oil Minister Masoud Mir-Kazzemi and Managing Director of Pakistan’s Inter-State Gas Company Naeem Sharafat in a meeting also attended by the Iranian oil ministry’s representative in gas talks with Pakistan Seyed Reza Kassayeezadeh.

  12. PMA

    The Iranian Foreign Minister will be in Islamabad in the first week of the next month to attend the next session of the two countries’ Joint Ministerial Commission.

    A statement released by the Pakistani Prime Minister’s office announced that the two sides plan to review Iran-Pakistan relations and cooperation in all the different areas and explore further avenues for expanding their cooperation.

    According to the statement, Pakistani Prime Minister Yusuf Raza Gilani, who was speaking in a meeting with Islamabad’s Ambassador to Tehran M.B. Abbasi, has expressed the hope that Iran and Pakistan would find new avenues of cooperation in their multi-dimensional relationship during Mottaki’s upcoming visit to Islamabad.

    The Pakistani premier further urged the envoy to redouble his efforts to create a better understanding between the two countries on issues of mutual concern.

    Gilani said his government would positively pursue early finalization of feasibility study for the import of 1000 MW electricity from Iran to undertake this project as soon as possible.

    He vowed to also personally supervise expeditious implementation of projects like refurbishment of the rail line from Quetta to Taftan and Dalbandin-Noshki road construction with the assistance of the Iranian government.