Energy, sanctions, and diplomacy: Reviving the Iran-Pakistan gas pipeline

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Pakistan’s energy crisis is no secret. With a growing population and increasing industrial demands, the country’s reliance on imported energy has strained its economy. While Pakistan is often late in making timely decisions, it acted well on time when it signed the Gas Sales Purchase Agreement (GSPA) with Iran in 2009 to import gas and meet the country’s growing energy needs.

The Iran-Pakistan Gas Pipeline (IPGP), also called the Peace Pipeline, offered a direct and cost-effective solution, promising a steady supply of natural gas from Iran. In 2013, construction of the pipeline was inaugurated in Pakistan, but progress stalled due to concerns over U.S. sanctions on Iran.

In 2023, Iran reiterated its expectations for Pakistan regarding the pipeline and set a new deadline for Pakistan to complete its section of the pipeline by September 2024. It emphasized that failure to meet this deadline could result in legal action and financial penalties potentially amounting to $18 billion. This has prompted renewed discussions about the project's urgency.

From this point forward, Pakistan has two options: either comply with the GSPA, complete construction of the pipeline, and start importing gas—which would risk U.S. displeasure—or walk out of the agreement and pay financial penalties, which would only worsen Pakistan’s already dire economic situation.

If Pakistan chooses the latter option, it would stand with its energy needs unmet and add another precedent to the long list of Pakistan’s ‘Do More’ episodes. The better approach is to carry on with the project and employ innovative legal strategies and proactive diplomacy to maintain a stable relationship not only with its contracting neighbor but also with the U.S.

Pakistan could argue that the imposition of unilateral sanctions conflicts with key principles of the UN Charter, which prohibit interference in the internal affairs of states. The UN General Assembly has condemned unilateral sanctions in various resolutions, emphasizing that they contravene international obligations under the UN Charter.

Another legal but more conciliatory way is to request the U.S. to waive the sanctions. While the waiver of sanctions is not always welcomed graciously, the U.S. has previously given waivers to states. Pakistan can leverage its strategic importance to negotiate waivers or exemptions from sanctions, much like India’s arrangement for the Chabahar Port project. Additionally, a thorough cost-benefit analysis underscores the importance of completing the project.

Pakistan can contend that while the financial penalties for abandoning the pipeline are severe, the opportunity cost of continued energy shortages is even higher. Delays in meeting energy demands not only strain Pakistan’s economy but also hinder industrial growth and exacerbate public discontent.

Moreover, collaborating with regional powers like China, which has vested interests in Pakistan through the China-Pakistan Economic Corridor (CPEC), can help mitigate U.S. pressure. Pakistan can also position the IPGP as part of a larger energy network that includes Afghanistan and Central Asia, promoting it as a step towards regional stability and development.

A broader strategy involves engaging multilateral platforms such as the Organization of Islamic Cooperation (OIC) and the Shanghai Cooperation Organization (SCO). By bringing the pipeline’s significance to these forums, Pakistan can garner collective support for energy cooperation. This multilateral backing would add weight to Pakistan’s negotiations with the U.S. and Iran.

Pakistan can leverage the environmental benefits of natural gas as a cleaner alternative to coal and oil to strengthen its case for the Iran-Pakistan Gas Pipeline (IPGP) project. By emphasizing that natural gas combustion results in fewer conventional air pollutants than other fossil fuels and that it produces significantly lower greenhouse gas emissions compared to coal and oil, Pakistan can position the IPGP as a critical component in its commitment to the Paris Agreement. This alignment with global climate goals can appeal to Western stakeholders who prioritize sustainability.

Strengthening bilateral ties with Iran is crucial for the IPGP project success, too. A significant step in this direction is the recent establishment of a joint task force aimed at enhancing economic cooperation between the two nations. This initiative underscores a mutual commitment to overcoming challenges that have historically hindered the pipeline's progress.

Through fostering open dialogue and addressing shared concerns, both countries can create a foundation of trust essential for collaboration. By demonstrating a genuine commitment to mutual benefit and regional stability, Pakistan can not only advance the IPGP project but also pave the way for a more resilient bilateral relationship.

In conclusion, while the IPGP project is viable for Pakistan’s growing energy needs and economic stability, it is more than a pipeline. It is also a test of Pakistan’s ability to navigate a multipolar world and its own economic challenges. Pakistan needs to adopt a structured approach that combines legal negotiation and diplomatic engagement to ensure it emerges as a strong, independent player in the global energy landscape.