With the ratification of the deal between Iran and the six world powers on Tehran’s nuclear program by the United Nations Security Council (UNSC) and the European Union (EU) this week, the long journey towards the implementation of the historic accord concluded after about 20 months of fraught negotiations is set to begin in 90 days – a time frame given in the UNSC resolution and negotiated during the Vienna talks.
While potential roadblocks including the review of the deal by Republican dominated Congress, which could kill the accord, remain during this period, but eyes are already on the expected economic benefits from the agreement particularly in oil and gas contracts estimated to be worth $100 billion.
Iran appears to be an ideal investment opportunity for the world being a country that has fourth-largest oil reserves and the second-biggest stores of natural gas, but has been out of the global economy for decades. Iran is, moreover, endowed with young educated population and has established institutions and reasonable infrastructure.
Pakistan promptly welcomed the deal and reminded of its consistent support for a negotiated settlement of the dispute over the nuclear program.
The Iran deal opens up huge opportunities for Pakistan being the next door neighbor. Hopes have been expressed about the revival of the Iran-Pakistan gas pipeline project, which the government claims had been held up because of crippling international sanctions on Iran. There has also been talk of import of crude oil from Iran once the sanctions go.
“Removal of the sanctions will open up Iranian exports of oil and gas to other countries. Pakistan can operationalize the IPI gas pipeline whereby we can import Iranian gas, which would meet nearly 25 percent of our total gas requirements,” says Ambassador (retd) Ali Sarwar Naqvi, who heads an Islamabad based think tank Center for International Strategic Studies.
Led by Minister of Petroleum and Natural Resources Shahid Khaqan Abbasi, a number of cabinet ministers have expressed optimism about the IP gas project returning to life. The new date cited for the operationalization of the project, which missed the earlier deadline of December 2014, is end of 2017.
Per se the requirement is there and Pakistan is contractually committed to going ahead with the project. Pakistan is facing a gas shortfall of 2 to 2.5 billion cubic feet per day (bcf/d). The pipeline, once operationalized, could partially contribute to meeting this deficit by pumping in 750 million cubic feet of natural gas.
The Iranians have already completed work on their 900 kms long section, while Pakistan, which was yet to commence work on the 780kms of the pipeline in its territory is lucky that the Chinese have started laying 700kms of the pipeline from Gwadar to Nawabshah under China-Pakistan Economic Corridor. The pipeline could also be used for carrying the gas coming from Iran. Pakistan would then be left with an 80 kms segment to connect with Iranian pipeline at the border.
But, somehow the skepticism about Pakistan’s seriousness about the project is not going away.
“Relief of sanctions would eliminate lots of commercial obstacles. No doubt about it, but how the two countries would use this opportunity is another matter. Gas pipeline is the most important issue. However even for that I am not convinced that after the removing of sanctions there would be a quick break through. Too many factors are involved, specifically external ones. We need to see if these factors will continue to prevent that project,” a senior official having a deep knowledge of the project commented.
Pakistan’s strong relations with the Arab world led by Saudi Arabia, which remains opposed to Iran and the deal over its nuclear program, could continue to impede progress on the project. It would be difficult for Pakistan to go against the wishes of the Arab countries that collectively provide employment to millions of Pakistanis working there and are thus a top source of remittances and investments, besides being the biggest source of energy supplies and major export destination.
With the excuse of international sanctions on the pipeline project to be out of the way soon, the government’s foot dragging on it would be bared.
The other major area for potential trade is that of the import of the crude oil. Being the most proximate oil exporting country, there are expectations that Iranian crude exports to Pakistan could go up.
“The prospects are good and Iran is the first viable opportunity Pakistan has to import crude oil overland as well. In the long run a pipeline is also feasible,” observes analyst Khurram Hussain.
But, those in the petroleum business say that it would not be as easy as it appears to be. First the Iranian crude has different specifications as compared to the Arab countries’ crude. Most of the refineries in Pakistan are configured for the crude coming from Saudi Arabia and UAE, the two chief suppliers that provide 75% of Pakistan’s crude requirement. Moreover, many refineries have long term contracts with Arab suppliers and are not ready to switch.
There are, however, some like Byco refinery that has been exploring the possibility of importing crude oil from Iran. But, they too were doing so with the expectation that Iranians would provide them “a good deal” for getting an entry into the Pakistani market. Iranians, known to be hard bargainers, are however, unlikely to provide cheaper oil particularly at a time when the world is turning to them.
Pakistan’s hesitance to trade with Iran is also manifest from the half-hearted way they are warming up to the development. At a time when heavy weight business delegations, some with the patronage of their respective governments, are already in Iran to seek business opportunities, no such urge is witnessed here.
Pakistan and Iran had at the seventh Pakistan-Iran Joint Trade Committee meeting held in Tehran in April agreed to increasing their bilateral trade to $5 billion over the next five years from the current $229 million. Other than that there is hardly anything to report.
The two countries have a preferential trade agreement, but still the volume of their trade has been going down for almost a decade now. The decline in trade is attributed to non-tariff barriers and difficulties in financial transactions due to sanctions.
In contrast Iran’s bilateral trade with China, India and Afghanistan has been growing.
Besides, the reluctance among the Pakistanis, Iran isn’t an easy place to do business either. World Bank ranks Iran at 130 out of 189 in terms of ease of doing business. There are problems with the tax and regulatory frameworks.
The writer is a freelance journalist based in Islamabad