Pakistan and Iran: New Goalposts

Majyd Aziz

PAKISTAN’S is fortunate to have Iran as a strong and considerate neighbor. Although at times the relationship becomes tense mainly due to events that are mostly related to factors that are not directly bilateral but are usually because of external circumstances, the fact is that the relationship is accommodating and genuine.

PAKISTAN’S state leadership has always endeavored to maintain a special bond with her Western neighbor and this is amplified by the erstwhile Regional Cooperation for Development and lately by the Economic Cooperation Organization. Moreover, the decision to set up the Iran Pakistan Gas Pipeline inspite of the United Nations’ economic sanctions on Iran is a manifestation of the imperative desire to further strengthen the brotherly and neighborly bonds. The Arab Spring, the Saudi Arabian heart-burning in relationship with Washington, the growing influence of Iran in the Islamic World, and more importantly, the historic agreement that Iran, under the dynamic leadership of President Hassan Rouhani, agreed with the P5+1 countries in Geneva has further amplified the importance of Iran. Notwithstanding the objections of Tel Aviv and Riyadh, the deal is being hyped as pragmatic, crucial, and a major step towards peace in the region.

PAKISTAN’S position is bolstered too after this agreement. The threat of sanctions on any country doing business with Iran and the future of the nation’s energy deficiencies loomed heavily on the decision-making of the government. The saber-rattling attitude and display of brazen belligerence of Rouhani’s predecessor had taken its toll, not only on Iran’s citizens, not only on Iran’s trading partners, but more threateningly, on Iran’s neighbors especially Pakistan. President Obama’s 15-minute phone call on September 27 to President Rouhani during the United Nation General Assembly session became the catalyst for a sincere process of negotiation towards a long-term nuclear agreement. For Pakistan, this is another worthwhile opportunity that should not be missed.

PAKISTAN’S trade and industry, as well as economic and political analysts, must not take this opportunity in a complacent manner. However, it is to be understood that fraternal brotherhood, obligations of being next-door neighbors, and common religious adherence does not necessarily translate into easy Rials and Rupees. The focal point would always be national interests and state priorities. Inspite of the dire ramifications of the economic sanctions and inspite of being branded as a global pariah by Western powers, the fact is that the political, security and diplomatic considerations and exigencies would count heavily on the bilateral relationship and these could be the basis for developing a renewed approach towards the trade and investment decisions.

Nowadays, whenever the discussion centers on Pakistan and Iran relationship, the Iran-Pakistan Gas Pipeline is highlighted. The project has become a matter of prestige, a matter of survival and a matter of determination. Former President Asif Ali Zardari and Former President Mahmoud Ahmedinejad performed the ground-breaking ceremony of the Pipeline on March 11, 2013. The total cost of the project is estimated at $7.50 billion with the cost on the Pakistani side of about $1.25 billion. The project would supply 750 mcft daily through its 1700 km length from January 2015. It is estimated that atleast 4000 mw of electricity could be generated through the use of Iranian gas. Iran has completed the 900 km pipeline upto the border while Pakistan is still unsure when the project would see fruition.

Pakistan took up the challenge of agreeing to the pipeline knowing well that there were international sanctions and there was scant possibility of the project becoming a reality in the near future. All factors were against this pipeline and the non availability of external financing has put a damper that is evident. Although government ministers routinely acclaim that the project is all set to take off, the ground reality is something else. There is no doubt that this project is a doable alternative but the fact remains that there is no international support. However, there is a positive response to the TAPI pipeline which is the US-backed Turkmenistan, Afghanistan, Pakistan, India gas pipeline. There is news about a revisit of the agreed rates and pipeline funding in Pakistan territory under the Gas Sales Purchase Agreement (GSPA) The price which set at 87% of crude oil that translates into $12 mmbtu which as compared with local gas price of $4.5 mmbtu is almost three times high. However, Iran is hesitating to also provide full funding for laying the pipeline inside Pakistan.

The United States and other countries, especially Israel and to some extent Saudi Arabia, launched a concerted campaign to deter Iran from going nuclear while Iran has been resolute in its strategy to achieve nuclear technology capability. The embargo enforced by United Nations directing members not to deal with Iran has proved effective and has hurt the Iranians in many respects. Pakistan is caught in the whirlpool in agreeing to adhere to the UN decision and at the same time, in sustaining bilateral relations with the Western neighbor. Pakistan seems to be strongly committed to fulfilling its obligations regarding the Iran Pakistan Gas Pipeline and the expected supply of electricity, but the various restrictions, including banking restrictions imposed by State Bank of Pakistan, have made decision making difficult and disturbing.

There is an alarming factor that needs to be highlighted. It is the growing influence of India in Iran and Afghanistan. New Delhi did not waste any time in jumpstarting its plans as soon as the nuclear deal was signed. India has financed the $100 million highway from Iran’s Chabahar Port to Herat in Afghanistan and has pledged another $100 million for upgrading the Chabahar Port. Moreover, India is exempted by US from procuring oil requirements from Iran. It is, therefore, imperative that the Pakistani policymakers, businessmen, and the politicians must all have a common and practical strategy to offset any Indian influence that is damaging or impeding Pakistan-Iran relationship.

The internal situation in Iran became complicated with the official devaluation of the Rial by 100%, with a galloping inflation rate, with citizens being deprived of basic needs, with the intimidating threat of a war, with the foreign exchange reserves being squeezed, with high unemployment due to lack of investment in productive units, and with the economy having all symptoms to implode. However, the lower rates of petrol and energy in the domestic markets, the reliance on cash transfers for 97% of the population, and the focused efforts of the government to turn the tide has begun to boost the confidence of the economists and financial managers.

Pakistan and Iran have to sincerely look towards the future. Iran, while facing sanctions, has to rely on neighbors to maintain economic sanity. Pakistan offers the ideal set up for Iranians in many aspects. Iran must bring about a fundamental change in trade relations with Pakistan since it is in Iran’s advantage to accord preferential treatment to Pakistanis products and services. Apart from rice, wheat, fruits, etc, Iran can procure textiles, leather, minerals, services, and also other commodities from Pakistan. Moreover, Iran can invest in agriculture and livestock that would cater to the Iranian consumers’ needs.

Pakistan is facing a severe financial crisis and Iran should accept an agreement for the supply of petroleum products on a deferred-basis or on a barter-basis. This too would be in the mutual interest of both the countries. Pakistan and Iran must take full advantage of ECO, OIC, as well as D-8 ('Developing Eight' Group of eight developing Muslim countries: Bangladesh‚ Egypt‚ Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey).

Pakistani Chambers and Associations should also extensively lobby with United Nations as well as Washington to exempt Pakistan from conditionalities of the trade embargo, and treat Pakistan as a nation that needs Iranian gas and electricity. Pakistani businessmen should also lobby through ECO, as well as OIC and D-8, so that mutually beneficial regional cooperation is ensured and enhanced.

The geo-political situation is undergoing a remarkable paradigm shift. Iran has become a prominent player in this new configuration. The ramifications of the Arab Spring, not only on countries like Egypt, Libya, Tunisia, Syria or Bahrain, but in some ways, on the Muslim Ummah have been inclusive. The change of guard in Iran, where hardliner Mahmoud Ahmedinejad was replaced as President by Hasan Rouhani, has also introduced new dynamics in Iran’s national agenda. The landmark nuclear deal between Iran and the P5+1 countries infused a radical change from the belligerent attitude of the erstwhile government in Iran. Although the nuclear deal is a probationary one for about six months, it is hoped that strict adherence by Tehran would enable the United Nations to lift the unsympathetic economic sanctions and Iran would be able to maintain an enhanced trade regime. There are forces in US Congress who toe the Israeli line and, prodded by lobbyists, are dead-set to introduce damaging resolutions to enforce additional sanctions on Iran. The confrontational mood may vitiate the fragile environment and provoke Tehran to adopt a hard line. Notwithstanding this thinking in some segments in Washington, the consensus is that the future outlook is positive and that the comprehensive solution would be real, enforceable, and not illusive.

Iran under President Rouhani has displayed pragmatism that will usher in an encouraging environment.  The recent visits of the Iranian Foreign Minister to various Muslim capitals have also emboldened the desires of the Muslim Ummah to have peace and prosperity among Islamic countries. At the same time, the rising status of Iran has eclipsed the influence of Saudi Arabia and to some extent the threatening braggadocio of Israel, especially of Premier Benjamin Netanyahu. The new status of Iran may also reduce the proxy war between Iran and Saudi Arabia that has led to sectarian extremism in Pakistan. Moreover, this bodes well for Pakistan too as Iran would be an alternative supplier of oil at a comparable price. It is hoped that easing of the sanctions would encourage Pakistani businessmen to improve their trade exposure across the border and at the same time, the banks would also commence banking facilities for Pakistani importers and exporters doing business with Iran.

Pakistan and Iran have to become major players in the region. The goalposts have moved but the bond of brotherhood, cooperation, and economic survival still remains firm. The future is favorable for both the countries since the menacing albatross of economic sanctions may soon be removed. The caveat, as always, is that Pakistan must be ready to play on the front foot and take all measures to craft a much stronger and mutually beneficial bilateral relationship. There is no other alternative. Iran is the next leader of the Muslim Ummah and is, fortunately, right across the border for Pakistan.