Iran-Pakistan relations: recent developments

Iranian President Ebrahim Raisi visited Pakistan from April 22 to April 24, 2024. He met with the top leadership of the country. The two countries signed eight agreements to enhance cooperation in the different fields including energy, trade, science technology, agriculture, health, culture, security, and commerce.

Earlier, in January 2024 the two countries had engaged in an unprecedented tit-for-tat missile strike, which had considerably strained their relationship. Raisi’s visit is part of those mutual efforts to repair relations between Iran and Pakistan.¹ Given the rising tensions in the Middle East region because of the recent Iran-Israeli conflict, Raisi was also seeking support from neighboring countries.

The two sides discussed the multibillion-dollar project which was supposed to be completed in 2014. The pipeline deal, signed in 2010, envisaged the supply of up to a billion cubic feet per day of natural gas for 25 years from Iran's South Pars gas field to Pakistan. The pipeline was to stretch over 1,900 kilometers, with 781 km within Pakistan and 1,150 km within Iran.²

Iran has already invested $2 billion to construct the pipeline on its side of the border, making it ready to export. However, construction has not started on the Pakistani side, citing international sanctions on Iran as the reason.³

In 2014, Pakistan asked for a 10-year extension to build the pipeline, which expires in September this year. Iran can take Pakistan to an international court and fine the country. Local media reported that Pakistan can be fined up to $18 billion for not holding up its half of the agreement. Finally, faced with a potential fine, Pakistan in 2024 was permitted, in principle, to commence plans to build an 80-kilometer segment of the pipeline.⁴

In March 2024, Pakistan said it would seek a US sanctions waiver for the pipeline. However, the US said it did not support the project and cautioned about the risk of sanctions in doing business with Iran.

America's support is crucial for Pakistan as the country looks to sign a new longer-term bailout program with the International Monetary Fund (IMF) in May or June 2024. Pakistan, whose domestic and industrial users rely on natural gas for heating and energy needs, is in dire need of cheap gas, with its reserves dwindling fast and LNG deals making supplies expensive amidst already high inflation. Iran has the world's second-largest gas reserves after Russia, according to BP's Statistical Review of World Energy, but sanctions by the West, political turmoil, and construction delays have slowed its development as an exporter. Originally, the deal also involved extending the pipeline to India, but it later dropped out of the project.

Recently, Pakistan had decided to start the work on the project. In the first phase, Pakistan would build a pipeline from Gwadar to the Iranian border.

Given the increased US sanctions regime on Iran because of its nuclear program and the recent conflict with Israel, Pakistan fears it would invite U.S. sanctions for importing Iranian gas.

The US very recently renewed its warning to Pakistan, advising against proceeding with the project to avoid sanctions.

On April 25, 2024, Pakistan’s Defence Minister Khawaja Asif expressed hopes that the snags in the completion of the project will be removed, and it will be finished. In this regard, the minister also termed Raisi's "successful" Pakistan visit a "great development".

Meanwhile, the US has very recently hinted towards the "potential risk of sanctions" in light of the business deals between Iran and Pakistan following the visit.

In a 28-point joint statement issued following the Iranian president's three-day visit to Pakistan on April 24, 2024.

The two countries, as per the statement, agreed to expeditiously finalize the free trade agreement (FTA) and boost their bilateral trade to $10 billion over the next five years through joint economic projects, the setting up of joint border markets, economic free zones, and new border openings.

Agreeing to turn the common border from a ‘border of peace’ to a ‘border of prosperity,’ both countries reiterated the importance of cooperation in the energy domain, including trade in electricity, power transmission lines, and the Iran-Pakistan gas pipeline project. Both sides underscored the imperative of long-term socio-economic development in Iran’s Sistan-Balochistan and Pakistan’s Balochistan provinces. ⁵

For swift finalization of the FTA, both sides agreed to hold the next sessions of the Annual Bilateral Political Consultations (BPC) and Joint Business Trade Committee (JBTC), as well as the 22nd round of the negotiations of the Joint Economic Commission (JEC), soon.

They also agreed to facilitate the regular exchange of economic and technical experts, as well as delegations from chambers of commerce from both countries to intensify economic cooperation. The declaration of the ‘Reemdan border point’ as an international border crossing point under TIR and the opening of the remaining two border sustenance markets was also agreed upon.⁶

There was consensus to fully operationalize barter trade mechanisms between the two sides to facilitate economic and commercial activity, particularly under ongoing collaborative endeavors, such as border sustenance markets.

Regarding connectivity, the two sides expressed satisfaction over the regular shipment of goods under the TIR Convention and agreed to fully operationalize the Convention for further efficient, speedy, and barrier-free trade. ⁷

As members of the Economic Cooperation Organization (ECO), Iran and Pakistan expressed firm resolve to enhance cooperation in connectivity, infrastructure development, and energy sectors and agreed to expand linkages between Gwadar and Chahbahar ports. They also expressed their agreement to start negotiations on free trade in ECO.⁸

Meanwhile, the American reaction to the visit was expected, it is believed that the US is displeased with the Iranian president's visit, given its current efforts to isolate Tehran.

Despite this, Pakistan held its ground against pressure and informed the US that the scheduled visit had been arranged well in advance of the current tensions in the region.

Just days before the Iranian President, the US imposed sanctions on four firms including three Chinese companies for allegedly aiding Pakistan's ballistic and long-range missile program, a move some observers interpret as a signal to Islamabad amid its hosting of the Iranian President.

Pakistan has often tried to tread a careful path in maintaining ties with Iran and Saudi Arabia. Pakistan knows that this time Saudis don't have many reservations given how their relationship with Iran has improved in recent months.

Pakistan would want to have cordial relations with Iran and finalize the gas pipeline project soon because of its own desperate energy needs. However, the geopolitics of the region are preventing this development. Notwithstanding official claims, the visit wasn’t remarkably successful; there wasn’t any significant development on the stalled Iran-Pakistan gas pipeline project. Today, Pakistan can’t be caught in the middle of a conflict between Iran and the US, as it desperately needs American assistance to overcome the severe economic crisis, primarily through the coming IMF deal. Therefore, Pakistan can’t risk losing American support at this critical time. Pakistan is aware that any expansion of economic relations with Iran will come at a high cost. Any formal expansion of trade and banking activity is bound to be slow. The US and Iran are sworn rivals. American efforts to contain Iran go back decades. The United States has sanctioned hundreds of Iranian individuals and entities accused of having links with the banned Iranian IRGC.

Like the Hezbollah, Houthis, and Hamas. Earlier in April 2024, the UK and the US imposed a new round of sanctions after Iran’s unprecedented attacks on Israel. Pakistan has little option but to go slow in developing its relationship with Iran. Therefore, Pakistan will continue to play the balancing act between the US and Iran. The future of Pakistan’s relationship with Iran depends on this balancing act, so to speak. In sum, the Raisi visit was only significant in symbolizing the normalizing of relations between the two erstwhile strained neighbors, nothing more than that.