According to a senior source at the Energy Ministry, Pakistan has questioned the US if its sanctions against Iran will have an influence on the long-delayed gas pipeline project.
According to the official, the ministry has approached the authorities informally multiple times, and State Minister for Petroleum Musadik Malik has also raised the issue with US officials during his recent visit to the US.
“While returning home, he also met with US officials in Qatar and agitated the issue of whether the US sanctions imposed on Iran will have an impact on Pakistan if it goes ahead with the IP gas line project,” the person added.
Syed Tariq Fatemi, Special Assistant to the Prime Minister on Foreign Affairs, had already met with US officials about the matter.
“So far, the US has not responded to this effect,” the person said, adding that Pakistan requires a response from the US government before making a final decision on the vital project.
Pakistani officials are now hopeful about the project, especially in light of the new period of goodwill between Saudi Arabia and Iran, which is supported by Beijing, as well as new geostrategic alignments. “In the past, there had also been opposition to the project from the Kingdom of Saudi Arabia.”
In the most recent development, Tehran urged Islamabad in January 2023 to build a segment of the Iran-Pakistan (IP) gas pipeline project on its territory until February-March 2024 or face an $18 billion penalty.
During the visit, Iranian officials stated that US sanctions against Iran were illegal and that Pakistan was obligated to build the pipeline by February-March 2024 under the new deal. Iran has already constructed a portion of the pipeline from the gas field to the Pakistan border on its own territory.
Given the Iranian threat to seek French arbitration against Pakistan, Prime Minister Shehbaz Sharif appointed a three-member committee led by Fatemi to determine how to proceed on the subject.
The committee advised engaging Iran on the matter as well as launching diplomatic efforts with US authorities at various levels to understand the implications of sanctions against Iran on Pakistan if the project is commissioned.
The IP gas pipeline project was supposed to be finished by December 2014, with gas flow input beginning in January 2015, but Pakistan was unable to start the pipeline from the Iranian border to Nawabshah.
The Gas Sales Purchase Agreement (GSPA) for 25 years was signed in 2009. Almost 13 years have gone since the agreement was signed, and the pipeline’s three-year construction term in Pakistani territory has been squandered. Pakistan was scheduled to lay down a 781-kilometer pipeline from the Iranian border to Nawabshah under the terms of the deal.
Under the original deal, Pakistan is obligated to pay Iran $1 million each day beginning January 1, 2015, as a penalty. In addition, if Iran seeks arbitration, Pakistan would be forced to pay billions of dollars as a penalty. However, in September 2019, the Inter State Gas Systems of Pakistan (ISGSP) and the National Iranian Gas Company (NIGC) signed a revised deal for the gas pipeline’s development.
Under the amended agreement, Iran would not go to any international court if the pipeline construction was delayed, and Pakistan would not pay any fee to Iran until 2024.
However, Iran would be free to seek arbitration against Pakistan after February-March 2024. According to an official, the Islamic Republic reminded Pakistan of the project’s completion date.
The story first appeared on January 31, 2023, with the headline “Iran dangles the threat of $18 billion penalty over the pipeline project.” When completed, Pakistan would get 750 million cubic feet of gas per day from Iran.
According to the official, the panel determined that diplomatic efforts would be launched to persuade Iran that Pakistan was serious about the project and would encourage the authorities not to seek a penalty if Pakistan did not make the February-March 2024 deadline.
They stated that the country will seek a waiver or reprieve from US sanctions imposed on Iran.
“Now there are only US sanctions left because the UN curbs on Iran’s nuclear programme are no longer in place,” the official said.
“Pakistan is an energy-starved country that requires relief from US sanctions in order to build the pipeline and ensure long-term gas availability.”
Iran claims the US sanctions are unconstitutional. According to experts, the restrictions only apply to Iranian gas shipments, not pipeline building. India, too, received a waiver from the US and has long purchased crude oil from Iran.