Pakistan to Shelve IP Gas Pipeline Project: Seeking Out-of-Court Settlement
Pakistan has officially communicated its intention to Iran. The goal is an out-of-court settlement for the long-stalled IP Gas Pipeline project. This strategic move aims to terminate the existing agreement. However, it leaves a narrow window for potential revival. This revival depends on significant sanctions relief from the United States. Furthermore, the “Peace Pipeline” has faced extensive geopolitical and economic debate for over a decade. International pressures and shifting domestic priorities consistently hampered its progress.
Why the IP Gas Pipeline Project Stalled: Sanctions and Delays
The IP Gas Pipeline project aimed to address Pakistan’s growing energy needs. Nevertheless, it has remained in limbo since 2014. The primary hurdle involves stringent US sanctions on Iran. These sanctions have made international financing and construction for Pakistan’s segment almost impossible. Iran completed its portion of the pipeline to the Pakistani border. Yet, Islamabad could not begin work on its side. Officials cited the overwhelming risk of secondary sanctions from Washington.
Iran has consistently pushed for the agreement’s implementation. It even granted a 10-year extension. Pakistan, however, now prefers a definitive termination through an out-of-court settlement. It views the project as commercially unviable under current conditions. Consequently, this shift reflects a pragmatic assessment of both the geopolitical landscape and national economic realities.
Pakistan’s Economic Stance and Conditions for Revival
Pakistan’s decision to shelve the IP Gas Pipeline is not solely due to external pressures. Domestic factors play a crucial role. For instance, a current surplus in gas supply and lower-than-anticipated demand have made the project commercially unattractive. The nation currently grapples with an excess of imported Liquefied Natural Gas (LNG). The power sector has not fully utilized this surplus, leading to an abundance of gas in the system.
The government implements measures to boost domestic gas consumption. These include offering discounted electricity to agriculture and industry. Additionally, a long-standing ban on new domestic and commercial gas connections was lifted. This proactive approach aims to balance supply and demand internally.
Officials state that reviving the IP Gas Pipeline project depends on two critical factors. First, substantial relief from US sanctions on Iran is necessary. Second, a significant renegotiation of both the agreed price and volume of Iranian gas is required. Without these concessions, Pakistan believes the project would not align with its economic interests. Iranian pipeline gas is currently considered costlier than imported LNG.
Diplomacy and Legal Engagements Over the Pipeline
Despite the intention to shelve, Pakistan and Iran engage in continuous diplomacy. They aim to manage the fallout effectively. Iran previously initiated legal action over the pipeline agreement’s non-implementation. This highlights the seriousness with which it views contractual obligations. Furthermore, the issue has been a recurring agenda item during recent high-level visits by Iranian officials to Pakistan. This reflects ongoing efforts to find a mutually acceptable resolution.
These diplomatic engagements navigate complex international agreements. They also acknowledge constraints from third-party sanctions. The out-of-court settlement mechanism offers a way to formally address Iran’s concerns. Moreover, it helps avoid prolonged litigation, which could strain bilateral relations further.
US Warnings and Abandoned Alternatives for Pakistan’s Energy Future
The United States maintains a firm stance on its sanctions against Iran. US State Department spokesperson Matthew Miller explicitly warned countries. He urged them to evaluate implications of commercial agreements with Iran carefully. This warning significantly deters nations, including Pakistan, from energy projects with Tehran.
In response to these warnings and practical difficulties, Pakistan explored alternatives. It considered constructing an LNG pipeline from Gwadar to the Iranian border. However, this proposal was ultimately abandoned. Persistent concerns related to potential US sanctions impacted this decision, similar to challenges faced by the IP Gas Pipeline. This highlights the pervasive influence of the sanctions regime on Pakistan’s energy policy.
Managing Domestic Gas Surplus and the Future Outlook
Pakistan focuses on its domestic energy market dynamics. Specifically, it addresses the challenge of managing surplus LNG supplies. The government’s strategy revolves around stimulating gas consumption across various sectors. The recent decision to scrap LNG supply contracts with Qatar from 2026 further emphasizes Pakistan’s assessment of future gas needs. It also reflects the comparative economics of different energy sources.
New gas connections, aimed at boosting consumption, will be charged at LNG-based tariffs. This reflects a market-driven approach to energy pricing. The proposed out-of-court settlement marks a pivotal moment for the IP Gas Pipeline’s fate. While formally putting the project on hold, it also shows Pakistan’s cautious approach to international energy commitments. The nation balances its national interests with geopolitical realities. It prioritizes ensuring a stable and affordable energy supply for its population.
