The 80 Kilometre Pipeline: Pakistan's Iran Gas Gambit Is About Penalties, Not Gas

On 23 February 2024 Pakistan's Cabinet Committee on Energy approved construction of the first phase of the Iran-Pakistan gas pipeline on Pakistani soil: an 80 kilometre segment running from the Iranian border to Gwadar. The work is to be executed by Inter State Gas Systems, the state company responsible for cross-border gas projects, and funded through the Gas Infrastructure Development Cess, the levy collected from gas consumers for precisely this kind of project. At the same meeting the cabinet deferred a plan to seek a waiver from United States sanctions, citing the geopolitical situation.

Officials have argued that the initial work lies entirely within Pakistan and is not connected to Iran. The decision revives a project that has been stalled for more than a decade. The gas sales and purchase agreement was signed in 2009 and envisaged Iran supplying 750 million cubic feet a day to Pakistan. The agreement obliges each side to complete its section and begin deliveries by agreed dates. Building a short segment from the border to Gwadar allows Pakistan to show that it is taking steps to fulfil its obligations.

That could strengthen its position in any dispute and buy time for negotiation. US sanctions on Iran's energy sector are the main reason the project has stalled. Any company, bank or insurer involved in buying Iranian gas risks losing access to the US financial system. Pakistan can build the 80 kilometre segment, but it cannot connect it to Iran or import gas through it without accepting sanctions risk. Domestic production has been falling for years, and Pakistan has relied increasingly on imported LNG since 2015, mainly from Qatar.

Pakistan's power sector has been using less gas than planned, partly because of high tariffs that have suppressed grid demand and partly because of the rapid growth of rooftop solar. At the same time, Pakistan should negotiate with Iran on the penalty provisions.