Pakistan-Russia relations

Pakistani Foreign Minister Hina Rabbani Khar and her Russian counterpart Sergei Victorovich Lavrov

agreed to promote bilateral relations in diverse fields including trade, energy, and people-to-people contacts.

The suddenness of Khar's departure for Moscow has led many to argue that the visit has a one-point agenda namely to generate the balance of the finances required for the construction of the 7.5 billion dollar Iran-Pakistan (IP) gas pipeline stretching for 2,775 kilometres supplying gas to fuel-starved Pakistan from the South Pars field.

It is fairly evident that neither Pakistan nor Iran has the required finances to undertake this project.

Pakistan is currently grappling with a budget deficit that is expected to surpass what was inherited by the PPP-led government in 2008 and which compelled the country to go on the International Monetary Fund programme.

With reforms stalled on all fronts, it is unlikely that any bilateral or multilateral assistance will be forthcoming to Pakistan for budgetary support leave alone for a project that has consistently been opposed by the United States, a critical member of all multilateral boards of directors as well as having considerable influence over Western donors.

Iran is facing sanctions from the US and Europe and in this context, it is relevant to note that Europe was second in terms of foreign investment in Iran with 10.9 billion dollars of investment compared to the cumulative total of 11.6 billion dollars from UAE, Singapore, Indonesia and Oman.

In short Iran is expected to lose the entire amount of investment funds from Europe and with Italy and some other European countries expected to stop oil imports from Iran in the aftermath of the sanctions, it is likely that Iran's foreign exchange reserves would shrink.

Thus it is critical for both Iran and Pakistan to seek financing for the IP pipeline from external sources on an emergent basis: Pakistan to meet its massive energy shortfall and Iran to generate foreign exchange to balance what it would lose as a consequence of the sanctions.

At one time several Western companies had expressed an interest in the project and these companies include BHP Billiton, headquartered in Australia, Petronas of Malaysia, Total SA of France, Royal Dutch Shell and BG Group plc from the UK.

Sanctions against Iran would preclude their participation in the project.

Gazprom of Russia had also expressed an interest in the IP gas pipeline project and may well emerge as a major viable contender.

However, Pakistan has requested China, the other country opposed to United Nations-sponsored sanctions against Iran, to provide financing for the project.

Federal Finance Minister Dr Hafeez Sheikh gave approval to the appointment of an Industrial and Commercial Bank of China (ICBC) led-consortium as financial advisor for the IP project.

The consensus is that the Pakistani Foreign Minister was dispatched to Russia to seek the balance of the finances required for the commencement of the project.

Bilateral trade was also discussed during Khar's recent visit to Russia.

At present Russia does not even feature as a country of note in terms of our exports or imports.

The countries that formerly constituted a Soviet bloc of nations and referred to as Council for Mutual Economic Assistance accounted for 1.4 percent of our total exports in 2010-11 and 1 percent of our imports.

This figure is unlikely to be increased anytime soon especially given that India continues to enjoy very close ties with Russia and provides complementary goods to ours.

Discussions on enhancing people-to-people contact must be supported as that would form the basis of any future bilateral economic relations, especially with respect to enhancing private business contacts.

To conclude if Gazprom does become a party to an international consortium that would include Chinese, Iranian as well as Sui Northern and Southern Gas Pipeline companies for the construction of the Iran-Pakistan gas pipeline project and it would certainly establish economically fruitful relations between Russia and Pakistan.