Iran looks to boost energy ties to nearby Pakistan

Pakistan is emerging as the latest battleground over Western efforts to squeeze Iran, with Tehran pursuing closer energy ties to its neighbor as its access to other markets tightens.

Iran recently offered to supply Pakistan with tens of thousands barrels of oil per day, a Pakistani official said Thursday. The deal would help ease the country's chronic energy shortages while guaranteeing Tehran a home for some of its crude.

Pakistan is also vowing to press ahead with a proposed natural gas pipeline with Iran despite fresh warnings from U.S. Secretary of State Hillary Clinton that the project could run afoul of American sanctions aimed at forcing Tehran to shelve its nuclear ambitions.

"We can't afford to be selective where we receive our energy supplies from," Pakistan Foreign Minister Hina Rabbani Khar said Thursday. "It is in our national interest to get energy from wherever we can."

Pakistan does not rank among Iran's biggest oil importers, which include China, Japan and India. But it is still an energy-hungry market just over the border that offers Iran an important gateway to growing South Asian markets further afield.

"It is only to be expected that Iran would be looking for new buyers for its oil," said Gala Riani, head of Middle East analysis for the consulting firm Control Risks. "Although its relations with Pakistan have traditionally been complex, Iran can't afford to be picky."

Pakistan's role as energy partner to Tehran could grow further as U.S. and European sanctions continue to tighten. American officials have been pushing close Asian allies such as Japan and South Korea to reduce their reliance on Iranian crude, but Washington's influence in Islamabad has weakened as U.S.-Pakistan relations grow more strained.

Iran's latest offer to Pakistan could see it shipping up to 80,000 barrels of crude a day on a deferred payment basis, said Irfan Qazi, a spokesman for Pakistan's Ministry of Petroleum and Natural Resources. He declined to speculate whether this would go against international sanctions.

"It's an initial offer given by Iran," he said, adding that the details still needed to be worked out.

Pakistan produces both oil and natural gas, but not enough to meet demand.

The country is scrambling to secure supplies of natural gas, in large part to keep its power plants running.

Much of Pakistan is subject to rolling power cuts up to 18 hours a day because of electricity shortages. This winter, gas shortages meant that supplies to houses and factories were also rationed.

The shortfalls have badly affected industrial production, with hundreds of textile manufacturers — a mainstay of the economy — closing down in the last two years, according to industry groups. They also stoke resentment against the Western-leaning government.

Pakistan has been in talks with the tiny Gulf Arab state of Qatar to lock in supplies of 3.5 million tons of liquefied natural gas annually, Qazi said. Qatar shares control of a massive natural gas field with Iran.

Government-controlled gas supplier Qatargas confirmed the talks but declined to discuss the amounts of gas involved.

"In response to the expressed Pakistani need for long term LNG supplies, Qatargas is exploring the possibility of supplying LNG to Pakistan and is currently monitoring the development of various LNG receiving terminal projects in Pakistan," the company said.

Iran and Pakistan finalized their cross-border pipeline deal last year after years of on-and-off discussions. It calls for Iran to ship 760 million cubic feet of gas per day to Pakistan through the pipeline starting in 2014.

Work has yet to begin on the Pakistani side of the border, but Pakistani President Asif Ali Zardari last month vowed to move ahead on the project during discussions with Iranian President Mahmoud Ahmadinejad.

He brushed off U.S. concerns about the pipeline, saying his country's relations with Iran would not "be undermined by international pressure of any kind."

But the U.S. is warning of consequences if the project gets under way.

Clinton told U.S. lawmakers Wednesday that construction of the pipeline would be seen as a breach of American sanctions on Iran.

"We all know what the consequences of that are. And it would be particularly damaging to Pakistan, because their economy is already quite shaky," she said. "This additional pressure that the United States would be compelled to apply would further undermine their economic status. So we've been very clear in pointing out the consequences of pursuing such a pipeline."

The U.S. is committed to giving Pakistan $7.5 billion over five years to try and stabilize the government and win the support of its virulently anti-American people. Around $1 billion of that is earmarked for projects to boost energy supplies.