That IP gas pipeline project is both an economic and strategic issue is a loud and clear fact. The groundbreaking of Iran-Pakistan (IP) gas pipeline ceremony held in Chah Bahar was attended by the Iranian and Pakistan presidents with the joint statement declaring that the project is "in the interest of peace, security and progress of the two countries...and it will also consolidate the economic, political and security ties of the two nations."
The Iranian President hailed the project as a sign of resistance against domination (clearly a reference to US opposition to the project and sustained warnings by the State Department to Pakistan to desist or else face sanctions); and the Pakistani President lamented the fact that the international community appeared not to be cognisant of 'appropriate solutions to many issues' with a clear reference to US opposition to the project and Pakistan's acute energy crisis which need no elaboration.
The Iran Sanctions Act (ISA) is a modified version of the 1995 Iran Libya Sanctions Act (ILSA) and was passed by US Congress on 30 September 2006 by voice vote and unanimous consent. The Act requires the US President to impose sanctions on foreign companies/entities that invest more than 20 million dollars in one year in Iran's energy sector.
The US has been successful in using diplomacy to limit investment in Iran by "persuading European governments to limit new export credits to Iran and to persuade European banks not to provide letters of credit for exports to Iran or to process dollar transactions for Iranian banks." This accounts for China, South Korea and Japan's announcement that they will trade in their respective currencies with Iran.
However subsequent to the passage of new sanctions on Iran by the US in 2012 and which became effective on 6 February 2013, Turkish and Indian trade with Iran has been affected. Turkey had paid for Iranian gas in Turkish liras held in Halkbank which then allowed Iran to purchase Turkish gold which was carried in hand luggage to Dubai where it was either shipped to Iran or sold for hard currency. Halkbank also processed 55 percent of India's payments for Iranian oil with the remainder paid in rupees which Iran used to buy Indian products Latest US sanctions have tightened sales of precious metals to Iran and prevent Halkbank from processing oil payments of other countries including India.
Be that as it may it is not clear whether the Pakistan government can be sanctioned or whether the company set up to implement the IP pipeline project will be singled out and sanctioned. In addition the US President has the authority to waive the sanctions if he certifies that doing so is important to US national interest. And there is little argument that till 2014 the US President may deem it in US national interest to continue to engage with Pakistan on current terms which effectively implies meeting the military bill for fighting the war on terror from the Coalition Support Fund, extending civilian assistance to Pakistan under the Kerry Lugar bill of 1.5 billion dollars a year (though to date this amount has been lower than envisaged) and perhaps withdrawing from USAIDs engagement with Pakistan's energy sector.
However, a statement made by Dr Asim Hussain the Advisor to the Prime Minister on Petroleum and Natural Resources, needs to be highlighted: "Can America guarantee that they will never make friends with Iran? Will Iran never come to terms with the world order? And if someone can give us that guarantee then we will not build the infrastructure." It is relevant to note in this context that pipelines from Iran are also proposed to be laid for gas exports to Europe and they too are premised on the same principle namely that economic compulsions may temporarily take a back seat to political compulsions but not indefinitely.
Last but not least. Independent analysts, however, argue that the countries exporting natural gas can use this commodity as an effective foreign policy weapon. The Turkish-Iranian gas crisis of January 2007 and 2009 Russia-Ukraine gas dispute are cases in point. In the Turkey-Iran gas crisis, Tehran was accused of gradually but drastically reducing its supply in December 2006. Iran's oil minister cited the freezing cold in his country and the need to supply its industry first as reasons behind that big cut. Turkey however did not buy this explanation because, according to it, as the supply had already been interrupted before, in the summer of 2006. Some in Turkey even speculated that the delivery stop was a hidden threat by Iran against its contract partner and should therefore be interpreted politically. From January 2007 onwards, Turkey temporarily met its energy needs by buying liquefied natural gas (LNG) from Malaysia and Trinidad and Tobago, which were obviously more expensive than normal gas. When Iranian supplies were cut off completely, the volume of natural gas imported from Russia was increased, although it is another matter of debate that Turkey, a Nato member, paid back to Russia's crucial help by playing the role of more than a silent spectator in the Russia-Georgia conflict of 2008. Nevertheless, it is quite obvious that the energy imperatives led to the articulation of a new chapter in the bilateral relationship of these two countries that had fought at least one dozen wars in the 19th Century.
As far as Pakistan is concerned, this newspaper hopes that our policymakers must have critically evaluated all the pros and cons of entering into this agreement between the two neighbouring countries sharing the same religion and culture. It also hopes that under no circumstances shall the Islamic republic use the shipments of natural gas to Pakistan as a foreign policy weapon because Islamabad - by inking this historic but risky deal - has already risked the US belligerence and hostility that could hit Pakistan in the shape of unilateral sanctions. Remember, Pakistan is not Turkey which has been successfully diversifying its foreign sources of gas supply. Although, Turkmenistan presents itself as another major source of gas through proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, it appears to be a matter of long haul as its name suggests. Moreover, it is not feasible in short- or mid-term even if the project is reduced to Turkmenistan-Afghanistan-Pakistan (TAP) mainly because of a highly volatile situation in Afghanistan.
Wednesday, March 13, 2013
Energy security: IP pipeline project
That IP gas pipeline project is both an economic and strategic issue is a loud and clear fact. The groundbreaking of Iran-Pakistan (IP) gas pipeline ceremony held in Chah Bahar was attended by the Iranian and Pakistan presidents with the joint statement declaring that the project is "in the interest of peace, security and progress of the two countries...and it will also consolidate the economic, political and security ties of the two nations."
The Iranian President hailed the project as a sign of resistance against domination (clearly a reference to US opposition to the project and sustained warnings by the State Department to Pakistan to desist or else face sanctions); and the Pakistani President lamented the fact that the international community appeared not to be cognisant of 'appropriate solutions to many issues' with a clear reference to US opposition to the project and Pakistan's acute energy crisis which need no elaboration.
The Iran Sanctions Act (ISA) is a modified version of the 1995 Iran Libya Sanctions Act (ILSA) and was passed by US Congress on 30 September 2006 by voice vote and unanimous consent. The Act requires the US President to impose sanctions on foreign companies/entities that invest more than 20 million dollars in one year in Iran's energy sector.
The US has been successful in using diplomacy to limit investment in Iran by "persuading European governments to limit new export credits to Iran and to persuade European banks not to provide letters of credit for exports to Iran or to process dollar transactions for Iranian banks." This accounts for China, South Korea and Japan's announcement that they will trade in their respective currencies with Iran.
However subsequent to the passage of new sanctions on Iran by the US in 2012 and which became effective on 6 February 2013, Turkish and Indian trade with Iran has been affected. Turkey had paid for Iranian gas in Turkish liras held in Halkbank which then allowed Iran to purchase Turkish gold which was carried in hand luggage to Dubai where it was either shipped to Iran or sold for hard currency. Halkbank also processed 55 percent of India's payments for Iranian oil with the remainder paid in rupees which Iran used to buy Indian products Latest US sanctions have tightened sales of precious metals to Iran and prevent Halkbank from processing oil payments of other countries including India.
Be that as it may it is not clear whether the Pakistan government can be sanctioned or whether the company set up to implement the IP pipeline project will be singled out and sanctioned. In addition the US President has the authority to waive the sanctions if he certifies that doing so is important to US national interest. And there is little argument that till 2014 the US President may deem it in US national interest to continue to engage with Pakistan on current terms which effectively implies meeting the military bill for fighting the war on terror from the Coalition Support Fund, extending civilian assistance to Pakistan under the Kerry Lugar bill of 1.5 billion dollars a year (though to date this amount has been lower than envisaged) and perhaps withdrawing from USAIDs engagement with Pakistan's energy sector.
However, a statement made by Dr Asim Hussain the Advisor to the Prime Minister on Petroleum and Natural Resources, needs to be highlighted: "Can America guarantee that they will never make friends with Iran? Will Iran never come to terms with the world order? And if someone can give us that guarantee then we will not build the infrastructure." It is relevant to note in this context that pipelines from Iran are also proposed to be laid for gas exports to Europe and they too are premised on the same principle namely that economic compulsions may temporarily take a back seat to political compulsions but not indefinitely.
Last but not least. Independent analysts, however, argue that the countries exporting natural gas can use this commodity as an effective foreign policy weapon. The Turkish-Iranian gas crisis of January 2007 and 2009 Russia-Ukraine gas dispute are cases in point. In the Turkey-Iran gas crisis, Tehran was accused of gradually but drastically reducing its supply in December 2006. Iran's oil minister cited the freezing cold in his country and the need to supply its industry first as reasons behind that big cut. Turkey however did not buy this explanation because, according to it, as the supply had already been interrupted before, in the summer of 2006. Some in Turkey even speculated that the delivery stop was a hidden threat by Iran against its contract partner and should therefore be interpreted politically. From January 2007 onwards, Turkey temporarily met its energy needs by buying liquefied natural gas (LNG) from Malaysia and Trinidad and Tobago, which were obviously more expensive than normal gas. When Iranian supplies were cut off completely, the volume of natural gas imported from Russia was increased, although it is another matter of debate that Turkey, a Nato member, paid back to Russia's crucial help by playing the role of more than a silent spectator in the Russia-Georgia conflict of 2008. Nevertheless, it is quite obvious that the energy imperatives led to the articulation of a new chapter in the bilateral relationship of these two countries that had fought at least one dozen wars in the 19th Century.
As far as Pakistan is concerned, this newspaper hopes that our policymakers must have critically evaluated all the pros and cons of entering into this agreement between the two neighbouring countries sharing the same religion and culture. It also hopes that under no circumstances shall the Islamic republic use the shipments of natural gas to Pakistan as a foreign policy weapon because Islamabad - by inking this historic but risky deal - has already risked the US belligerence and hostility that could hit Pakistan in the shape of unilateral sanctions. Remember, Pakistan is not Turkey which has been successfully diversifying its foreign sources of gas supply. Although, Turkmenistan presents itself as another major source of gas through proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, it appears to be a matter of long haul as its name suggests. Moreover, it is not feasible in short- or mid-term even if the project is reduced to Turkmenistan-Afghanistan-Pakistan (TAP) mainly because of a highly volatile situation in Afghanistan.
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