Govt assessing future impact of renewed sanctions on Iran

Published August 16, 2018
The Iran-Pakistan gas pipeline has been built almost completely in Iran. Only the Pakistan portion is left, but renewed sanctions on Iran have cast another cloud of uncertainty over the project.
The Iran-Pakistan gas pipeline has been built almost completely in Iran. Only the Pakistan portion is left, but renewed sanctions on Iran have cast another cloud of uncertainty over the project.

ISLAMABAD: The Ministry of Energy (MoE) has been asked to finalise its evaluation of the impact of US sanctions on Pakistan’s options for growth of economic relations with Iran, particularly in the energy sector. The task for coming come up with firm recommendations for future course of action was assigned to the MoE by the inter-ministerial meeting arranged by the Ministry of Foreign Affairs.

The MoE’s recommendation would form part of the incoming government’s economic and trade relations abroad amid realignment of regional and international relationships among major global powers, particularly in the aftermath of US pulling out of nuclear deal with Iran, a senior official told Dawn.

He said all friendly and brotherly nations including Iran and Saudi Arabia have shown keen interest in strengthening and reviving economic and trade relations with Pakistan after the recent victory of Imran Khan’s PTI in general elections and the foreign affairs ministry wanted to add maximum substance to the opening opportunities and challenges.

At the centre of Pakistan-Iran relations is the energy sector cooperation, particularly the Iran-Pakistan (IP) gas pipeline worth about $7.5 billion that has remained stalled for five years of the PML-N tenure.

Iran’s ambassador in Islamabad was among the first few foreign diplomats to have called on prime minister-in-waiting Imran Khan with the desire to strengthen relations.

Meanwhile Saudi Arabia is holding out the prospect, since April this year, of long term financing arrangement of $4bn with Jeddah-based Islamic Development Bank for oil financing, starting current fiscal year. King Salman and Crown Prince Mohammad Bin Salman also directly called Mr Khan and promised to exchange top level visits.

The official said key stakeholders had recently reviewed the latest situation arising out of US withdrawal from Joint Comprehensive Plan of Action (JCPOA) signed between Iran and the P5+1 (namely China, France, Germany, Russia, the UK and the US).

The JCPOA signed in July 2015 was endorsed by the UNSC the same month that required Iran to limit its nuclear programme under International Atomic Energy Agency verification. President Donald Trump announced his decision to withdraw from the deal in May this year, and to restore nuclear sanctions against Iran. The EU, China and Russia are standing by the deal.

The inter-ministerial meeting arranged by the foreign affairs ministry is understood to have discussed possible ramifications for Pakistan of the US decision to pull out of JCPOA and deteriorating bilateral relations between Islamabad and Washington.

The official said Pakistan always wanted to have friendly relations with neighbouring Islamic nations through economic engagements that remained partly affected by US sanctions that also hampered implementation of IP gas pipeline and even normal bilateral trade.

The official said the “re-imposition of unilateral sanctions by President Trump on Iran that also involved secondary sanctions on third countries with effect from August and November 2018 posed serious challenges going forward”. It was in this background that all the ministries and agencies concerned were advised to submit their detailed input along with expert opinions to devise “an independent future economic and trade policy towards Iran, keeping in mind fresh limitations”.

It was also highlighted that the decision by China, Russia and European countries to side with Iran on JCPOA offered a window of opportunity for many. For example, while India had been warming up diplomatic relations with the Trump administration, it was the biggest importer of oil from Iran and had strengthened its strategic interests in Iran like building Chahbahar port and others.

Iran and Pakistan share a friendlier rapport, yet this has failed to convert into a vibrant trade relationship. Iran’s oil rich economy of $427.6bn, suffered multiple economic sanctions that deeply hurt its economy.

Pakistan’s trade with Iran is limited and has further reduced post 2010. As of 2017, Pakistan’s exports to Iran stood at $26.5 million while imports amounted to $327m. Pakistan’s main exports to the country include rice, paper and made-up textiles, while major imports from Iran were electrical energy, petroleum products and fruits and nuts. The trade could not flourish due to constraints of payment mechanism.

Iran may not have the potential to meet Pakistan’s import requirements for any consumer products or industrial equipment, yet it does have the capacity to meet the fuel need which is otherwise imported from UAE and Saudi Arabia. On the export side, there is potential for Pakistan to increase its textile and rice exports to Iran.

Former presidents Asif Ali Zardari and Ahmadinejad had performed the groundbreaking of IP on March 11, 2013 at Pak-Iran border of Gabd to deliver 750 million cubic feet of gas per day to Pakistan by January 2015. The project did not move forward as the PML-N government saw negative implications of possible return of US sanctions against Iran.

Published in Dawn, August 16th, 2018

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