Iran-Pakistan cooperation complicated by sanctions, porous border

Pakistan’s Prime Minister Shahbaz Sharif and Iranian President Ebrahim Raisi jointly inaugurated two high-value projects at their countries' border last week, marking an upbeat phase in relations.

Lighting up the Pakistani port city of Gwadar and its surrounding areas, the new Polan-Gabd Electricity Transmission Line will bring relief to an energy-starved region. Despite years of delays, the facility was finally completed in time for the border ceremony. 

Resolving to deepen ties with Pakistan in the energy sector, Raisi stated that Iran had made “rapid advancements” in the energy sector including electricity, oil and gas. He said Iran was “fully prepared” to increase the capacity of the 1,000-megawatt transmission line. 

In addition, a new marketplace will link the Iranian city of Pishin with the Pakistani city of Mand. In a bid to speed up trade, six such border markets are being jointly constructed by the two countries.  

Speaking to Al-Monitor on condition of anonymity, a European diplomat posted in Islamabad said that the meeting between Raisi and Sharif at Mand-Pishin projected a strong symbolism and underlined "both the economic opportunities and the challenges — mostly related to security — ahead.” 

The diplomat added that the electricity project "looks even more realistic in the context of the role Beijing is playing in the final talks between Tehran and Riyadh.” 

Raisi said both countries see the border as an “opportunity and not a threat” and accepted an invitaion to visit Pakistan. The two leaders discussed the China-Pakistan Economic Corridor and decided to finalize a pending free trade agreement as soon as possible.  

Lost opportunities   

Having missed out good opportunities ranging from Istanbul-Tehran-Islamabad train service to the much-delayed Iran-Pakistan pipeline, the two countries need to find ways to make bilateral plans sustainable.  

Initiated in 1995, Iran’s huge offshore South Pars gas field was supposed to supply energy resources to Pakistan and onward to India, but New Delhi dropped out in 2008.  

Pakistani Commerce Minister Syed Naveed Qamar stressed the need to speed up the long-delayed gas pipeline during a meeting last week with Vahid Jalalzadeh, chairman of the Commission of National Security and Foreign Policy of Iran.    

Zeeshan Shah, financial analyst at FINRA in Washington, told Al-Monitor. “Due to the excuse of US sanctions, the inability of Pakistan to complete its side of the Iran-Pakistan gas pipeline is a such a missed opportunity.”   

Iranian officials say Tehran has managed to complete its part of the pipeline. If Pakistan does not go ahead with the project now, it may have to pay a staggering penalty of $18 billion.

Shah said he had heard that the Pakistani government wants to approach the United States for either “a waiver for sanctions, along the lines of the waiver India has received for its investment in Chabahar, or that the United States assume payment of the penalties. These ideas are nonstarters, and out-of-the-box thinking is needed to complete the pipeline.”  

The US sanctions target companies that do business with Iran and also have business interests in the United States. But Pakistani companies that have no financial dealings with the US “would be at the forefront of constructing the pipeline,” Shah said. "Also, a surcharge could be tacked on to gas consumers in Pakistan to finance construction of the pipeline. If this would occur, the benefits would be enormous for Pakistan."

Another reason why most Iran-Pakistan plans have fizzled out is instability. The nations share a 596-mile border, but trade volume lingers at around $2 billion due to regional tensions or cross-border attacks.   

For more than a decade, the sparsely populated border areas have turned into hideouts for militants. Smuggling has thrived, and a regular cross-border economy is protected by local mafias. 

“Both countries have accused each other of harboring terrorist/jihadi groups within their respective border provinces," the diplomat noted. "Moreover, Tehran would like to keep the dialogue open with Afghanistan, and it needs Pakistan’s support to contain ISKP [Islamic State Khorasan Province].” 

In fact, just days after the inauguration of new border projects, an attack took place at Saravan on the Iranian side that killed five border security guards. 

Finally, Islamabad’s close ties with Riyadh have also prevented Pakistan-Iran cooperation. “Generally, US sanctions and implicit Saudi opposition were the reasons given for noncompletion of the pipeline. With the Saudi-Iranian rapprochement occurring, only the excuse of US sanctions remains, with the threat of financial penalties due to noncompletion of the pipeline,” Shah said. 

He said that economic cooperation won’t increase overnight due to international sanctions. 

For the time being, the free trade agreement with Iran can boost Pakistani transit trade to Turkey, Azerbaijan and Iraq. “These initiatives would not necessarily be affected by US sanctions like the gas pipeline as trade could easily be conducted in rupees and riyals,” Shah said.