Iran gas pipeline: A solution to Pakistan's energy woes?

Pakistan announced at the end of March that it was planning to ask the United States to relax possible sanctions around a natural gas pipeline project from neighboring Iran.

Islamabad wants to soon start work on the long-planned project, known as the "Peace Pipeline."

Both sides agreed to build the pipeline in 2009, but it has since faced delays and funding challenges. 

Iran is now threatening Pakistan with legal action if it fails to build the Pakistani section of the pipeline.

"Pakistan wants to avoid a possible legal dispute with Iran in international courts and a fine of $18 billion (€16.6 billion)," Sabena Siddiqi, a Pakistani journalist specializing in foreign policy issues, told DW.

"Tehran has set September 2024 as a deadline for Islamabad to finish the construction of the pipeline on the Pakistani side," she said. "The Pakistani section of the pipeline is about 780 kilometers long [484 miles]."

Plans thwarted by US sanctions

Iran has been striving to build the pipeline since the 1990s. It was originally intended to transport Iranian gas all the way to India. However, New Delhi withdrew from the project due to US sanctions against Iran over its contentious nuclear program.

Pakistan and Iran signed a 25-year supply deal in 2009, and Tehran completed building the over 900-kilometer-long Iranian section of the pipeline 10 years ago. But construction on the Pakistani side has been held up, drawing Iranian consternation.

Islamabad has now announced its intention to soon begin constructing the first 80 kilometers of the pipeline link from the Iranian border to the Pakistani port city of Gwadar, in a bid to avoid a potential Iranian lawsuit for breach of contract.

But following the Pakistani announcement, the US said it did not support the project from going forward. Washington also warned about the risk of sanctions in doing business with Tehran.

"We do not support the Pakistan-Iran gas pipeline project," said the US State Department.

"We always advise everyone that doing business with Iran runs the risk of touching upon and coming in contact with our sanctions, and would advise everyone to consider that very carefully," a State Department spokesperson told reporters on March 26.

Pakistan is currently worried about having to pay possible financial compensation amounting to billions of dollars for delays in the construction of its section of the pipeline, said Umud Shokri, a Washington-based energy expert.

"Islamabad is aware that Iran is struggling with natural gas shortages, and that it is not in a position to export gas to Pakistan due to dilapidated infrastructure," he said.

Can Iran produce enough gas?

Iran has the world's second largest natural gas reserves, behind only Russia. Still, the country confronts gas shortages almost every winter, forcing the government to ration supplies.

Excessive and inefficient consumption of subsidized natural gas, by both households as well as industry, lies at the root of the problem.

According to the latest information from the Energy Institute's "Statistical Review of World Energy," Iran ranked fourth on the list of countries with the highest gas consumption in the world in 2022, behind the United States, Russia and China.

"Due to the US sanctions, Iran lacks access to key technologies," said Shokri. "The tech capabilities of domestic companies are not sufficient to increase the production capacity in such a way that Iran could actually export natural gas to Pakistan. Unless Iran wants to supply Russian gas to Pakistan."

Legal options remain limited

In response to the US sanctions, Tehran is seeking closer cooperation with Moscow. In July 2022, the Russian energy company Gazprom signed a cooperation agreement worth $40 billion with the National Iranian Oil Company, NIOC. According to the deal, Gazprom was to support NIOC in the development of two gas and six oil fields.

Observers have said, however, that Iran would not earn much if it were to just supply Russian gas to Pakistan through its territory.

Siddiqi, the Pakistani journalist, meanwhile believes Iran's chances of being successful in a legal battle against Pakistan appear slim.

Tehran could take its case to the United Nations Commission on International Trade Law, based in Vienna, but, said Siddiqi, "given the unstable regional situation, the war in Gaza and Iran's role in some crises, it is highly unlikely that Washington would allow Iran to successfully pursue its case."

She added: "Instead, the US could try to offer Pakistan alternative options for its energy security."

This article was originally written in German.