Pakistan, Iran Commit to $10 Billion Trade Goal Amid US Threat of Sanctions

Despite its checkered history with Iran, Pakistan is increasing its ties with the Islamic Republic in an effort to stabilize its shaky economy

[Islamabad] Pakistan and Iran have pledged to boost bilateral trade to $10 billion within the next five years, signing eight agreements and memorandums of understanding across various sectors toward that end.

Iranian President Ebrahim Raisi arrived in Islamabad last week along with a high-level delegation on Monday for a three-day visit. Shortly after his arrival, he met with Pakistani Prime Minister Shehbaz Sharif.

Both leaders agreed to increase bilateral trade volume to $10 billion in the next five years

A statement from the Pakistani prime minister’s office stated that “both leaders agreed to increase bilateral trade volume to $10 billion in the next five years. They reaffirmed their commitment to expanding cooperation in trade, energy, communications, culture, and people-to-people relations.”

The office also noted that the two leaders agreed to develop a joint plan of action to address terrorist threats and other shared challenges.

The eight memorandums of understanding signed by Raisi and Sharif establish a special economic zone and a plan to increase collaboration in cinema.

In the press conference following the signing, Raisi declared the countries’ intention to increase their trade to $10 billion.

Raisi and Sharif also jointly called for an immediate and unconditional cease-fire in Gaza. They reiterated the call for humanitarian aid to assist the people of Gaza and emphasized the need for international efforts to lift the siege.

Pakistan’s Prime Minister Shahbaz Sharif (R) meets with Iranian President Ebrahim Raisi in Islamabad, Pakistan, April 22, 2024. (Pakistan Prime Minister’s Office)

The agreements with Iran may cost more than Pakistan bargained for, with the US warning on Tuesday that it may impose sanctions on any country that signs a trade deal with Iran.

US State Department deputy spokesperson Vedant Patel mentioned the agreements during a press briefing.

“Broadly, we advise anyone considering business deals with Iran should be aware of the potential risk of sanctions. But ultimately, the government of Pakistan can speak to their foreign policy pursuits,” he said.

Iran’s nuclear program has led to numerous global sanctions, resulting in limitations on its trade relations.

Iranian President Raisi received a warm welcome upon his arrival to Islamabad on Monday. He was received by Sharif at the prime minister’s house, where he was presented with an honor guard from the Pakistani military.

Following his meeting with Sharif, Raisi held discussions with Pakistani President Asif Ali Zardari and Chief of Army Staff Gen. Asim Munir.

In a statement, the Pakistani Ministry of the Interior said that the two countries reached an agreement to jointly address terrorism. The decision followed a meeting in Islamabad between Pakistan’s Interior Minister Mohsin Raza Naqvi, his Iranian counterpart Ahmad Vahidi, and Iranian Law Minister Amin Hossein Rahimi.

Raisi, accompanied by the delegation and by his wife, also visited the provincial capitals of Lahore and Karachi. During these visits, he met with business leaders and representatives.

Early Wednesday morning, the delegation returned to Tehran.

Raisi’s visit comes shortly after Iran and Israel exchanged drone and missile strikes, heightening tensions in the already unstable Middle East. The visit also follows Pakistan’s recent decision to ban an Iran-backed militia that had been actively involved in the Syrian civil war.

Pakistan and Iran often disagree about the instability along their shared border, with each side blaming the other for not effectively addressing the crisis.

Tensions escalated in January 2024, when both countries conducted airstrikes, purportedly targeting suspected militant hideouts within each other’s territories.

However, both sides have subsequently pursued peace initiatives, leading to the restoration of bilateral ties.

The relationship between Pakistan and Iran is multifaceted, characterized by a blend of cooperation, competition, and tensions.

The two countries have collaborated on various fronts, including trade, energy, and infrastructure development, while also coordinating on regional issues such as Afghanistan and terrorism.

The Media Line spoke with foreign policy experts regarding Raisi’s visit to Pakistan and the evolving regional dynamics.

Muhammad Shareh Qazi, an assistant professor at the University of the Punjab, Lahore who focuses on nuclear diplomacy in South Asia, told The Media Line that Pakistan is struggling to stay relevant in the region, facing both diplomatic and economic challenges.

He placed the Iranian president’s visit to Pakistan and the planned visits by Pakistani leaders to Saudi Arabia and China within the context of Pakistan’s ongoing negotiations with the International Monetary Fund to stabilize the Pakistani economy.

While the world might perceive this as geopolitical maneuvering or attempts to create power blocs, for Pakistan, it primarily serves to avert an economic crisis

“While the world might perceive this as geopolitical maneuvering or attempts to create power blocs, for Pakistan, it primarily serves to avert an economic crisis,” Qazi said.

Especially given the global economic shocks caused by the ongoing conflicts in Ukraine, Taiwan, and the Red Sea, as well as the confrontation between Israel and Iran, Pakistan is seeking economic stability, he noted.

“In terms of South Asia and the Middle East, Pakistan has bigger domestic problems that prevent it from playing any breakthrough role,” Qazi said, “and the most it can do is hope its economic diplomacy does not demand any political dividend in return.”

He described this moment as Pakistan’s transition from “a geostrategic nerve center to a geoeconomics player.”

Arhama Siddiqa, a research fellow at the Institute of Strategic Studies Islamabad, told The Media Line that the agreements between Pakistan and Iran highlight Iran’s increasing diplomatic aims.

“It is apparent that diplomacy is indeed dynamic, particularly in the recent improvement in bilateral relations between Pakistan and Iran,” Siddiqa said.

She noted other signs of Iran’s growing diplomatic ambitions, including its recent entry into the Shanghai Cooperation Organization and the BRICS economic bloc.

“Through the latest visit, Iran demonstrates its commitment to economic cooperation and collaboration with Pakistan, conveying a message of strength to global observers such as Israel,” Siddiqa said. “In essence, it illustrates Iran’s commitment to its international engagements.”

Both Iran and Pakistan benefit from regional stability and cooperation, she said.

“Pakistan, like all nations, would suffer from the consequences of any conflict, including increased inflation and economic instability caused by war,” she explained. She also noted that the chaos of war could be exploited by terrorist groups that are already plaguing Pakistan’s security.

“The unpredictable nature of the region’s current state [is] resulting in widespread conflict fatigue among both regional countries and the global community,” Siddiqa said. In response to the chaos, countries are seeking out regional partnerships and sustainable economic ties, she explained.

Irina Tsukerman, a New York-based national security and South Asia expert, told The Media Line that cooperation between Iran and Pakistan is nothing new.

“Historically, Iran and Pakistan have maintained strong, sometimes volatile relations, as Pakistan sought to balance its interests between Iran and Saudi Arabia,” she said, adding that more recently, the two countries have collaborated to address the terrorist threat from Baloch separatists.

Both Iran and Pakistan possess nuclear capabilities and share aspirations in the nuclear domain. Furthermore, they are increasingly aligned with China on economic and security matters, leading to their relationship being characterized by a dependence on China’s support, regional investments, and shared interests.

“Both Iran and Pakistan possess nuclear capabilities and share aspirations in the nuclear domain,” Tsukerman said. “Furthermore, they are increasingly aligned with China on economic and security matters, leading to their relationship being characterized by a dependence on China’s support, regional investments, and shared interests.”

Tsukerman said that Pakistan is trying to achieve its diplomatic and economic goals while avoiding getting caught up in the conflict between Israel and Iran and its proxies. “Considering Pakistan’s lack of diplomatic ties with Israel and stronger relations with Turkey, which shares a complex relationship with Iran but has grown closer on various issues, Pakistan is likely to cooperate with Iran as long as it remains unaffected or protected from any potential security or political consequences,” she said.

“While both countries may support each other in international forums, Iran could eventually push Pakistan to become a closer ally,” Tsukerman said. “This prospect concerns the United States, which seeks to restrain Iran’s alliance expansion and mitigate the effects of Middle Eastern conflicts on Southeast Asia.”