Pakistani Prime Minister Imran Khan (left) and Iranian President Hassan Rouhani hold a joint press conference in Tehran on April 22. (Photo by Iranian Presidency/Handout/Anadolu Agency/Getty Images)

Pakistan Informs Iran it’s Pulling Out of Pipeline Deal

Islamabad cites US sanctions on Islamic Republic, insisting it will resume work once restrictions are lifted

[Islamabad] Pakistan has told Iran that it cannot proceed on a joint gas pipeline project worth many billions of dollars due to US sanctions against the Islamic Republic, something that is likely to further deteriorate an already fragile diplomatic relationship.

Pakistani officials say that Islamabad has already informed Tehran in writing.

“We have informed Iranian authorities about our decision,” a spokesperson from Pakistan’s Ministry of Petroleum told the Media Line on Sunday. “Honestly, it was a tough decision. However, we are duty-bound to respect US sanctions on Iran.”

In February, Iranian authorities served Pakistan with a formal notice regarding a delay in the execution of the project, asking Islamabad to explain its position. At the same time, it warned that it might turn to an arbitration court to seek a penalty of $1 million per day.

In its formal reply, Pakistan insisted it had been serious in its intent to undertake the Iran-Pakistan Gas Pipeline project, but that US sanctions were now a major hurdle.

“We will resume work on this project if the US lifts the ban,” Petroleum Ministry spokesperson told The Media Line.

Soon after he was sworn in as prime minister of Pakistan, Imran Khan announced that his government would seek cordial relationships with all its neighbors, including Iran. During a visit to the Islamic Republic last month, he reiterated that Islamabad looked forward to cooperating with Tehran.

The two sides agreed to enhance trade and tourism, but also to keep negotiating on the pipeline project. Authorities in Tehran said they would rescind the February arbitration warning if Pakistan extended the construction period for the 781-kilometer pipeline running from the Iranian border to Nawabshah, a well-established city in Pakistan’s Sindh province.

On his return, Khan directed officials to see what could be done about the pipeline project. According to government sources, petroleum officials informed him that Pakistan could not execute the project until the US lifted the sanctions.

“Under US sanctions on Iran, it is impossible to execute the project. We have just conveyed it to them [Iran] in writing,” Mobin Saulat, managing director of Inter State Gas, told The Media Line.

The pipeline project was conceived in the 1990s to connect Iran’s giant South Pars gas field to India via Pakistan. The US opposed the $7 billion project, forcing India to quit in 2009.

US sanctions against Iran are a major hindrance for most gas pipeline projects in the region. The Trump Administration has warned countries around the world to stop buying Iranian oil or face sanctions of their own.

Pakistan signed on to the pipeline project with Iran in 2009 for an expected period of 25 years. According to the agreement, construction was to be completed by December 2014 and would deliver 21.5 million cubic meters of gas per day to Pakistan.

Each country was responsible for the pipeline on its side of the border. Iran claims to have completed construction on its own segment.

Under a penalty clause, Pakistan was to pay $1 million per day to Iran starting on January 1, 2015, for failing to build its part of the pipeline.

If Iran takes the case to arbitration, Pakistan is likely to have to pay billions in penalties – something that could prove unbearable for an already cash-starved nation.

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