India has been boycotting project talks since 2008 over concerns on safe delivery of gas and frequent changes in price of gas. New Delhi wants Iran to stick to the price agreed between them in 2007 and also wants it to be responsible for safe passage of gas through Pakistan.
The pipeline has been on the drawing board since the mid-1990s, when Iran and India inked preliminary agreements to transport gas through Pakistan. It was dubbed the "Peace Pipeline", because of hopes it would lead to a detente between neighbours India and Pakistan.
India fears for the safety of the pipeline in Pakistan's Balochistan province, home to a militant Islamist separatist movement, and wants Iran to take responsibility for safe passage of the gas through Pakistan. It wants to pay for the fuel only when it is delivered at the Pakistan-India border.Obviously, it is in India's best interest to get Iran to shoulder as much as the cost and responsibility for delivering energy across Pakistan as possible. India, in turn, would be forced to turn a blind eye to American/European-imposed embargoes on Iran and subsequently give one major regional power a disincentive to support the NATO status quo in Asia.
Unsurprisingly, the US is already protesting an Iranian-Pakistani pipeline deal, despite Pakistan's severe need for energy to maintain social stability (and government legitimacy).
The Pakistani government does not want a confrontation with the Obama administration. At the same time, it has to address the country’s severe energy shortages. Prime Minister Yousuf Raza Gilani told the media on June 22 that while the country was bound by UN sanctions on Iran, it was “not bound to follow” unilateral US measures. Last week Foreign Minister Shah Mehmood Qureshi confirmed that the “Pakistan-Iran gas pipeline project had been finalised despite problems and pressures.”
Pakistan needs an estimated electricity generation capacity of 4,000 to 5,000 MW greater than the present 16,500 MW. Industry has been badly hit by rolling electricity blackouts that have worsened during the hot summer months. Government-imposed power cuts of 8 to 12 hours a day have become the norm, with an increasing number of unannounced cuts. Public anger over the lack of electricity has boiled over into protests in many parts of the country, some of which have blocked main roads and led to violent clashes with police.
The country’s 2008-2009 Economic Survey released with the budget last month noted: “[T]he cumulative effect of the energy crisis on the economy is estimated at upward of 2 percent of GDP during 2009-2010 alone.” The impact is particularly significant as Pakistan’s economic growth slumped to 2 percent for 2008-09 as a result of the global downturn and according to World Bank estimates will only reach 3.7 percent for 2009-10.
Pakistan is under pressure from the global financial markets to slash its public debt and budget deficits. According to the country’s central bank, the total debt to GDP ratio hit 61 percent last month, crossing the 60 percent ceiling mandated by the Fiscal Responsibility and Debt Limitation Act. The external debt to GDP ratio is 30 percent—a growing portion of which is to the International Monetary Fund.And India may try to bypass Pakistan altogether with a costly, underwater pipeline straight to Iran.
While denying that India had dumped the land pipeline which passes through Pakistan, Krishna pointed out to India's concerns about security and pricing that have delayed India's participation.
Underlining Iran's importance for India recently in a speech, foreign secretary Nirupama Rao had said that unilateral sanctions against Iran would adversely impact "our energy security and our attempts to meet the development needs of our people".
Barring the fact that it is home to the second largest gas reserves in the world, Iran is also crucial for India for its role in stabilising Afghanistan.
As Rao had pointed out in her speech, Iran also has the potential of being a transit country for supply of third country energy to India, thanks to its its closer links with landlocked Central Asian countries. In fact, the matter was discussed with Turkmenistan president Gurbanguly Berdymukhamedov during his recent visit to India.While a three-way "Peace Pipeline" could help simmer tensions between India and Pakistan, and would clearly help out all three countries own economic and social stability, it appears all sides of the deal are lobbying for whatever deal benefits them the most. Iran will come out on top either way, but the real question is what gets built, and whether India or Pakistan can outmaneuver the other.
Once the dust settles, Turkey may get natural gas operation rights in Iran's South Pars region.
Based on this and the above deals, it appears Iran is positioning itself to be the new energy hub of Asia - which will further solidify itself against US-led, international sanctions, and make Iran an important regional actor in the years to come.