Thursday, March 29, 2012

All in the Pipeline

Pakistan has announced that it will seek Russian funding for its multi-billion dollar gas pipeline from Iran, after the Industrial and Commercial Bank of China (ICBC) failed to sign up to a consortium to finance Pakistan’s $1.5 billion share of the project.  The multi-billion-dollar gas pipeline aims to export 7.8 billion cubic meters per year of Iranian natural gas to Pakistan for 25 years.
A Pakistani delegation will visit Moscow early next month to have discussions with Russian officials as well as executives at the gas giant Gazprom. It is hoped Russian investors will be less risk averse than the Chinese, who pulled out over fears that the project would be hit by sanctions on the Iranian government by the international community. Chinese companies have thus far defied the Iran Sanctions Act, which bars US companies and financial institutions from doing business with anyone that has ties with Iran. However, the Chinese financial institutions (such as the ICBC) that have dealings in the US are worried of losing out on a lucrative market. Given the good relations between Iran and Russia, Moscow’s intentions may not be purely business focused. Pakistan has recently increased efforts to gain greater backing from Russia. Pakistan Foreign Minister Hina Rabbani Khar visited Moscow earlier this year to enhance bilateral relations on issues ranging from energy to security. Pakistan is facing a growing energy crisis with most part of the country suffering lengthy blackout, and with an already instable domestic situation it looks likely to bypass any American pressures.

However, the US hopes that it can use its improving relations with Russia to pressure Tehran on the nuclear issue, but Russian backing for the Iran-Pakistan pipeline could give Moscow an important strategic footing in the region. Nevertheless, Russia may have to be more pragmatic given the substantial push by the Obama administration to repeal trade restrictions imposed to stop business relations with Russian officials linked to human rights abuses. The feeling in the administration is that with Russia gaining membership of the WTO, the Jackson-Vanik and Magnitsky restrictions may leave American companies at a disadvantage. However, Obama is likely to face opposition as the restrictions are supported by both sides of the Senate, and may want to counteract accusations of weakness towards the Russians during an election year.

Obama recently advocated an alternative plan, transporting gas from Turkmenistan through Afghanistan to Pakistan and India, effectively bypassing Iran. Such a project would eliminate Russian involvement but has faced staunch opposition from Pakistan. Given the extremely fragile security situation in Afghanistan, Pakistan would be averse to such a plan; not to mention the current worsening of Americans relations with Afghanistan and Pakistan. Instances such as the US airstrikes that killed 24 Pakistani soldiers at Afghan border outposts in a hotly disputed attack in November have intensified already furious public opposition to any continued Pakistani support for the US-led effort to defeat a Taliban insurgency in Afghanistan. The killing of Bin Laden without the involvement of Pakistan has led to reprisals from Islamabad such as blocking NATO from using Pakistani route to transport supplies to Afghanistan. The US has threatened Pakistan with sanctions if it carries on with the pipeline plan, but neither Pakistan, nor Afghanistan is likely to listen to Obama on this issue and a Russian hand may be too tempting to ignore. 

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