US Sanctions forces Pakistan to abandon gas pipeline project with Iran

Pakistan has cancelled the building of its major gas pipeline with Iran due to the threat of economic sanctions imposed by the USA. The decision seemingly concludes around a decade of expectations for the sabotaged project.

The government in Islamabad has issued a Force Majeure and Excusing Event notice to Iran under the Gas Sales and Purchase Agreement (GSPA), which resultantly suspends Pakistan’s obligations under the GSPA.

The country’s Minister of State for Petroleum, Dr Musadik Malik confirmed that the pipeline – which aimed to supply 750 million cubic feet of gas per day to Pakistan from its western neighbor – is stalled due to international sanctions on Iran.

The business will only resume once the sanctions are lifted and no longer threaten to hit Pakistan’s own state-owned entities. In that regard, no date or deadline can be given for the completion of the Iran-Pakistan Gas Pipeline Project.

n his policy statement placed on the floor of the National Assembly, the minister also clarified Iran’s stance on the matter, saying that Tehran had disputed Islamabad’s force majeure notice.

Earlier this year, Iran warned Pakistan that if it failed to complete its side of the pipeline deal and fulfill the contract by March 2024, then it would be hit with a penalty of $18 billion.

Malik outlined, however, that the dispute can only be settled through international arbitration if Iran does not accept Pakistan’s notice. Consequently, the exact amount of a penalty, if any, is subject to the outcome of the arbitration to be determined by the arbitrators.

Pakistan’s force majeure notice based on external factors beyond its control comes a week after the visit to the country by Iranian Foreign Minister Hossein Amir Abdollahian, during which he urged the completion of the project as one that would benefit both nations.

He also discussed with his Pakistani counterpart, Bilawal Bhutto, potential solutions to existing financial problems between them.

Amid Pakistan’s existing economic crisis, the nation of over 240 million people experiences regular blackouts of around 12 hours per day and sometimes more, making the supply of gas and electricity a major priority for the Pakistani government.

While Iran has reportedly completed its side of the project, having constructed hundreds of kilometers of the pipeline, Pakistan has long questioned its ability to finish its end of the line due to its rampant economic struggles and the threat of US sanctions.

In recent years, Islamabad has attempted to persuade Washington to exempt it from sanctions and measures in order to allow it to complete the pipeline project.

Just as the US government temporarily exempted humanitarian relief-related trade from the sanctions imposed on Syria after the deadly earthquake that struck the country in February, Pakistan may similarly seek sanctions exemption in relation to its energy supply from Iran.

The Government of Pakistan is engaged with the US authorities, through diplomatic channels, to seek exemption for the project, said Malik. All necessary actions are being taken to construct the gas pipeline at the earliest.

Despite those overtures by Pakistan earlier this year, the USA has not given any response.

If Washington does not give the green light for the project to go ahead on humanitarian and energy grounds, it is expected that Islamabad will demand that it pays any penalty imposed by Tehran.

Middle East Monitor / ABC Flash Point News 2023.