Pakistan suspends pipeline project with Iran under threat of US sanctions

The Cradle, August 8, 2023 —

After cash-strapped Pakistan unilaterally suspended its obligations in the multi-billion-dollar project, officials announced plans to purchase more electricity from the Islamic Republic.

Pakistan has suspended its participation in building a major gas pipeline with Iran due to the threat of US economic sanctions, Minister of State for Petroleum, Dr. Musadik Malik, said in written testimony to the National Assembly on 7 August.

“Pakistan 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,” Malik wrote, noting that Iran disputes the validity of the notice.

“The matter will be finally settled through arbitration, should Iran take this matter to arbitration,” the minister added. “The exact amount of penalty, if any, is subject to the outcome of the arbitration to be determined by the arbitrators.”

In May, Pakistani officials warned that Islamabad faces paying an $18 billion fine if it fails to complete the Iran-Pakistan Gas Pipeline project by March 2024.

In his Monday statement, Malik added that the government is “engaged” in talks with US officials to plea for an exemption from sanctions for the project.

“All necessary actions are being taken to construct the gas pipeline at the earliest,” he stressed.

He also confirmed that the pipeline – which can supply 750 million cubic feet of gas per day to Pakistan – “is stalled due to international sanctions on Iran” and will only resume once the sanctions are lifted and no longer threaten Pakistan.

“No date and deadline can be given for the completion of the Iran-Pakistan Gas Pipeline Project,” the official said.

According to the terms of the GSPA, each country was obligated to construct a portion of the pipeline on its territory, and the first flow of Iranian gas to Pakistan was to start on 1 January 2015. Iran completed its portion of the pipeline in 2011.

As part of Pakistan’s dire economic crisis, the nation faces regular blackouts lasting 12 hours per day, if not longer.

To face this crisis, the Pakistani finance ministry revealed plans on 8 August to purchase more electricity from Iran. The decision was reportedly taken during a session of the Economic Coordination Committee chaired by Finance Minister Ishaq Dar.

Islamabad’s moves come less than a week after Iranian Foreign Minister Hossein Amir-Abdollahian visited the South Asian nation, where he signed a five-year commercial trade agreement.

The two countries also recently agreed to bolster defense cooperation to ensure border security.

Furthermore, in June, Islamabad announced a barter trade agreement with Russia, Iran, and Afghanistan to ease the mounting pressure on its depleted foreign reserves.

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