Pakistan-Iran Relations: Unlocking Economic Potential and Navigating Regional Dynamics

• Strengthening Economic Ties: Exploring Trade Opportunities and Investment Potential
• Navigating Regional Dynamics: Balancing Relations with Neighboring States
• Enhancing Strategic Cooperation: Projects like the Iran-Pakistan Gas Pipeline and Border Markets

Iran is the southwestern neighbor of Pakistan and an Islamic country that has deep cultural, historic and religious roots with Pakistan. This is a fairly large country about 1.5 times the size of Pakistan with 83 million+ populations. Iran is an oil rich country having borders with Iraq, Turkey, Afghanistan, Pakistan, some Central Asian states and the Caspian Sea and Persian Gulf. Strategically, Iran has a long coastal line in the Persian Gulf hence it is closer to all Arabian Gulf GCC states and a considerable part of maritime domain exits is the Gulf of Oman and the Arabian Sea.

Moreover, another interesting fact is that Iran is closely linked with the Central Asian States and Russia through the Caspian Sea that is a natural pivotal point between Iran, the Caucasus region, Russia and Central Asian states. This pivotal Caspian Sea has much potential of exploration within ECO block countries and having it linked further with CPEC, hence huge economic and strategic activities can be planned within above said pivotal countries.

For Pakistan, it is critical to understand its geographical location and its border situation with neighboring countries. The total border length with all its neighbors is approximately 6774 km. The border with traditional rival India itself is 3652 km long in the East including areas of Line of Control (LOC) with heavy military presence, a 2252 km long border with Afghanistan through Durand Line which Afghanistan does not recognize, a 585 km border with traditional ally China and a 909 km long border with Iran. The relations between Pakistan and Iran were quite pleasant during the Shah’s time but there have been some ups and downs definitely over the period.

After the independence of Pakistan on 14th August 1947, Iran had the unique distinction of being the first country to internationally recognize the sovereign status of Pakistan and then they continued cooperating economically. This cooperation lasted throughout the Cold War, with Iran supporting Pakistan in its conflicts with arch-rival, India, and in return, Pakistan supported Iran militarily during the Iran–Iraq War in the 1980s. Since 2000, relations between the two states have been relatively normalized, and economic and military collaboration has strengthened. Both countries are founding members of the Economic Cooperation Organization (ECO) and the Regional Cooperation for Development (RCD).

On the other hand, Pakistan’s relations with Iran have been strained at times due to sectarian tensions but economic and trade relations continued to expand in both absolute and relative terms, leading to the signing of a Free Trade Agreement between them in 1999. At present, both countries are cooperating and forming alliances in several areas of mutual interest, such as fighting the drug trade along their common border and combating the Balochistan insurgency along their border. Iran has also expressed an interest in joining the China-Pakistan Economic Corridor.

Pakistan-Iran Economic Potential

Trade between Pakistan and Iran peaked at US$1.32 billion in 2008-2009 but subsequently declined and is presently around US $265 million. The elected governments in both countries want to boost trade which remained low due to international sanctions on Iran. However, several other countries like China, Russia, and India were able to resist these sanctions and maintain trade relations with Iran. Pakistan must also maintain trade relations with Iran. The trade volume between the two countries remained low despite the signing of a preferential trade agreement on March 4, 2004, which became operational in September 1, 2006. Nevertheless, it is understood that the two countries have a much higher trade volume through informal channels i.e. smuggling and the third country transactions. Pakistan has identified five places for setting up trading centers along the Pak-Iran border, such as:

• Taftan-Minjaveh
• Ladgashtjalaq
• Parome-Kuhak
• Mand-Peshin
• Santsar-Nobandan

The purpose of these common border markets is to sell goods at a concessional rate of customs duty and other taxes to control the growing cross-border illegal trade.

Iran Pakistan Gas pipeline:

Iran Pakistan Gas Pipeline project or IP Gas Pipeline Project is under construction, it a 2,775-kilometre pipeline to deliver natural gas from Iran to Pakistan and has to be completed at any cost. This is a critical project for establishing strategic relations and enhancing economic cooperation between the two countries. It would ensure the supply of 750 million cubic feet of natural gas per day to Pakistan which is required to keep our industrial and commercial wheels in perpetual motion. Even though Iran has to be dealt with carefully due to imposed UN sanctions, Pakistan has to manage one way or another for the execution of this project.

It is expected that gas delivered from Iran through the pipeline will cost US$11 per million British thermal unit (MMBTU) compared to $13 per MMBTU which is expected to be the price of gas delivered through the proposed Trans-Afghanistan Pipeline and $18 per MMBTU of imported LNG. The pipeline’s section in Iran was built by the National Iranian Gas Company which used Khatam al-Anbia as a subcontractor. In Pakistan, a consortium of Sui Northern Gas Pipeline Limited and Sui Southern Gas Company Limited is responsible for the construction of the pipeline.

The contract for engineering, procurement, construction, and financing of Pakistan’s section was signed with Iran’s Tadbir Energy. Iran agreed to provide a $500 million loan for construction payable in 20 years. However, on 13 December 2013, Pakistan’s Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi said that Iran was unable to fund the project citing ‘acute financial constraint’ as the reason. Pakistani authorities however are said to remain committed to the project. Both sides have decided to constitute a working group that would re-establish the new parameters for the projects, including a new time frame and other important issues involving financing of the pipeline to be laid down in the territory of Pakistan.

The top leadership of Pakistan and Iran met last year on Thursday, May 18th, 2023, and inaugurated the first border market as relations warmed between the two countries. This border market is located in the remote village of Pashin in Pakistan’s Balochistan province; this marketplace is the first of six to be constructed along the Pakistan-Iran border under a 2012 agreement signed by both governments. Pakistani Prime Minister Shahbaz Sharif and Iranian President Ebrahim Raisi also inaugurated an electricity transmission line that will provide some of Pakistan’s remote regions with Iranian electricity. Both sides assured they would do their best to improve security along the Pak-Iranian border and both also agreed to enhance trade and economic ties.

Conclusion

Pakistan has warm and very close ties with Saudi Arabia, but has always tried to maintain a balanced relationship with Riyadh and Tehran, long-time rivals, restored ties in 2023 in a Chinese-brokered agreement. The restoration of Saudi-Iranian ties is a huge regional development that shocked international power diplomacy. Having said that, despite positive aspects, there are some down factors that Iran has to comply with to be a bigger player in regional geopolitics. Iran had a stand-off with Pakistan on 18 Jan 2024 when Pakistan had to respond with aerial strikes on Iran and eliminate terrorist camps present in Iran. Moreover, Iran always played in the hands of India and overall Iran’s geo-political arena supporting India was seen as Iran working against the interest of Pakistan. Having said that, we hope Iran to be a good neighbor and explore the huge economic potential that exists between Pakistan and Iran.

by Anees Hafiz ~ The Writer is an engineering management professional and the author of ‘Pakistan`s Defence & Nuclear Doctrine’.

This article was Published on 30th March 2024 in THE ISLAMABAD TELEGRAPH  https://theislamabadtelegraph.com/2024/03/pakistan-iran-relations-unlocking-economic-potential-and-navigating-regional-dynamics/