A viable energy partnership

November 28, 2021

Despite the recent crackdown, oil smuggling across the Iran-Pakistan border continues. The question is: why can the government not legalise import of oil from Iran?

A viable energy partnership

In January this year, Prime Minister Imran Khan chaired a high-level meeting to discuss illegal trade on the Pakistan-Iran border in Balochistan. According to the statistics presented in the meeting smuggled fuel from Iran was causing Pakistan a loss of at least Rs 100 billion ($650 million) a year. It was agreed in the meeting that if the government could stop this illegal trade, the revenue saved could be used for the development of the border region. The crackdown was carried out with full force but instead of generating support for the government, it angered the local people, and a campaign #JusticeForBorderVictims was started on social media against the clampdown. As a result of the strict measures taken so far four drivers are said to have died from starvation. As many as 12,000 trucks are reported stranded at various crossing points in Balochistan’s Makran division. Protest have been held across Balochistan against the closure of the border, which has been called a violation of the economic rights of the people.

Despite the crackdown, the smuggling continues. The question then is: why cannot the government take steps to legalise oil import from Iran? Why has not Pakistan taken advantage of the various payment mechanisms devised/ proposed by Iran, including barter, that have allowed its other trading partners like India, China, and Russia to continue the trade? The Quetta Chamber of Commerce has recently signed an MoU with the Zahedan Chamber to barter rice for oil. Can this private business engagement serve as a model for barter trade between the two countries?

Since 2013, when a new wave of economic sanctions was legislated as the US backed out of the Joint Comprehensive Plan of Action (JCPA) agreement, Pakistan, like many regional countries, had to stop buying petroleum products from Iran. The last time Diesel oil was legally imported, in 2009, the quantity, 1,000 tonnes, was ridiculously small. I hold that Pakistan should be actively importing oil from Iran for its needs.

India has been buying oil from Iran despite the embargo. The barter-like scheme is acceptable to Washington which allows India to make some of its oil payments to Tehran in rupees.

Though the US has specifically imposed an oil embargo, Pakistan has apparently also been discouraged to pursue an Iranian oil deal on account of the Iran-Saudi rivalry.

On the other hand, we have no qualms about importing electricity from Iran and, despite the sanctions regime have been paying the electricity bill through alternative sources like barter arrangements.

On the other hand, we have no qualms about importing electricity from Iran and have been paying the electricity bill through alternative sources like barter arrangements.

Pakistan currently imports 100 megawatts of electricity from Iran to light up its coastal areas in Balochistan. When the agreement was signed in 2003, Iran was asked to supply 35 megawatts. This was increased in 2011 to 70 megawatts. In 2016, as construction work for the deep-sea port of Gwadar picked up, an additional 30 megawatts were added to take the power supply to 100 megawatts.

Besides petroleum products, the Iran Pakistan Gas Pipeline project has also suffered on account of international pressures.

The agreement to construct a gas pipeline was signed in 2009. The project was to be completed in 2014—Iran had to build its side of the pipeline, and Pakistan had to complete the remaining on its soil. The pipeline was to deliver 21.5 million cubic metres (760,000 cubic feet) of gas per day to Pakistan. The project was, however, shelved by Pakistan. Keeping to its commitment, Iran has completed its side of the project. The US has consistently opposed the $7 billion project arguing that it violates the economic sanctions against Iran.

In February 2019, Iran issued a notice to Pakistan, warning it of seeking recourse to international arbitration for its failure to complete the pipeline on its territory. Iran argues that the US sanctions do not include the gas pipeline trade. The penalty, Pakistan would have to pay was $1.8 billion.

The failure to come up with a suitable payment mechanism that would ease Pakistan’s energy shortages continues to take a huge toll on Pakistan’s economy.

Pakistan-Iran trade can increase from $359 million to $5 billion annually, but for that to happen, Pakistan must renegotiate its relationship with the countries hostile towards Iran. A window of opportunity might open with a thaw in relations between Saudi Arabia and Iran and the initiation of talks for the revival of JCPA later this month in Vienna.

The author has worked for a logistics company handling fuel operations for NATO and US forces in Afghanistan. He currently owns three oil trading companies

A viable energy partnership