Pakistani oil diplomacy at a crossroads

Posted in Broader Middle East | 21-Feb-05 | Author: M K Bhadrakumar| Source: Asia Times

The Indian cabinet decision on February 9 authorizing the Petroleum Ministry to commence negotiations over the US$4 billion Iran-Pakistan-India gas pipeline project poses a dilemma for Islamabad that goes beyond the issues of energy security or trade ties with India. A Hobson's choice faces Islamabad: it has to balance public opinion on cooperation involving Iran and India with Washington's approval of the project.

Indian Petroleum Minister Mani Shankar Aiyar said while announcing the government decision in New Delhi, "The ball is very firmly in Pakistan's court. It is now for them to respond to my letter of October [2004] which said that we hold a 'conversation without commitment' on cooperation in the hydrocarbon sector and the Iran-India gas pipeline through Pakistan."

Delhi's decision signifies an all-out effort to firm up energy supplies through pipelines from Myanmar, Bangladesh, Iran and Turkmenistan. A multiple pipeline strategy suits India. By the year 2025, India should meet 85% of its energy requirements through international projects that provide for supplies of 400 million cubic meters of gas per day - as against the current need of 90 million cubic meters.

India has shown a distinct preference for the Iranian pipeline. The reasons are not only political but economic - and sound practicality, too. India regards Iran as a close, friendly neighbor. As Aiyar said during a recent visit to the US, "We are conscious about difference in perspectives the world over on how the world should treat Iran. We are going full steam ahead in developing our relations with Iran in the hydrocarbon sector."

The 12-year-old Iran pipeline idea enjoys a head start over the Trans-Afghan pipeline (TAP) or the Myanmar-Bangladesh pipeline. An Iranian delegation was expected in Delhi this week for further detailed discussions. Aiyar expressed hope that he would visit Tehran in June, and by that time an agreement should be ready committing the Iranian side to deliver the gas on India's border with Pakistan. "There will be two sets of bilateral agreements. In the first one Iran will enter into a pact with India for delivery of natural gas at Indian borders, while the second would be between Iran and Pakistan on how the gas is to be transported to the Indian border," Aiyar explained.

In comparison, Aiyar said, "no steps have been taken till now" on the proposed TAP project (from Turkmenistan via Pakistan). Delhi is yet to study the report on the TAP, which is yet to be handed in by the Asian Development Bank. Besides, TAP is predicated on the volatility of the Afghan situation. Would the renegade Taliban remnants allow it?

Turkmenistan's Dowlatabad gas fields are the intended supply source for the TAP. Despite American enthusiasm for the TAP historically (which Washington has acknowledged to be the basis of the US interest in the Taliban from 1994), Russia gained a long-term access to Turkmen gas reserves that left question marks about any surplus available with Ashkabad for feeding the TAP.

Americans have been working on Ashkabad to resile from the contractual obligations with Russia. However, other than the perennial human-rights issue, US leverage on Ashkabad has limits.

From the Indian perspective, the delivered cost of Iranian gas, estimated to be $2.4 per million British thermal units, is highly competitive - roughly half the price being demanded by Myanmar for supplies through a much smaller pipeline. Indian industry is keen on the Iran pipeline. The pipeline would be "four times cheaper than any other option" for India, apart from its "multiplier effect" in the downstream for the Indian economy in terms of income and employment generation, Onkar Kanwar, president of the Federation of Indian Chambers of Commerce and Industry said in Delhi while welcoming the government decision.

Pakistan had hitherto put a construct that it was rearing to go on the Iran pipeline project. Pakistani officials threatened from time to time to go ahead with the project, whether India joined or not. As recently as the end of January, in an interview with the Financial Times newspaper, Prime Minister Shaukat Aziz strongly urged the Indian leadership to back the Iran pipeline as the first among confidence-building measures that did not need to be held hostage to differences over the Kashmir problem.

But now that the Indian decision brings the project to a qualitatively new stage, ambiguities are creeping in. Pakistan's minister of petroleum and natural resources, Amanullah Khan Jadoon, while broadly welcoming the Indian decision, entered the caveat that Pakistan was yet to make up its mind on which of the three pipeline ideas (TAP, Iran or a Qatar pipeline) was "feasible" and should be started first. "A decision would be taken shortly," Khan announced. Meanwhile,