Pakistan has stated that it’s actively trying to convince Iran to refrain from seeking international arbitration over a major gas pipeline project that would connect the two countries. This is in response to recent media reports that suggested the project was canceled.
Officials in Pakistan are working on a plan to restructure the Iran-Pakistan (IP) gas pipeline project to avoid potential US sanctions and an $18 billion penalty demanded by Iran. Under this new approach, Pakistan may not directly buy gas from Iran but could do so through a third party or a country with more influence to avoid US sanctions. Both Pakistan and Iran are cooperating to find creative solutions to keep the project on track, with a deadline until March 2024 to reach an agreement.
Pakistan emphasizes the importance of this gas supply for its energy security, contrary to earlier reports suggesting it had abandoned the project due to fears of US sanctions. Iran also supports the completion of this project, stating it serves the national interests of both countries.
Efforts to restructure the project are in response to Iran’s request for Pakistan to construct a part of the gas line in its territory by February-March 2024 or face an $18 billion penalty. The Gas Sales Purchase Agreement (GSPA) for this project was signed in 2009 for 25 years, but it faced numerous delays.
Under the original agreement, Pakistan would have to pay Iran $1 million per day from January 1, 2015, as a penalty, and even more if Iran took the matter to arbitration. The project was initially set to be completed by December 2014 but experienced delays.
Pakistan has tried to assess the impact of US sanctions by contacting the US embassy, but it has not received a response. Now, the Attorney General’s Office (AGO) is tasked with contacting relevant US departments to understand the potential consequences of completing the project.
In the meantime, authorities in Pakistan are exploring options to involve a third party or a powerful country in the project to ensure its completion while bypassing US sanctions. This approach would involve purchasing gas from this third party to guarantee a stable gas supply.