Pakistan is hoping to be one of the first benefactors from the Iran Nuclear deal by using the China-funded LNG pipeline to complete the much-delayed IP gas pipeline project. The Iran gas pipeline will allow Pakistan to import up to $2.5 billion worth of Iranian gas annually. Iran has the world's second largest gas reserves and it makes sense to buy from the neighbour- except for the fact that we owe Iran millions of dollars in penalties for stopping the construction of the pipeline.
The financial assistance required from China is a hefty $2 billion, which might be forthcoming as China has its own ambitions in the region. The IP pipeline creates the potential to import Iranian gas via Pakistan to China’s vast north-western province of Xinjiang, home to the restive Uighur minority. Beijing needs reliable gas supplies to develop the province to secure its integration within China and to establish it as China’s gateway to Central Asia. This is the only clearly positive development in the whole situation; that China can fund construction.
The Nuclear Deal may well signal a new world order, but whatever the order is, Pakistan is still bottom of the food chain. Pakistan may face pressure over the project from allies in the Arab world and the US is also not going to be happy about Chinese expansion.
Pakistan delayed the project in view of international sanctions banning trade with Iran. This won us time to avoid paying a penalty. Penalties up to $3m dollars a day are due, and once the sanctions go there is no excuse not to pay-up or start building. The pipeline will probably be built at a loss, and debt will spiral. Cost cutting and traditional bureaucratic inefficiency will make the provision of energy to the consumer expensive, but we don’t have a choice in the matter. The pipeline was agreed to long ago, we just didn’t have the money or political will to compete it. The government needs to be very cautious about how it proceeds, and very clear about the costs and benefits. Importing $2.5 billion worth of gas may be great for our energy needs, but who is going to pay for it?