DUBAI - Iran will probably abandon a multi-billion-dollar pipeline project to supply gas to Pakistan, Iran’s oil minister was quoted as saying by the semi-official Fars News Agency on Wednesday.

“The contract for supplying gas to Pakistan is likely to be annulled,” Iranian Oil Minister Bijan Namdar Zanganeh told reporters on the sidelines of a gas forum in Tehran on Wednesday. “Given the current conditions, we do not have hope for exporting gas to Pakistan,” Zanganeh said. He gave no other details, Fars said.

Under the contract, Iran is supposed to export 21.5 million cubic meters of gas per day to Pakistan from next year.

Dubbed the ‘peace pipeline’, the $7.5 billion project has faced repeated delays since it was conceived in the 1990s to connect Iran’s giant South Pars gas field to Pakistan and India.

Iran has already spent hundreds of millions of dollars and nearly completed the 900 km pipeline to the Pakistan border.

Pakistan, although suffering from severe gas shortages, has made little progress on its part of the line due to a lack of funds and warnings it could be in violation of US sanctions on Iran.

Zanganeh’s comments came two days after his Pakistani counterpart, Shahid Khaqan Abbasi, was quoted by local media as saying that Pakistan risked being punished by sanctions on Iran if it goes ahead with the much-maligned project.

Until now Iranian officials have insisted that the project to supply Islamabad will be completed.

Exasperated by the lack of work across the border, Iran has even offered to build Pakistan’s 780-kilometre section and provide multi-million dollar loans to help pay for it, according to Iranian media reports.

In contrast to his predecessor, Zanganeh has been open about the problems faced by Iran’s energy sector since he took office in August.

On October 1, he warned that Iran faced serious gas shortages of its own because of slow progress in raising production from South Pars, the field that is supposed to fill the pipeline.

India quit the project in 2009, citing costs and security issues, a year after it signed a nuclear deal with Washington.

Iran sits on the world’s largest reserves of gas. But Western sanctions aimed at stopping Iran’s disputed nuclear activities have hindered its gas production growth, while the United States has pressured potential buyers to find other suppliers.

According to Fars News Agency, earlier this week Pakistani Foreign Ministry Spokesman Aizaz Chaudhry once again reiterated that Islamabad is resolved to pursue expedition of the pipeline project.

“It (IP) should be seen in the context of acute energy crisis that we have in our country,” said the Pakistani official, adding that his government is pursuing the case to accelerate the implementation process of the project.

Early in October, Pakistani Petroleum and Natural Resources Minister Shahid Khaqan Abbasi asked Iran to finance $2 billion in the construction of Pakistan’s side of the IP gas pipeline project.

The Pakistani petroleum minister said preparatory work was complete, but they had asked Iran to provide $2b for the construction work.

Iran and Pakistan officially inaugurated the construction of the border part of the multi-billion-dollar gas pipeline project in March.

The project kicked off at a ceremony attended by former Iranian President Mahmoud Ahmadinejad and his former Pakistani counterpart Asif Ali Zardari at the two countries’ shared border region in Iran’s southeastern city of Chabahar.

However, a report released last week by the Islamabad-based Sustainable Development Policy Institute (SDPI) says the contract with Iran would bring an economic disaster in Pakistan as the gas sold will likely be several times more expensive than the domestic gas currently used.