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Iran: Tehran Struggles To Push Ahead With India Pipeline

Iran's South Pars gas field (file photo) Officials in Iran are eager to get under way with a proposed gas pipeline to Pakistan and India that has been the subject of talks for more than a decade. Initial discussions among the participating countries concerning a 2,600-kilometer, overland natural-gas pipeline from Iran through Pakistan to India began in the early 1990s.

Iran sits on the world's second-largest natural-gas reserves -- an estimated 26.6 trillion cubic meters, according to the U.S. Energy Information Administration.

Work on the project has yet to commence, however, and mid-July statements from Indian officials cast doubt on the deal, particularly in light of Washington's recent agreement to cooperate with the Indian nuclear program.

New Delhi Expresses Doubts

India is a huge and growing natural-gas market, with consumption nearly 25 billion cubic meters in 2002 and projected to reach 34 billion cubic meters in 2010 and 45.3 billion cubic meters in 2015. With its increasing energy requirements, India has entered discussions about pipeline construction with Bangladesh, Iran, Myanmar (Burma), and Qatar. Recent meetings among officials from India, Iran, and Pakistan suggested that the pipeline project connecting the three countries would get under way in the near future despite pricing disagreements (see "RFE/RL Iran Report," 7 March and 23 March 2005).

Indian officials recently stressed their eagerness to go ahead with the Iranian pipeline project. Indian Petroleum Minister Mani Shankar Aiyar said in Lahore on 4 June that India would not give in to U.S. pressure to abandon the project because of concerns that Iran might use the revenues to develop nuclear or other banned weapons, Press Trust of India (PTI) reported. The next day, Aiyar was in Pakistan for talks with his counterpart, Amanullah Khan Jadoon.

The two sides created a Joint Working Group to accelerate work on the pipeline. Diplomats in the Indian capital noted that Iran is absent from the Joint Working Group, the Hindi "Navbharat Times" reported on 8 June, and they suggested that this was a conscious decision in order to allay U.S. concerns.

In mid-June, India agreed to purchase $22 billion worth of natural gas from Iran. Starting in 2009-10, an Indian consortium will purchase 5 million tons of liquefied natural gas (LNG) annually over a 25-year period. This was less than the initial agreement, reached in January, for the purchase of 7.5 million tons.
The pipeline project directly involves Iran, Pakistan, and India, and it has the potential to improve troubled Islamabad-New Delhi relations. Washington would welcome such a development, but it is reluctant to see the project go ahead.

The next month, Pakistani officials were in New Delhi to discuss the pipeline. Indian Petroleum Minister Aiyar told reporters that the discussions would address commercial, financial, legal, and technical issues. According to AFP on 12 July, when asked about Washington's opposition to the project, Pakistani Oil Secretary Ahmad Waqar said, "Our president and prime minister have stated on a number of occasions that we will proceed with this project based on our national interests."

Given these developments, Indian Prime Minister Manmohan Singh's announcement on 21 July in Washington that he was unsure whether the pipeline would get funding might have come as an unpleasant surprise to observers in Tehran and Islamabad.

"I am realistic enough to realize that there are many risks, because considering all the uncertainties of the situation there in Iran, I don't know if any international consortium of bankers would underwrite this," Singh said, according to the PTI news agency.

Islamabad Is Eager

Talks between Pakistan and Iran in early July also suggested that all was well.

Iranian Petroleum Minister Bijan Namdar-Zanganeh visited Islamabad and met with Pakistani Petroleum Minister Jadoon in the first week of July. The two sides signed a memorandum of understanding that called for continued discussions, and Namdar-Zanganeh said he hoped a final agreement would be signed by April. He noted that after 10 years of talks, this was the first "written document." Namdar-Zanganeh also met with Prime Minister Pervez Musharraf and Prime Minister Shaukat Aziz, according to media reports.

Jadoon emphasized that his country would need natural gas for consumer and industrial consumption by 2010. The country's demand for natural gas is expected to rise approximately 50 percent by 2006, according to the EIA. Moreover, gas is expected to become the "fuel of choice" for electricity-generation projects in the future.

In light of such requirements, and possibly because of the approximately $600 million in transit fees Pakistan stands to earn, Islamabad tried to allay concerns prompted by Singh's late-July comments. Pakistani Foreign Ministry spokesman Muhammad Naim Khan announced on 25 July that even if India gave in to U.S. pressure, Islamabad would build a natural-gas pipeline from Iran, AFP reported. "We would welcome Indian association with this project but if it is not feasible with India, we are going to go ahead with the project in any case," Khan said in the Pakistani capital. He said Pakistan needed the gas.

Pakistani Petroleum Minister Jadoon said in Islamabad on 23 July that his country could handle all the pipeline security requirements, IRNA reported. "We, like India, are in need of gas and we know how to take care of the interstate projects and we are committed to its security," he said.

"Business Recorder," a Pakistani financial daily, reported on 28 July that Islamabad had begun a search for investment banks that could serve as "financial adviser/consultant" for the pipeline. Pakistan wants to hasten completion of the paperwork for the project, and it is aiming for a December 2005 deadline. Despite recent cautionary statements from Indian officials, the Pakistanis believe India's energy requirements will force the issue. Pakistan is also willing to pursue the issue bilaterally.

The Nuclear Alternative

The pipeline project directly involves Iran, Pakistan, and India, and it has the potential to improve troubled Islamabad-New Delhi relations. Washington would welcome such a development, but it is reluctant to see the project go ahead. U.S. State Department official Stephen Rademaker warned that Iran could fund terrorism and weapons of mass destruction with the money it made from natural-gas sales, the international edition of "The Wall Street Journal" reported on 24 June. U.S. officials have warned the Indians and Pakistanis that their companies could be sanctioned if they go ahead with the project.

If India forsakes natural gas from Iran, then it might have to turn to nuclear power as an alternative. U.S. President George W. Bush announced on 18 July that India is "a responsible state" that "should acquire the same benefits and advantages as other such states," reported. Bush went on to say that he would encourage Congress to make the legal adjustments necessary for such cooperation with the Indian nuclear program to take place. In exchange for such cooperation, India agreed to allow international agencies to oversee its nuclear program.

Potential Blow To Iran

The collapse of the Indian natural-gas deal would be a sharp blow to Iran. Such a development could have an impact in three areas. One possibility is that Iran could try to salvage the deal by offering India a lower price for its gas. Pricing disagreements were one of the main sticking points in March.

Another possibility is that Iran's efforts to diversify beyond oil might collapse. That being said, Armenia and Turkey are already customers for Iranian gas; Tehran has signed agreements with Oman and Kuwait; and it has signed gas-related memorandums -- or at least discussed the topic -- with Austria, Bulgaria, China, Greece, Italy, South Korea, and Taiwan.

The third possibility, probably much more remote, is that Iran would renounce activities that concern the international community, including support for terrorism, interference in neighboring states' affairs, and the pursuit of weapons of mass destruction.

Failing that, Iran would find it very difficult to compete with the United States in terms of bargaining power. If the Indian model -- even without nuclear concessions -- were applied successfully in more cases where Iran was trying to do business with other countries, then Iran would find itself increasingly isolated.

See also:

Iran-Pakistan-India Gas Pipeline Imperiled