U.S. Response to Pakistan’s Request for Waiver on Iran-Pakistan Gas Pipeline Sparks Concern
Iran's recent rejection of Pakistan's Force Majeure notice adds uncertainty to the gas pipeline project, compounded by Islamabad's challenge of navigating US sanctions on Iran, potentially resulting in an $18 billion penalty from Iran.
The United States’ response to the Pakistani government’s request for a waiver on its long-stalled Iran-Pakistan gas pipeline is causing concern, but Islamabad remains in constant contact with Washington in efforts to facilitate the vital mega-energy project, a top Pakistani official said.
Initiated in 2013, the project has encountered numerous impediments. While Iran completed the pipeline to the Pak-Iran border a decade ago, the Pakistani side has remained untouched due to US and UN sanctions on Iran.
Notably, Tehran extended two consecutive five-year terms to Pakistan, offering a specified timeframe to secure the desired waiver. The conclusion of the second five-year term is anticipated in March 2024.
Iran Rejects Force Majeure Notice
In August 2023, Iran rejected Pakistan’s ‘Force Majeure and Excusing Event’ notice, which sought to suspend its contractual obligation regarding the Iran-Pakistan gas pipeline completion.
Given the broad U.S. sanctions on Iran, Pakistan is keen to obtain a waiver from Washington. Unlike countries such as China, India, Japan, South Korea, and others, the United States administration has not granted Pakistan waivers for petroleum product imports from Iran.
The refusal by Iran now places Pakistan at risk of facing an $18 billion penalty if the project fails to reach fruition by March 2024, according to a high-ranking Pakistani official engaged in the negotiations.
Negotiations with Iran and U.S. Sanctions Dilemma
To avert the looming threat of this substantial penalty, Pakistan is also engaged in negotiations with Iran. An official stated, “We aim to avoid legal disputes with Iran and steer clear of sanctions; our primary objective is to secure a gas supply.”
Since January 1, 2015, Pakistan has been obligated to pay Iran $1 million daily, pursuant to a penalty provision for failing to complete the pipeline within its territory.
Nonetheless, Islamabad has intensified its project efforts and engaged with US authorities, primarily due to the imminent threat of huge penalties if the project fails to materialize, as disclosed by the Director General of Gas during a meeting of the Senate Standing Committee on Cabinet Secretariat, chaired by Senator Saadia Abbasi.
Senators Seek Clarification on U.S. Sanctions
Senator Abbasi has summoned senior officials from the Ministry of Foreign Affairs and the Attorney General of Pakistan to the next committee meeting. They are expected to brief a parliamentary panel on commercial concerns related to US and UN sanctions.
The committee recognizes the project’s significance for Pakistan’s future energy requirements and has inquired about the challenges associated with importing gas from Iran.
