April 04, 2010

China's Interest in Investing in Iran-Pakistan Pipeline

Persia House

Iranian Gas Development Stymied by Geopolitical Tensions, Iran Reaching out to Ambivalent Chinese for Help

Mehr News - Summary translation by Persia House
March 29, 2010

Knowledgeable Pakistani sources have reported China’s interest in investing $2.5 billion in the Iran-Pakistan pipeline.

Persia House Analysis:

Iran and Pakistan are hoping that Chinese interest and investment will spur much-delayed progress on the Iran-Pakistan (IP) gas pipeline, originally planned as the Iran-Pakistan-India (IPI or “Peace”) pipeline. China's possible involvement in the pipeline became critical after India appeared to back out of the project in 2009, since gas sales to Pakistan alone would not suffice to make the pipeline profitable for Iran. Although China has said little publicly about the pipeline, Iran and Pakistan can use reports of Chinese interest to pressure India into rejoining the project. New Delhi, in turn, will have to balance US pressure to abandon the project with Iran, against India’s growing domestic energy needs.

The "Peace" Pipeline

  • The $7.5 billion project is designed to supply natural gas from Iran’s portion of the South Pars gas field to the energy-hungry Pakistani and Indian markets. Pakistan is already facing an energy crisis which is expected to grow worse in the next few years.
  • The IPI pipeline would run 2,775 kilometers (approximately 1,724 miles) from the Iranian port of Assalouyeh on the Persian Gulf, through Khuzdar (with a branch to Karachi) and Multan in Pakistan, to New Delhi.
  • When completed it would supply 60 million cubic meters of gas per day to Pakistan, and 90 million cubic meters of gas daily to India.
  • Tehran and Islamabad’s negotiations with New Delhi over the pipeline stalled over India’s concerns about security along the pipeline’s route, which traverses Pakistan’s volatile Baluchestan region; price and payment disputes with Tehran; the potential for domestic instability in both Iran and Pakistan; and US pressure on New Delhi to withdraw from the project.
  • The United States is backing an alternative pipeline to India: the Turkmenistan-Afghanistan-Pakistan-India (TAPI) or Trans-Afghanistan (TAP) pipeline, which would circumvent Iran altogether. Development of the Trans-Afghanistan pipeline project, however, has been hampered by the ongoing insurgency in Afghanistan.

China and the IPI: Risks and Rewards

As with other segments of Iran’s energy sector, Iran is hoping that Chinese interest in the IPI pipeline will offset the geopolitical difficulties which have stymied Iranian oil and gas development. Iran’s Foreign Minister, Manouchehr Mottaki, even announced in February that China was ready to join the IPI. Mottaki’s announcement notwithstanding, Beijing has given no indication that it is ready to sign on to the pipeline. China may in fact be “feigning interest” in the IPI pipeline to negotiate better terms with Russia on “safer” Siberia-China pipelines.

For China, the IPI pipeline carries just as many risks as rewards. By joining the pipeline project, China can continue to diversify its energy sources, strengthen Sino-Pakistani relations, and add to its so-called “string of pearls”—comprising a line of Chinese "geopolitical influence or military presence" extending from Southeast Asia to the Middle East. On the other hand, in addition to the political and security concerns attached to the project, adding China to the IPI would entail extending the pipeline by more than 1,000 kilometers over complex and difficult terrain. This, in turn, raises serious doubts about the feasibility and profitability of Chinese involvement.

Playing Cards: Using the Sino-Indian Rivalry to Pressure New Delhi

Iran and Pakistan are using reports of Chinese interest in IPI—whether real or imagined—to pressure India into rejoining the IPI negotiations. And there are indications that this tactic may be working. In March, a month after Mottaki’s statement about China, Iranian and Pakistani officials met in Turkey to sign an agreement on the pipeline, indicating their determination to move forward with the project with or without Indian participation. A couple of days later, New Delhi, which had withdrawn from the pipeline deal in September 2009, called on Tehran and Islamabad to meet in May for trilateral talks about the IPI. It is unclear whether India intends to rejoin the project in earnest, or would merely like to keep its options open. US pressure on New Delhi to abandon the project can be expected to grow should the May discussions make progress.

Source Information:

Mehr is a semiofficial news agency based in Tehran. Its managing director, Parviz Esmaeili also publishes the English-language Tehran Times.

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