Iran, Pakistan, India Natural Gas Pipeline:
Implications and Challenges for the United States
By
Dr. Anjali Sahay Visiting Assistant Professor, PhD. (Old Dominion University) Faculty Advisor, Model UN Program East Carolina University, Greenville, NC Office Phone: (252) 3282348 Email Address:
[email protected] And Dr. Jalil Roshandel Associate Professor, PhD. (Universite des Science Sociales, Tolouse, France) Director, Security Studies Program East Carolina University, Greenville, NC Office Phone: (252) 3281062 Email Address:
[email protected]
49th Annual Convention of the International Studies Association San Francisco, CA, March 26th – March 29th, 2008 Panel: India’s Foreign Policy: Saturday, 1: 45 – 3:30 PM Introduction: Since the discovery of natural gas reserves in Iran’s South Pars field in 1988, the governments of Iran, Pakistan, and India have increased their efforts in realizing a natural gas pipeline project that will serve the twin purpose of increasing Iran’s gas exports and meeting high energy demands in South Asian countries. Billed as a ‘peace pipeline’ by the three countries, the Iran-Pakistan-India (IPI) gas pipeline assumes special significance for both economic and political reasons. Not only will energy-deficient countries like India and Pakistan benefit greatly from importing natural gas from Iran, but also, a project of this scope will strengthen the dyadic relations amongst them for greater regional stability. As the owner of the world’s second largest proven natural gas reserves after Russia, Iran is keen to exploit this resource as a source of revenue. India remains the biggest potential customer of this pipeline project with an ever increasing population to meet its energy needs. Pakistan, that refuses to establish normal trading ties with India will also benefit greatly by the pipeline by earning hundreds of millions of dollars in transit fees and other annual royalties from both Iran and India. The United States remains concerned and opposed to the gas pipeline project outlining various security concerns. Washington remains fearful that a situation could emerge where these countries would be directly or indirectly confronting the United States and other 2|Page
Western countries for control of energy bases. In addition, emerging strategic relations between Iran and India could lead to cooperation in the nuclear field. Furthermore, revenues generated by Pakistan could be further used to support terrorist activities, depending on who channels the funding. While the US recognizes the growing energy needs of India and Pakistan, it has repeatedly expressed concerns over international participation in energy projects with Iran. Moreover, the revenues acquired could be used to further Iran’s alleged nuclear weapons program, support for terrorism in addition to a concern on Iran’s human rights record. It is not clear who will be finally involved in the implementation of the project, but China, Russia, Japan, and some Europeans could potentially fit in the long term. Last but not least, Russian involvement in the building of the pipeline project in addition to their involvement in the Caspian Sea projects can further complicate the situation by reducing US involvement in the region. This research paper examines the strategic rationale by Iran, Pakistan, and India for entering into a trade agreement to meet their economic, political, and strategic needs as well as the constraints that still hamper this project into realizing its full potential. First, the paper examines current theories on trade and interdependence in explaining cooperation and regional stability. Since natural gas trade between Iran, Pakistan, and India challenges the geo-political, historical, and strategic realities of the three countries, the case studies are representative of the theory of functionalism in changing the face of regional politics. Using the gas pipeline project as case study, the central research questions will be examined and hypothesized in this section. Second, it will examine the importance of ‘energy security’ (as the independent variable) in promoting high levels of ‘economic interdependence’ (dependent variable). Third, this research explores the challenges and obstacles that such a project can face, both internal and external in fomenting higher levels of political alliance among nation states.
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American interests and other security concerns as intervening variables will be analyzed with respect to the IPI gas pipeline project in its overall role in the Middle East and South Asian regions. In conclusion, ‘trade promotes peace’ proposition will be analyzed for the IPI gas pipeline project, and important policy implications will be recommended for the United States in the region. Theoretical Perspectives: Economic Interdependence and Cooperation: throughout history policymakers and scholars have debated whether trade will produce desirable or adverse consequences within and between nation-states (Hirschman [1945] 1980; Irwin 1996; Spiegel 1991). In recent times, international relations scholars (advocates of liberalism) have turned their attention to assessing the role of economic interdependence in creating: (a) incentives for cooperation; (b) reducing misperceptions; and (c) fostering formal and informal mechanisms conducive to resolving conflicts of interests between states. The liberal argument can be traced to Immanuel Kant, Emeric Cruce, Francois Qesnay, Adam Smith, David Hume, Cobden, John Bright, John Stuart Mill, and Baron de Montesquieu who discuss similar themes. The issue began to receive renewed attention when (Polachek, 1978; 1980)1 who modeled how trade can enhance cooperation between countries. In addition to free trade, the classical liberals also believed that democracy would reduce the incidence of war. Interdependence is considered to be particularly beneficial when combined with democratic institutions. Since democracies allow political and economic freedoms, and provide for associations and alliances with other countries, it makes it almost
1
S. W. Polachek, 1978. Dyadic Dispute. Papers of the Peace Science Society 28, pp. 67–80 and S. W. Polachek, 1980. Conflict and trade. Journal of Conflict Resolution 24, pp. 55–78.
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impossible for those countries in the alliance to react violently towards each other (Domke, 1988; Risse-Kappen, 1995; Russett, 1993). The integration of Europe into the European Union serves as a classic example of nations on the brink of war returning to form political and economic ties. “European integration reflects the extent to which Europe is a meaningful zone for the definition and conduct of the strategies bringing actors together around joint activities.”2 Historically, not only Adam Smith and Ricardo, but also drafters of GATT saw trade as a means of promoting economic interdependence by promoting the notion of specialization. Corporations too compete increasingly in terms of the relative efficiency with which they are able to access, deploy, and manage resources on a global scale. Even in traditionally troubles regions, trade has proven to act as a means of defusing political tensions. Trade relations between Iran and UAE practically drove the conflict out of sight that had been over Abu Musa and the two Tunb Islands. The two countries have created so much in common through their trade relations that conflict seems a real cold swelling that does not irritate either side any more. As Russett and O’Neal correctly point out in their article,3 theoretical challenge to these views comes from those who emphasize that economic ties not only offer the prospect of mutual gain but also may transmit economic ills and create rivalry over the division of benefits. Their premise is based on the observations by Hoffman (1965), that ‘interdependence breeds not only accommodation and harmony, but suspicion and incompatibility’. Especially when relations are asymmetrical, trade can be a source of influence (Gasiorowski & Polachek, 1982; Gilpin, 1987; Keohane & Nye, 1989; Kroll, 1993), 2
William Wallace, The Dynamics of European Integration, Pinter Publications, London and New York, 1990, p 41
3
John R. Oneal; Frances H. Oneal; Zeev Maoz; Bruce Russett, The Liberal Peace: Interdependence, Democracy, and International Conflict: 1950-85, Journal of Peace Research, Vol. 33, No. 1. (Feb., 1996), pp. 11-28.
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which may lead to dependency, exploitation, and conflict (dos Santos, 1970; Rubinson, 1976; Wallerstein, 1974). Notwithstanding these arguments, economic interdependence also dependent on the level of security a trade deal can bring for a particular country. In recent years increasing attention has been paid to the issue of energy security. There are a number of concerns and fears such as (though not limited to): (1) oil and other fossil fuel depletion (peak oil, etc); (2) reliance on foreign sources of energy; (3) geopolitics (such as supporting dictatorships, rising terrorism, “stability” of nations that supply energy), (4) energy needs of poorer countries, and demands from advancing developing countries such as China and India; (5) economic efficiency versus population growth debate; (6) environmental issues, in particular climate change; and (7) renewable and other alternative energy sources.4 In the following section we examine the importance of ‘energy security’ (the independent variable) in promoting high levels of ‘economic interdependence’ (dependent variable) and applying it to the case study of the Iran-Pakistan-India gas pipeline project. This is the first hypothesis in the paper that posits (H1): energy security, either through supply or demand, will determine high levels of economic cooperation.
H1
Independent Variable Energy Security
4
Catalyst Factors Iran (political, eco, and strategic) Pakistan (geostrategic, eco, and demographic) India (Demographic, economic, security)
Dependent Variable Economic Interdependence
Anup Shah, Energy Security, available online at http://www.globalissues.org/energy/
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Hypothesis H1: energy security, either through supply or demand, will determine high levels of economic cooperation
The catalytic factors here are analyzed on a country-specific study with each of these indicators: (a) political; (b) economic; (c) strategic; (d) geostrategic; (e) demographic; and (f) security. It should be noted that in the case of the three countries Iran, Pakistan, and India, all of the catalytic factors are not applicable for all the countries. Energy Security
Iran
Political
X
Economic
X
Strategic
X
Pakistan
India
X
X
Geostrategic
X
Demographic
X
Security
X X
The second hypothesis in this research explores the challenges and obstacles that such a project can face, both internal and external. Since opponents of the liberal economic theory thesis make a strong case that countries that are geographically closer, engage in conflict more (see article by Robst, Polachek, and Chang, 2006), it becomes imperative to analyze various factors that can jeopardize prospects for trade or alliance between these three countries. Hypothesis 2 posits that: higher the level of economic interdependence, higher the level of political alliance among nation states.
Intervening Variables 1. Past history 2. Leadership 3. Security 4. External Challenges
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Independent Variable Economic Interdependence
Dependent Variable Political Alliance
Hypothesis H2: higher the level of economic interdependence, higher the level of political alliance among nation states.
Energy Security and Economic Interdependence: Hypothesis 1 “In the new millennium, geography has once again become a major determinant of strategy, and strategy plays a major role in politics.”5 The broad geopolitical conditions that would favor or block the Iran-Pakistan-India pipeline project as well as the role of the United States can be better understood with a background of each of these countries and the strategic rationale for negotiating the gas pipeline project. The issue of access to energy resources involves three interests, which each energy deficient state shares with all others. These are: (a) a state’s supply of imported energy must be adequate in volume; (b) interruptions or shortfalls in supply can have serious economic and political implications and create vulnerabilities; and (c) imported energy must be available at reasonable process. Notwithstanding these concerns, countries like India and Pakistan, with a rapidly depleting energy base, a rapidly increasing population, and rapidly rising global aspirations are ready to expand the concept of energy security in two critical dimensions. First is the recognition of the energy security system by engaging with non-Western countries like Iran, Russia, and China and second protecting the energy supply lines from any United States involvement. The following sections outline country specific rationale for encouraging ‘energy geopolitics (see figure 1).’6 5
Verma, Shiv Kumar, Energy Geopolitics and Iran-Pakistan-India Gas Pipeline, Energy Policy, volume 35 (2007), pp 3280-3301, p 3283 6
Energy geopolitics is an approach to the study of international relations stressing the importance of location factors in influencing relations among nations. Thus, geopolitics emphasizes geographic factors as important determinants of government policy and major determinants of the relative power position of states.
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The Supply (Iran) Political As the only supplier within the project Iran is following both political and strategic goals. Along with India, Pakistan and Mongolia, Iran is an observer to the Shanghai Cooperation Organization (SCO). This can be one step on the path to join the organization which was originally founded by China, Russia and a Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan in 2001. A quick look at this list shows to what extend the move is a politically motivated. Since the revolution in 1979 Iran has been driven out of any political alliance and it would therefore be a great advantage to be able to sit in an organization with two of the five permanent members of the UN Security Council. Strongly driven by ideological consideration Iran is also involved in longer term strategic planning. It sees itself a global power that does not need the U.S. or other western powers. The hard currency in this game is nothing but oil and gas that generates adequate revenues for Iran’s longer term aspiration of becoming a nuclear capable state. Having been under close to three decades of isolation and sanctions by the international community, Iran feels any achievement at the strategic level would break the sanctions and the pressure imposed by the United States in general, Europe and the industrial west in particular.7 Economic As the owner of the world’s second-largest proven natural gas reserves after Russia, Iran is keen to exploit this as a source of revenue. It is therefore pursuing gas export deals with a number of countries (see figure 2 below for world natural gas reserves by country). According to the Oil and Gas Journal, Iran has an estimated 974 trillion cubic feet (Tcf) in
7
See article http://www.worldpoliticsreview.com/article.aspx?id=527 for more information
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proven natural gas reserves. Around 62 percent of Iranian natural gas reserves are located in non-associated fields, and have not been developed. Major natural gas fields include: South
Figure 1 Source: http://www.csmonitor.com/2007/0531/p04s02-wosc.html
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Figure 2
and North Pars, Tabnak, and Kangan-Nar. “In 2005, Iran produced and consumed 3.6 Tcf of natural gas which is expected to grow around 7 percent annually for the next decade.”8 “The four major companies that have expressed interest are, (1) BHP of Australia; (2) NIGC; (3) Petronas of Malaysia; and (4) and French Total, which is already partnering with Iran in the development of an international pipeline through Turkey.”9 A consortium consisting of Shell, British Gas, Petronas, and an Iranian business group already exist and have been negotiating on how to export gas from South Pars to Pakistan. Other private firms involved are the ‘Iran National Gas Company’ and the ‘Gas Authority of India Limited (GAIL)’. In July 2005, the Iranian government quietly reaffirmed plans to create a eurodenominated exchange in oil, natural gas, and other petroleum products within a year. Such an exchange could climb high on two of the existing oil exchanges – London’s International Petroleum Exchange (IPE) and the New York Mercantile Exchange (NYMEX) - both owned 8
Energy Information Administration: Official Energy Statistics from the U.S. Government, available online at http://www.eia.doe.gov/emeu/cabs/Iran/NaturalGas.html 9
http://www.american.edu/TED/iranpipeline.htm
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by American companies. According to economic experts, the billions of dollars in oil sales in euros, could dry up the demand for dollars that the heavily indebted US economy depends on. “Many question whether the biggest threat Iran poses to the United States is nuclear ambitions or petropolitics.”10 Strategic For Iran, India’s participation in the project is of paramount importance. In addition to a broader market for its gas, Iran hopes to gain political support from India as it is currently facing strong international pressure to terminate its nuclear program. In return for India’s agreement to buy large quantities of gas, Iran has awarded Indian gas companies major service contracts and also granted them participation in refining and other energy related projects to the tune of $40 billion. In general, bilateral relations between India and Iran have been on an upswing since 1990s and the regular visits between leaders of both countries have infused the bilateral relationship with new momentum.11 However, not all factions of Indian leadership support trading with Iran. “Significantly, Murli Deora, India’s newly-appointed minister for petroleum and natural gas is perceived as belonging to the pro-U.S. lobby within India’s ruling Congress party while Mani Shankar Aiyar, the man he replaced, was a more leftist with socialist views.”12 The change of petroleum ministers comes at a time when New Delhi is having second thoughts about going ahead with the ambitious pipeline project after voting against Iran at the IAEA.13 10
Howard LaFranchi, Iran's Oil Gambit - and Potential Affront to the US, Christian Science Monitor, August 30, 2005
11
For more details on the bilateral relations see article, Harsh. V. Pant, India and Iran: An “Axis” in the Making? Asian Survey, volume 44, number 3, (May – June 2004), pp 369-383. 12
Paranjoy Guha Thakurta, Iran-Pakistan-India Gas Pipeline in Trouble, Friday, March 14, 2008
13
Officials in Islamabad and New Delhi have admit that they may have to re-evaluate the gas pipeline project if the UNSC votes in favor of imposing sanctions on Iran. By coincidence, the first tripartite meeting on the pipeline is to be held in Tehran in March 2008, around the same time the IAEA meets in Vienna to discuss Iran's nuclear program.
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Iran’s relations with Pakistan are also strategically important. With American troops stationed in neighboring Afghanistan and Iraq, Iran is also trying to check U.S. influence in the region by strengthening its ties with its neighboring country Pakistan, one of America’s most needed allies in the war on terror. Although, Iran is not looking at any plans to build an alliance of Asian countries against the West, it is also not necessarily counting on its new oil partners as political allies. Currently, Iran is less fearful of any eventual referral of its nuclear program to the United Nations Security Council because of its ties to Russia and China, both permanent Council members. Along with the possibility of international sanctions hanging over Iran, the future of a $ 7 billion gas pipeline to transport natural gas from Iran to India through Pakistan is currently awaiting final approval by regional governments of all three countries. The Demand (Pakistan) Pakistan’s reasons for entering into the gas pipeline project is threefold and can be best described as geostrategic, economic, and demographic in nature. The Pakistanis, for their part, would like to see their territory used as a transit route to export natural gas to India, earning them millions of dollars as transit fees. This would not only guarantee a source of income for them but also increase stability in the region with crucial trading links with both India and Iran. Second, natural gas from Iran could be used to meet its energy demands on the other. Besides India, Pakistan is also one of the fastest growing countries in South Asia where the need for natural gas is more pressing than ever. It is projected that Pakistan’s demand for gas will expand significantly over the next two decades. Hence, Iran, as a neighboring country (with the world’s second largest gas reserve), would be the most convenient and cheaper supplier of gas. The Pakistani Prime Minister Shaukat Aziz, has
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recently quoted that he considers the Iran-Pakistan-India gas pipeline as “a win-win proposition for Iran, India, and Pakistan, that could serve as a durable confidence-building measure, creating strong economic links and business partnerships among the three countries.”14 Geostrategic Geography is perhaps Pakistan’s greatest advantage. Historically, Pakistan has benefited both economically and politically by virtue of its location. To illustrate, American relations with Pakistan was at an all time low after Zia’s coup in 1977 and when mobs burned the U.S. embassy. However, American policy did a complete about face when Islamabad provided essential support for the anti-Soviet operations in Afghanistan. At Pakistan’s insistence, the CIA funneled all aid through the Pakistani intelligence service ISI, which in turn handed over supplies to Afghan rebels. With the Reagan Administration in the White House, the support for the covert war in Afghanistan increased along with the value of the Pakistani cooperation. Pakistan was rewarded with a $3.2 billion aid package for the next six years.15 The 9/11 attacks also led the US to lift sanctions from Pakistan (for testing nuclear weapons in May 1998) and provide aid to it in exchange for its support on the war in Afghanistan. By mid 2003, economic and military aid to Pakistan totaled about $3.3 billion with a $1 billion debt pardon. With the gas pipeline, “Pakistan is apparently expecting to seek 8 to 21 billion dollars in transit fee over a period of 30 years for allowing use of its territory to lay the gas pipeline.”16 14
Gal Luft, Iran-Pakistan-India pipeline: the Baloch wildcard, Energy Security, Institute for the Analysis of Global Security, January 12, 2005 15
“The United States and Pakistan, 1947-2000: Disenchanted Allies” By Ambassador Dennis Kux available from: http://www.amazon.com/exec/obidos/tg/detail/-/0801865 727/104-9748465-1965524?v=glance 16
Pakistan, India open talks on Iran gas pipeline, Iran-Regional, Politics, 9/8/2005available online at http://www.arabicnews.com/ansub/Daily/Day/050908/2005090840.html
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Economic and Demographic With a population of over 152 million and a rapidly growing economy, Pakistan’s energy requirements are huge and its energy needs are becoming acute. Although, Pakistan is blessed with an abundance of renewable energy potential, but so far this remains unharnessed except for a few large hydroelectric projects. The country, historically an energy importer, is facing serious energy shortages while global fossil fuel prices continue their upward spiral. The effects on the economy are marked: interruptions in energy supply to industry, for instance, have hit the country’s exports hard. Today, oil and natural gas supply the bulk (roughly 79 percent) of Pakistan’s energy needs. However, the consumption of those energy sources vastly exceeds the indigenous supply. For instance, Pakistan currently produces only 19.9 percent of the oil it consumes, fostering a dependency on imports that places considerable strain on the country’s financial position. According to Shahid Burki, while the present situation with respect to natural gas production is not nearly as serious, Pakistan’s projected natural gas needs are expected almost to double (from 2004 levels) by 2010, making it dependent on outside supply for natural gas (see figure 3).17 One of the reasons Pakistan is interested in importing natural gas from Iran is its current problems with its other sources of energy. Although, Pakistan’s proven coal reserves are the world’s sixth largest, and the Pakistani government intends to increase the share of coal in the overall energy mix from 7 to 18 percent by 2018, environmental concerns may prove to be an obstacle. Nuclear power at this point also accounts for only 1 percent of 17
Shahid Javed Burki served as Pakistan’s finance minister from 1996 to 1997. He held numerous senior positions with the World Bank over a 25-year career, including vice president of Latin America and the Caribbean, and director of China operations. Before his World Bank career, he was chief economist of the government of West Pakistan. Mr. Burki currently writes a weekly column for Dawn. He was a Woodrow Wilson Center Public Policy Scholar in 2004, working on a book tentatively titled Pulling Back from the Abyss: Musharraf’s Pakistan Project, 1999-2004.
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Pakistan’s energy consumption. Currently, Pakistan has two civilian-use nuclear reactors, and has begun construction on a third in 2006. Irrespective, Islamabad has urged the United States, China, and other western countries to help it develop civilian nuclear technology to meet its growing energy needs, an idea certain to meet with resistance in the West. See figure 4 below for a different energy supplies in Pakistan.
Figure 3 Source: Government of Pakistan, Demand Projections for Pakistan (Islamabad: Planning Commission, 2006).
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Figure 4
Probably, the only political constraints that Pakistan currently faces are internal instability in the country and frosty relations with India. This win-win proposition seems to be threatened by terrorists operating in different parts of Pakistan. A few days after Iran’s Oil Minister Bijan Namdar Zanganeh visited India in 2005 to discuss the future of the pipeline terrorists in Pakistan blew up two gas pipelines sending a message to all parties involved that the “pipeline of peace” might be anything but peaceful. The area of the Balochistan-Punjab border where the pipeline is supposed to run is one of Pakistan’s poorest areas and its most restive province. In recent years it has been a battleground of private militias belonging to Baloch tribes. Sporadic armed clashes resulted in attacks against water pipelines, power transmission lines and gas installations.18 Second, with India’s past petroleum minister Mani Shankar Aiyar emphasizing that India would go ahead with the proposed $ 7 billion gas pipeline with improvements in World Trade Organization (WTO) rules (related to such projects which involve freedom of transit),
18
As reported by Gal Luft, Iran-Pakistan-India pipeline: the Baloch wildcard, Energy Security, Institute for the Analysis of Global Security, January 12, 2005
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Pakistan would probably object to missing the transit revenue and enter into a deal exclusively with Iran.19 The Demand (India) As India continues to grow literally (current population 1.08 billion) and economically, at the rate of 7-8 percent annually, energy security has become a core focus of India’s foreign policy. To alleviate concerns over energy security, the Indian Government has taken multiple steps in recent years to improve efficiency in the energy sector. These include confidence building measures with the private sector and entering into alliances and partnerships with key energy supplying nations in Asia, and Middle East. The government has identified three key areas of concern in this regard: (i) diversify the energy supply base and improve long term supply security; (ii) developing an integrated energy policy to meet the common objective of energy security; and (iii) at an operational level, investing in developing the infrastructure (rail, road, port) which are critical for efficiency in the energy value chain.20 Economic and Demographic By world standards, India’s current level of energy consumption is very low (especially when compared to the United States and other Asian countries like China, Japan, and South Korea). The total annual energy consumption (commercial) for India is estimated at 327 (million tons oil equivalent) for the year 2003-04 and the per capita consumption stands at 304 (kilograms oil equivalent). See figure 5 below. Statistically speaking, India produces nearly 90 percent of its energy requirements, of which 65 percent are met by coal. Its lowest energy demands are currently in the area of 19
See article, India wants WTO protection for Iran gas pipeline Iran-India, Economics, 8/24/2005 available online at http://www.arabicnews.com/ansub/Daily/Day/050824/2005082424.html 20 As outlined in the Executive summary of KPMG, Energy and Natural Resources: India Energy Outlook. India: KPMG International, 2006, p 3
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hydro, nuclear, and natural gas sectors (see figure 6 below). With a targeted GDP growth rate of 7 to 8 percent, and an estimated energy elasticity of 0.80, the energy requirements of the country are expected to grow at 5.6 - 6.4 percent per annum over the next few years, implying a four-fold increase in India’s energy requirement over the next 25 years. This means that India needs to strategically evaluate its supply options to meet its growing energy needs. Although coal continues to be a dominant energy source for India, it is predicted that the extractable coal reserves would get exhausted in 40 years. Therefore, from a long-term perspective and in view of growing environmental concerns from use of coal, the country needs to look at other sources such as nuclear and natural gas energy.
Figure 5: India’s per capita energy consumption compared to other countries
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Figure 6: India’s Primary Energy Resources and Energy Use
Undoubtedly, India has vast reserves of the nuclear fuel thorium but technology is not yet developed for its commercial use. Furthermore, a lot would depend on the Indo-US nuclear energy cooperation deal before it can significantly contribute towards India’s energy sector. Since India is a relatively new entrant into the natural gas market when compared to other mature NG based economies like Japan, Korea, and the United States, and its share of to energy needs in India is only 9 percent, it becomes natural for India to find outside sources of natural gas. Cross-border gas pipelines that are still facing uncertainties include NG pipelines with Myanmar, Turkmenistan, and Iran. Although these have been under discussion for quite some time, the political climate remains unfavorable, thus delaying these projects indefinitely. Arguably, even when they do materialize, the country may face potential supply disruption if political issues emerge over medium term. Security The Iran-Pakistan-India (IPI) gas pipeline, after seven years of talks and explorations continues to remain a ‘pipe dream’. Probably the biggest hurdle that this project faces is the
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continued Indo-Pakistan tensions, since the pipeline would have to pass through Pakistan, a hostile neighbor with whom India has fought three major wars since independence in 1947. The existing uncertainties on Pakistan’s leadership is another problem that has negative impact on the pipeline project. If Musharraf proves an ability to work with the so called “liberal forces” then new approach to IPI gas pipeline has to emerge. Musharraf has been West’s best ally in the war on terrorism. The IPI gas pipeline could be delayed as long as the war on terrorism continues, but the liberal forces might play a different game in both cases. As a result and despite of the ongoing uncertainties, the existing situation is not the most appropriate situation to decide about the pipeline. According to Anjan Roy, an economist, “A sea route, skirting Pakistan, suits India but it would be very expensive and the amortization period could run into hundreds of years.”21 Others remain optimistic about a trade deal between India and Pakistan by citing the Indus Water sharing agreement arbitrated by the World Bank in the 1950s, that survived the 1965 and 1971 wars between the two rivals. The water flowed uninterruptedly during both conflicts. For India and Pakistan, an alternative option would be to withdraw from the collaboration altogether and develop a pipeline which would go through water instead of Pakistani territory. Citing a case similar to this one, in the past, Egypt had opted for the liquefied natural gas to Turkey (a more expensive option), than to a less expensive land route through Israel. Notwithstanding all these option, K. Subrahmanyam, a member of India’s National Security Council, is optimistic about the project and cites the example of the Soviet gas pipelines that fed Western Europe through Eastern Europe even during the Cold War. Thus the situation remains optimistic as long as the supplier (Iran) remains firm and Pakistan realizes that its interference will cause it own
21
http://www.gasandoil.com/goc/news/nts02768.htm
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supply and revenues to stop. “Energy security” is probably best understood when taken literally. The catalytic factors for Iran, Pakistan, and India demonstrate strongly why these countries consider ‘energy security’ as a very important determinant in creating economic interdependence among them. Unfortunately, the United States is the antithesis for the need of energy security for this region. The next research questions looks at why the United States opposes such an interdependent relationship between these countries. In addition, other challenges will also be illustrated.
Economic Interdependence towards Political Alliance: Challenges and Obstacles (H2) The second research question in this paper explores the challenges and obstacles that this project faces to explain whether higher levels of economic interdependence will lead towards higher levels of political alliance among these countries. These problems can be broadly categorized as; (a) past history; (b) leadership; (c) security; and (d) external challenges. The following sections examine these intervening variables to explain why the United States remains opposed to economic ties between these three countries. Past History Economic interdependence and trade patterns within this region can be best explained as past endeavors between each set of countries (Iran-India, India-Pakistan, and Pakistan-Iran) in trying to establish trade relations. Iran-India: “bilateral relations (besides historical and civilizational ties) between Iran and India have been on an upswing since the early 1990s.”22 “The year 2004-2005 saw 22
For a background on the bilateral relationship between India and Iran, see article Harsh. V. Pant, India and Iran: An “Axis” in the Making? Asian Survey, volume 44, number 3, (May – June 2004), pp 369-383.
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further deepening and consolidation of India-Iran ties, with increased momentum of highlevel exchanges and institutional linkages between their National Security Councils.”23 Recently, governments in both Tehran and New Delhi have agreed to join hands in the reconstruction of Afghanistan and to support the development of alternative access routes to that country (bypassing Pakistan) via Iran’s Chahbahar port. Since U.S. troops are currently stationed in both Afghanistan and Iraq, this partnership interferes with its military strategy on ground and creates problems for US relations with India. Besides the gas pipeline project, India-Iran commercial relations have been dominated by Indian imports of Iranian crude oil, accounting for roughly 85 percent of Indian imports from Iran each year. Thus economic ties, given the high importance of imports of both crude oil and natural gas into India from Iran shows clear signs of political alliance between them as well. Recently, India and Iran have allied on a range of issues of mutual concern to them. Both countries supported Afghanistan’s minority-dominated “Northern Alliance” against the Taliban during 1996-2001 (in contrast to Pakistan, which supported the Taliban). After the war in Afghanistan, they both supported the U.S. military-led ousting of the Taliban regime and each separately given substantial economic aid to the U.S.-backed government of Hamid Karzai. Additionally, India and Iran conducted joint naval exercises and India is said to be selling arms to Tehran, training Iranian military personnel, and helping Iran maintain and upgrade its Russian-made military hardware and fighter aircraft. India-Pakistan: the flow of trade between India and Pakistan remains less optimistic as compared to Iran and India. Since the two countries were created in 1947, India and Pakistan have shared by far more wars and clashes than economic trade and ties. With WTO 23
K. Alan Kronstadt and Kenneth Katzman, India-Iran Relations and U.S. Interests, CRS Report for Congress, Order Code RS22486, August 2, 2006
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becoming effective in 1995; India granting the most favored nation (MFN) status to Pakistan;24 the liberalization of the economy in both countries; and a growing domestic market, it was expected that trade between the two countries would increase significantly.25 Trade deals through regional organizations such as SAARC and SAFTA26 also did not yield great interdependencies between them. Although optimists in both countries believed that, “a healthy trade relation between them could also help in normalization of relations at the political level,”27 the potential for trade remains constrained. Iran-Pakistan: as far as economic relation between Iran and Pakistan is concerned, the quantum of trade between them is relatively low as compared to what they were trading during the Iran-Iraq War. In recent initiatives, Pakistan and Iran have signed a Preferential Trade Agreement (PTA) which reduces customs duty on tradable items28 in both countries. Eventually, officials at both ends want this to be converted into a Free Trade Agreement (FTA). As a political step, both Iran and Pakistan have declared two of their border regions as ‘twin provinces’ in their recent agreement. On the whole, the purpose of the agreement is to strengthen economic and political relations between the two countries and to promote a more secure environment for sustainable growth of trade. So far, the history of economic relations between Iran and Pakistan remains low. However, the gas pipeline project has obvious benefits for Pakistan and could lead to greater economic interdependence between them spilling over to political ties. It is evident that
24
For a detailed discussion of trade between India and Pakistan see, Abid Qamar, (2005), Trade between India and Pakistan: Potential Items and the MFN Status , volume 1, number 1, SBP- Research Bulletin, 45-57. 25
This would help the governments of both countries as it would curtail the high volume of illegal trade
26
South Asian Association for Regional Cooperation (SAARC) and South Asia Free Trade Agreement (SAFTA)
27
Subhash Narayan, Trade Event to Further Indo-Pak Bond, Asian Age, July 7 2003 28 The principal items of trade between Iran and Pakistan are textile, agricultural products, fruits, and iron ore
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India’s trade with Iran is much larger than Pakistan’s, but Pakistan is politically more entrenched in Iran. This could potentially lead to renewed political ties between them. Leadership One thing is sure: Iran is eager to reach other non-Western29 (including China) markets and Iranians are keen to exploit natural gas as a source of revenue unexplored until today. The most recent Iran-Swiss gas contract signed between National Iranian Gas Export Company (NIGEC) and the Swiss Foreign Minister30 shows to what extend the Iranian leadership is determined to commit Iran in long term energy deals.31 Iran will supply 5.5 billion cubic meters of gas per year for a period of 10 years. The contract does not violate any sanctions as confirmed by the Swiss Foreign Minister Micheline Calmy-Rey who travelled to Tehran to sign the contract.32 In the case of Iran-India-Pakistan the same level of determination exists within the Iranian leadership, but it confronts impediments that are less visible in Iran-Swiss deal. Islamic values and what the Iranian leadership has preached all through the past 30 years becomes more noticeable in dealing with a Muslim country like Pakistan. Pakistanis political orientation that has put them in close relation with the U.S. might a concern for the Iranians. Iran was also very unhappy with the Indian behavior and votes against Iran at the IAEA’s Board of Governors meetings. In both cases India voted against Iran first in 2005 to condemn Iran for violation of its obligations under the NPT and again to report Iran’s file to the UN Security Council in 2006. 29
Elsewhere, Iran signed an agreement yesterday on setting up a planned 300,000 barrels per day oil refinery joint venture in Indonesia, together with a Malaysian partner. 30
Reuters March 17 Benjamin Weinthal, Switzerland to Sign Huge Iran Gas Deal, The Jerusalem Post , Mar. 16, 2008, article available online at http://www.jpost.com /servlet/Satellite?cid=1205420703987&pagename=JPost%2FJPArticle%2FShowFull 31
32
Reuters March 16
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While this trend within the Indian polity (partially affected by Indo-US Relations) is an unfortunate development and often time criticized by the Iranian conservative trend, but the Iranians are hopeful that the “left” in India will push for more friendly ties with Iran. They are confident that economic interest inherent in the gas pipeline deal is strong enough to neutralize U.S. pressure on India.
Security Security remains a top concern for an economic project that involves countries with strained political relations. Not only does it create dependency on an ‘enemy state’ but also make trade vulnerable and likely to be broken with a slightest degree of strain in relations. For the United States, that declares the ‘War on Terror’ as its top priority, trade within this region would also mean a greater flow of human traffic between these three countries, making it difficult to check infiltration of ‘persona non grata’. Furthermore, Iran’s nuclear ambitions is seen by the United States as one of the biggest threats it faces and the Bush administration has long expressed concern regarding India’s relations with Iran and its reluctance to help curtail Iran’s nuclear program. Additionally, despite differences between Iran and Pakistan, whenever Pakistan’s security has been clouded, Iran has extended its hands – seeing in Pakistan’s security its own security. Currently, the two countries, deeply concerned over the growing military build-up of the United States and its allies in South and Central Asia, are seeking stronger relations to counterbalance this influence. The United States further sees this strengthening of relations as a security concern with “Iran trying to exert pressure on Musharraf to back out of the US camp, into which he so readily jumped after September 11, and actively campaigning for
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pressurizing Washington to pull its forces out of the region and to prevent it from mounting similar anti-terror operations in Iraq, Somalia, or Sudan.
33
Finally, the United States sees a
less involvement for itself in Pakistan as an open ground for Al Qaeda operations to continue in its entirety. Security is also literally a challenge affecting the gas pipeline project with the ‘conduit’ or ‘Pakistan’ in the equation as the most unsecured. Terrorists and private militias belonging to Baloch tribes in the area of the Balochistan-Punjab border where the pipeline is supposed to run frequently attack the pipeline to send political message to all parties in the country. With sporadic armed clashes resulting in attacks against water pipelines, power transmission lines, and gas installations, the future of such projects not only poses a threat to internal stability of Pakistan but also India, that depends on Pakistan for allowing gas pipeline to extend to India. The assassination of Benazir Bhutto during elections in December 2007 is a good indication of extremist mentality in the country that is opposed to democracy and liberal market economy. External Challenges One of the biggest external challenges that the gas pipeline faces is the imposition of sanctions on Iran by the United Nations Security Council if it continues the enrichment of uranium deposits. In the face of sanctions, India and Pakistan would not be able to trade with Iran hampering the pipeline project for indefinite time. Although “Iran has rejected any link to missile and explosives experiments and other work connected to a possible nuclear weapons program, the United States and the board at IAEA claim these activities to genuinely
33
Syed Saleem Shahzad, Iran courts Pakistan to counter US, Asia Times, January 11, 2002, available online at http://www.atimes.com/ind-pak/DA11Df02.html
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support a nuclear weapons program.”34 The combination of current sanctions and the threat of additional measures have led many companies to end their operations in Iran due to the increased risk and cost. With dozens of international banks limiting or ceasing their business with Iran due to the sanctions and potential reputational harm, the ability of Iran to conduct trade in the international market has decreased. In a recent development, the U.S. Treasury department announced sanctions on March 19, 2008 against a Bahrain bank accused of helping Iran’s alleged nuclear proliferation activities.35 Another external challenge is the perception of a ‘clash of civilization’ and religion as seen through the eyes of individuals participating in Islamist movements in Iran and Pakistan with the involvement of western companies in economic development of the region. “This activity could be perceived as neo-imperialistic or an extension of the legacy of western exploitation of the east.”36 Also, these political religious movements may associate western involvement with ideas of secularism. This too may conflict with forces within the regions trying to implement national infrastructures for the application of interpretations of Islamic law. Within India as well, some groups oppose alliances with Pakistan and Iran. Although the current Indian National Congress-led coalition government has sought to maintain a careful balance between this political alliance on hand and the United States on the other, the
34
35
IAEA: Iran still defying U.N. Sanctions, CNN, December 3, 2007
U.S. punishes Bahrain Bank for its Iran Ties, CNN News, March 12, 2008, available at
http://www.cnn.com/2008/WORLD/meast/03/12/bahrain.bank/index.html#cnnSTCText
36
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opposition, the Bharatiya Janata Party, has voiced its approval of the present government’s policy toward Iran’s nuclear program making India’s position ambivalent to the United States. Because of these factors, both Islamists and Hindu traditionalists may not view economic and natural resource development by western forces as the most viable solution to providing energy security in South Asia.
Conclusions
There is a growing realization among Iranian, Pakistani, and Indian policy makers that the import of natural gas from Iran to India and Pakistan would address their growing energy demand and contribute towards energy security. Iran, as world’s second largest supplier of natural gas would also benefit in the international market by obtaining a dominant position in the Euro-dominated exchange in oil and natural gas. The first research question raised in this paper, whether energy security, either through supply or demand, will determine high levels of economic cooperation, seemed very likely for this pipeline project. All three countries, as explained through the catalytic factors, are likely to cooperate economically as they benefit tremendously with the pipeline project. For all three countries a combination of factor seemed to be important in its entirety to explain why even after seven years after India began exploring the prospects of importing natural gas through a transnational pipeline coming from Iran and crossing through Pakistan, the project remains promising. The second part of the paper addresses the challenges and obstacles that such a project would entail both for the region and more importantly for the United States. Four intervening variables were thus identified as (a) past history of economic cooperation (shadow of the past); (b) leadership role (optimistic/active or pessimistic/inactive); (c) security challenges for 29 | P a g e
the region and the United States; and (d) other external challenges such as UN sanctions, civilizational/imperial, and religious. After an examination of trade relations between each set of countries, bilateral relations between India and Pakistan seemed the most vulnerable of all three bilateral relations. In fact through the gas pipeline project, the research returns to earlier theoretical questions raised, does trade promote peace? By making economic relations costly to break, a positive political alliance could best serve the two nations at this point. A lot would of course depend on the political stability of the country and the role of the leadership. This brings us to evaluate the second intervening variable, the role of leadership in using economic interdependence for political alliance. Altogether, it appears a question not of the commitment on the part of the government but rather on who is currently forming the government. The current leaderships in both Iran and India seem to be playing a very active role in promoting the pipeline project to meet their energy needs. The only point of difference being that the Indian government remains cautious vis-à-vis its commitment to United States and the Pakistani government (in the process of being established) responds better to the carrots and sticks approach offered by the United States. Security remains the top priority with the pipeline project and cannot be underplayed since the pipeline would have to traverse Pakistani territory thereby necessitating a role for securing Pakistan (and its internal conflicts) for the pipeline project to succeed. The other security problem is the Indian interest in maintaining positive ties with Iran, and the left in favor of Tehran’s nuclear ambitions. New Delhi is unlikely to abandon its relationship with Tehran or to accept dictation on this topic from external powers such as the United States. At
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best, India-Iran relations are unlikely to derail the further development of close and productive U.S.-India relations on a number of fronts. And lastly other external challenges such as UN sanctions, civilizational and religious overtones in all three countries could pose serious problems for the project to succeed. Of these, the biggest challenge remains sanctions on Iran and the possibility of blocking trade links with other countries. A lot would depend on other Security Council countries such as Russia and China (that have their own vested interests in the pipeline project) to veto any sanctions on Iran. Nevertheless, as long as the United States remains concerned with Iran’s nuclear weapons program it can unilaterally take action against the country through economic and military sanctions. The future of the gas pipeline project could go a long way in promoting energy security, trade, and peace within the region for Iran, Pakistan, and India. However, as seen from a United States lens, this could raise further security concerns for the United States.
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