August Issue 2018
The Heart of the Deal
On November 2, US President Donald Trump reimposed the sanctions against Iran that had been lifted under his predecessor Barack Obama’s regime, as per the 2015 nuclear deal titled the Joint Comprehensive Plan of Action.
The sanctions on Tehran, which were a part of Trump’s pre-election vows, will target Iran’s oil sector, which remains the state’s main source of revenue. The US hopes to squeeze Iran economically so that it can give up its nuclear programme, which Washington claims is ‘illicit’ and designed to make nuclear weapons – assertions that Tehran unequivocally rejects.
To address the global concerns regarding the impact on the price of crude oil owing to the sanctions, the US has granted waivers to the eight main purchasers of Iranian oil. As a result, instead of going up, Brent crude prices fell from $72.68 on November 2, to $59.59 at last count.
While the drop has prompted President Trump to post self-congratulatory tweets, the question about the future of crude prices will crop up again once the waivers expire next year. Meanwhile, states around the world are looking to readjust trade ties with Iran to deal with the renewed sanctions. Among these is Pakistan, with government officials actually claiming that they are looking into increasing trade ties with Iran, despite the sanctions.
In his September meeting with Iran’s Ambassador to Pakistan, Mehdi Honardoost, Finance Minister Asad Umar expressed a desire to increase the bilateral trade between the two countries from the current $1.5 billion.
“There are many investment opportunities in different sectors of Pakistan and we welcome any investor that is willing to make an investment in our country,” Umar had told Honardoost.
This was a follow-up to the meeting held between the two countries in March this year, where Iran Foreign Minister Mohammad Javad Zarif met his then counterpart Khawaja Asif, along with a 30-member trade delegation.
Pakistani government officials maintain that Islamabad is looking to circumvent the sanctions and work on trade with Iran to bolster the economic numbers.
Lahore Chamber of Commerce and Industry President Almas Hyder notes the benefits of increased collaboration with Tehran.
“Both Pakistan and Iran are huge markets for each other, and also provide geostrategic advantage to one another,” he said. “Hence, bilateral collaboration is in the interest of both countries, and the states should work on enhancing the ease of doing business with one another.”
Pakistan’s newfound resolve to challenge US sanctions comes at a time when relations between Islamabad and Washington have witnessed a downward spiral. This was epitomised by the heated exchange between President Trump and Prime Minister Imran Khan on Twitter, with the premier retorting strongly to Trump’s “do nothing” jibe at Islamabad, pointing out the sacrifices that Pakistan has made in the War on Terror.
Former ambassador to the US, Husain Haqqani, believes that despite the war of words, Pakistan will look to pursue economic policies that are in its own interests.
“Khan [is reflecting] Pakistan’s narrative [and] President Trump is also voicing a view on Pakistan that is widely held in the United States. The president is not alone in seeing Pakistan as an untrustworthy and unreliable partner, and that view of Pakistan cuts across the domestic divide in US politics,” he said.
“Pakistan’s narrative is about national honour, which gets hurt by any negative remark by an American leader, but Pakistan’s policy is about pragmatism. I doubt Khan’s words will come in the way of Pakistani officials continuing to seek [its own economic benefits].”
One sector where Islamabad could look to enhance engagements with Tehran, without inviting any backlash from the US, is gas – more specifically the long shelved Iran-Pakistan (IP) pipeline.
The 2,000-kilometre pipeline was inaugurated by the Pakistan People’s Party (PPP) government in March 2013, and was supposed to transport 22 billion cubic metres (780 billion cubic feet) of natural gas to Pakistan from Iran’s South Pars field every year.
Despite Iran having completed its side of the pipeline, and despite the bilateral agreement requiring Pakistan to make the pipeline functional within two years of its inauguration, the IP project remains stalled owing, in large part, to the US sanctions on Tehran.
On November 25, Iran formally requested Pakistan to get a waiver from the US sanctions in order to implement the pipeline project, with Tehran maintaining that US sanctions are only applicable on oil and not gas.
While the Pakistan Petroleum Division investigates the legal aspects of the IP pipeline, Former Caretaker Finance Minister Salman Shah believes that importing gas from Iran is something Pakistan should definitely explore to address its own energy shortcomings.
“We can work on the pipeline, since it won’t be an investment in Iran, which the sanctions do not allow. Their part of the pipeline is already constructed, we just need to construct our side now. After that, we need to make sure that the payments are in the local currency,” he said.
Shah suggests that barter agreements could help both countries get the most out of one another, further advising that trade should not involve the US dollar.
“As long as we avoid dollar-denominated trade, we can definitely engage with Iran. A better idea would be to start barter trade, because our banking system won’t be able to be a part of it. For all practical purposes, special initiatives would need to be taken,” he said, adding,“One way to manage this would be to include Iran in the China-Pakistan Economic Corridor and then make sure that the financial dealings are in yuan – but yes, that’s farfetched at this point in time.”
However, increased trade ties with Iran will continue to engender concern in regard to Saudi resistance to Islamabad’s engagement with Tehran, especially after Riyadh gave Pakistan a $6 billion bailout package in October, to address its current account deficit and slump in foreign exchange reserves.
Even so, diplomatic sources maintain that with oil import not an option, as long as Islamabad toes the Saudi geopolitical line in the Middle East, Islamabad can pursue projects such as the IP pipeline, or increase in bilateral trade with Tehran.