Islamabad, June 1: Pakistan's attempt to solve a debilitating foreign exchange deficit by purchasing energy from Iran could be in jeopardy as a terrorist attack close to their border has cast doubt on future accords, reported Nikkei Asia.
Five Iranian border guards were killed in a clash on May 21 in Saravan, a town in Iran close to the Pakistan border. The incident occurred just days after Iranian President Ebrahim Raisi and Pakistani Prime Minister Shehbaz Sharif met in a border village to officially open a 100-megawatt transmission line that will bring Iranian electricity to Gwadar, a port hub in southern Pakistan that has attracted investment as part of China's Belt and Road Initiative infrastructure push, as per Nikkei Asia, a Japanese publication that provides Asian news and analysis to a global audience.
The "terrorist attack" was denounced by Iran's foreign ministry as an "attempt to damage cooperation and friendly relations between Tehran and Islamabad" following the leaders' first face-to-face meeting in ten years.
The border guard deaths were claimed by the terrorist group Jaish ul-Adl in apparent retaliation for what it claims is the mistreatment of Shiite Iran's Sunni Muslim minority.
According to Alex Vatanka, founding director of the Iran Programme at the Middle East Institute in Washington, "This attack can be a huge spoiler for prospective energy deals between Iran and Pakistan."
"You cannot have economic cooperation in an environment of insecurity," he added. For years, Pakistan has suffered from attacks by terrorists against the government.
Days after the incident involving the border guards, another extremist group attacked an oil and gas production complex in northwest Pakistan close to the Afghan border, killing four police officers and two private security guards.
However, the attack on the border guards occurs as Islamabad struggles with an economic crisis marked by skyrocketing inflation--which reached a record 36 per cent in April--and declining foreign exchange reserves.
Pakistan's foreign exchange reserves have fallen to roughly USD 4.3 billion, just enough to cover one month's worth of imports, and it has USD 3.7 billion in foreign debt that is due this month. A crucial USD 7 billion IMF bailout for the 230 million-person nation has been stalled.
Islamabad is relying on future energy agreements with Iran because it can pay in local currency rather than its diminishing supply of US dollars, along with other important advantages like reduced costs and ease of transportation.
According to Przemyslaw Lesinski, an Iran researcher at the War Studies Academy in Warsaw, "Without stopping incidents like these, the energy cooperation between Pakistan and Iran will not be possible." Lesinski was referring to the border guard attack.
Although nearly one-third of the petroleum sold in Pakistan is supposedly smuggled across the Iranian border, hurting domestic refiners' sales, Pakistan does not import oil or gas from Iran.
According to a Pakistani government official, who spoke to Nikkei Asia on condition of anonymity, Islamabad wants to formalise oil imports from Iran so it can pay for supplies in local currency. But unless Islamabad and Washington can come to an agreement, US sanctions on Iran over its nuclear programme may prevent a deal from happening.
"Pakistan will need a nod from the United States for this arrangement to go ahead," the official added.
In addition, Islamabad and Tehran are in discussions to restart a cross-border pipeline project that could supply Pakistan with 750 million cubic feet of Iranian natural gas per day, or approximately 20 per cent of its requirements, according to multiple Pakistani government officials who spoke to Nikkei Asia.
Iran built a part of the pipeline on their side of the border when construction on the 2,700 km route began ten years ago. However, the project was halted on the Pakistani side due to concerns that it may be subject to American sanctions as well as resistance from Iran's archrival Saudi Arabia, which is Pakistan's main energy supply.
Tehran has warned Pakistan that it must construct a segment of the pipeline on its soil by the end of the following year or face a potential multi-billion dollar fine in arbitration court.
According to local media sources, as cited by Nikkei Asia, Pakistan has requested a waiver from Washington on any sanctions it could face for purchasing gas from Iran. However, no choice has been made public as of yet.