US’ policy towards Iran-Pakistan Gas pipeline

One of the aspects of change in the mode of warfare, which has come to prominence after World War II, is the non-military aggressive tool of ‘economic strangulation’ through which the powerful states try to politically subjugate their target countries. Unfortunately the development and application of this tool has been facilitated to a great extent by the misuse of the otherwise positive aspect of the integration of the international economic system. That misuse has mostly been committed by US and its European Union (EU) allies who managed to gain control of the international economic system right from the beginning because of their politico-economic domination of the international institutions like International Monetary Fund (IMF), World Bank (WB), etc, and even the international avenues of commerce and trade. It is a common knowledge that this ‘tool’ is applied in the form of ‘sanctions’ and the geopolitical manipulation of the policies of IMF, WB, etc. However, the intricate mechanics of these is not much covered in the generally available published material. Factually an understanding of these is one of the essential aspects for any meaningful study of the prevailing and projected time-frame international scenario. One of the most relevant case study in that context is that of the current US’ efforts of economic strangulation of Pakistan and Iran over the Iran-Pakistan (IP) Gas Pipeline Project. This project is economically critical for both these countries, but US considers its scuttling vital for its own foreign policy application in this region. This short paper presents an analytical elaboration of the mechanics of that ‘tool’ of economic strangulation, as also of it application by US in the case of the IP Gas Pipeline Project.

The modern (post-war) world economic system, characterized by complex interdependence, evolved out of the ruins of pre-war economic recession. It was thought to be such a system as would bring not only interdependence but also ensure economic stability in order to avoid economic collapse. The US dollar was placed as the central exchange currency of this system, and the entire system was institutionalized by establishing IMF and World Bank. The US played central role not only in establishing this system but also in its expansion across the world. Although President Nixon suspended the link between US dollar and gold, which was the central element of this system,[i] the US dollar continues to be the central exchange currency for International trade, enabling the US to ‘hijack’ economies of its target countries. The very expansion of the capitalist system, or ‘financial occupation’ of the entire world by the Western capitalism, is unique in the sense that it is being used as a weapon of economic warfare. Today’s economic policies are made not only to ensure state’s economic prosperity but also aim at achieving certain political goals. Politico-economic domination of the world economy and its institutions by the developed economies enables them to translate this domination into an effective tool of foreign policy application. There are different dimensions of the application of this tool; however, economic strangulation is one dimension which has come to be used more frequently in recent years by the major powers. Economic sanctions, boycotts, refusing funds for development projects are the tools being increasingly applied against the target countries in order to influence their policies. What motivates the application of these tools has been a matter of study for many. There has been an ongoing debate among intellectuals; some argue that economic aspect is more important than the political; others argue vise versa. Besides that, there are others who argue in favour of geo-political factor as, though not the only, but one of the most important contemporary factors.[ii]  Although it is difficult to categorically determine which factor influences more than the other one; yet in the case of our study of IP Pipe Line, and given the current political scenario of both Pakistan and Iran vis-à-vis US, it seems that it is the very geo-political factor that is most explicitly at work. US’ ‘concerns’ with regard to this project have geo-political underpinnings and explain its opposition to this project.  Geo-political importance of Pakistan and Iran, under current regional circumstances, for the US can be construed when we take into account both internal and external dynamics of the polities of both the countries.  To begin with, it is important to have a conceptual understanding of what geo-political factor is, and how it is measured.

Geo-politics is often defined in terms of casual relationship between political power and geographic space, between state’s land power and its impact on its relations with other states.[iii]  Geo-politics has, therefore, to be related not only to a state’s power potentials, but also its ability to translate its resources into actual power; to its position in the world; to its importance under the given circumstances; and to its location on the map of the world with regard to its neighbour states.[iv] Given the peculiar volatile nature of the International political system, it is, to a reasonable extent, the external environment which enhances or reduces the geo-political importance of a state for another state. The International system is a sort of oligarchy which five major powers have been dominating since the end of World War Two. Geo-political factor has, therefore, also to be understood in terms of a (minor) state’s importance for a (major) state’s agendas. It is this particular aspect of the geo-political factor which is very relevant to IP Pipeline Project. As indicated earlier, materialization of this project can have significant implications for the US’ Middle Eastern and Eurasian objectives. It is in this context, therefore, that the geo-political importance of both Pakistan and Iran for the US needs to be understood, as also the US’ policies towards both these countries in current regional political scenario.

TAPI-and-IPI-PipelinesWhen we apply this concept of geo-politics on Iran and Pakistan under the current circumstances, it becomes reasonably evident why the US has been and is opposing the IP Gas Pipeline Project, and putting pressure on Pakistan. Firstly, we shall analyze the geo-political importance of Iran. Iran is one of the major countries of West Asia. Its nuclear programme and its possible implications for the entire region, its ideological disposition, its huge oil reserves, and strategic and economic importance of the Strait of Hormuz, all make Iran an important regional actor. Iran’s transition from secular state to an Ideological state caused a major transformation in its geo-political significance for the US and other regional states. It completely changed Iran’s outlook, in US’ calculations, from a “pillar” of US foreign policy in the Middle East into a potential foe to be reckoned with, turning former allies into foes and former foes into friends. This transformation would suffice to illustrate the point that it is the external environment which impacts, to a reasonable extent, the geo-political significance under given circumstances. From strategic point of view, Iran is connected not only to the Middle East, but also to South-West and South Asia. As such, an economically powerful and nuclear-powered Iran is likely to jeopardize the US’ geo-strategic and geo-energy dominance objectives in the entire energy rich region.  Similarly, Iran’s military preparedness, its gradual shift towards nuclear energy, its huge oil reserves, and extremely crucial significance of the Strait of Hormuz in oil shipments to numerous countries make the case of Iran highly significant. It is now in this context that the US’ policy of imposing sanctions on Iran needs to be understood. This policy of ‘financially occupying’ aims at puncturing the target country’s drive towards transforming its resource-potential into tangible power i.e., using resource-potential to build military power, develop advanced technology, and develop economically and politically. A brief look at the kind and range of sanctions imposed on Iran would suffice to illustrate this point.

Apparently, the reason for imposing sanctions on Iran is to change its nuclear policy; however, as mentioned earlier, nuclear issue can only be ‘a factor’ but not ‘the factor.’ The geo-political significance of Iran as highlighted above provides a combination of factors, due to which US and its allies are trying to contain it by using the 21st century tool of warfare, i.e., economic strangulation. The Iran Sanctions Act is a core of energy-related US sanctions. Iran’s decision of opening up the energy sector to foreign investment in 1995 provided the US with an opportunity to harm it, hence the Sanctions Act. It is an “extra-territorial act” which enables the US to control and impose penalties on foreign firms and multinational corporations, many of which are incorporated in the US’ allies.[v] The ‘complex-interdependence’ of modern economic system, US’ and its allies’ domination of this economic system, its institutions, and policy-making, enable US to impose and operationalize sanctions. The range of sanctions include not only energy sector, but also sales of arms and ammunitions, banking sector, Iran’s military transactions, revolutionary Guards, trade and investment, and financial sector (dealings with Iran’s central bank).[vi] Although the US has not been able to achieve its desired results, sanctions on major economic sectors of Iran have done harm in shape of declining oil and gas exports as well as falling exchange rate of Rial.  Economic instability is likely to have political repercussions, at least in the US’ calculations. Now, in this scenario, the IP Gas Pipeline is very significant for reinvigourating Iran’s declining economy. Because of the sanctions imposed, Iran’s energy export, one of the primary resources of foreign exchange revenues, has declined considerably.  As a result of the completion of this pipe line project, Iran would be able to give a positive push to its declining economy, hence lessening the effect of sanctions and defeating the purpose of the US’ policies towards Iran. It is for this reason that the US views this project not from political or economic aspects but mainly from geo-political perspective; for, completion of this project may also enhance Iran’s political clout in the region; therefore, the project is being viewed not merely as a project but as having the potential of long term Iran-Pakistan cooperation with significant implications for the US’ objectives in Afghanistan.[vii]

On the other hand, importance of Pakistan for US is immense due to US’ urgently critical requirement of reaching a negotiated settlement in Afghanistan, especially with Taliban, that may enable the US to achieve its ‘minimum regional objectives’ is immense. It is therefore of prime importance for US to keep Pakistan in its camp; and Pakistan is well aware of this factor.[viii] However, the approaching endgame in Afghanistan and the rapidly changing internal balance of power between the Taliban and the incumbent US-backed Afghan government is likely to affect Pak-US relations negatively, as also the transit issue of TAPI and CASA-1000 mega projects. Although Pakistan hopes to get exemption like China and India have, the volatile history of Pak-US relations, repeated abrasive and even aggressive anti-Pakistan actions of the US since 1990, the recently increasing mutual mistrust, are the factors which hinder the possibility of any ‘warm-relationship’ between them, at least in the immediate future. It is in the backdrop of the Afghan war and the US’ perception about Pakistan playing double role there, that one needs to see things taking place. Unreliability and uncertainty of future and the rapidly deteriorating energy crisis have left Pakistan with no option but to look for alternatives. Secondly, it is not merely the Afghanistan factor which explains Pakistan’s geo-political importance. Pakistan is the only Islamic Nuclear power. It has huge proven reserves of natural resources. Although Pakistan is yet to translate that power potential into actual power, they do account for the land power which Pakistan possesses. The impact of the nuclearisation, which Pakistan did establish in the face of US opposition, goes negative on major powers’ policies towards Pakistan in the given scenario. An economically and politically stable nuclear power like Pakistan, with strong military power and strategic culture can become a hurdle in way of the US’ regional objectives. The US, by opposing and threatening to impose sanctions, wants to keep Pakistan dependent on US’ own sponsored energy projects, thereby also attaining the leverage to exert undue influence in Pakistan’s internal affairs.[ix] The US, therefore, is pressurizing Pakistan by showing its ‘deep concerns’ over the finalization of this project. As in case of Iran, Pakistan’s geo-political importance with regard to the US’ own regional interests is the dominating factor dictating the foreign policy application of the US through threats of sanctions.

To increase international compliance with the US’ sponsored sanctions on Iran, the US President Barak Obama issued an Executive order on May, 1, 2012 which authorized the Treasury Department to identify and sanction (cut off from the US and markets) foreign persons and companies who help Iran and Syria evade the US multilateral sanctions. European Union has already been taking action against Iran in league with the US treasury Department since 2011.[x]  The Executive order of the US President is meant to ensure maximum compliance to the sanctions imposed on Iran. In other words, this executive order is a tool of the US’ foreign policy application and manipulation of other states’ policies in extra-territorial regions, such as Pakistan in case of the IP Pipeline Project. That ‘economic strangulation by US explains the refusal of Pakistan’s Oil and Gas Development Company Limited (ODGCL), and National Bank of Pakistan to finance this project, because of the fear of US sanctions. On December22, 2011, the National Bank of Pakistan (NBP), responsible for raising the rupee component of the project, informed the Economic Coordination Committee’s (ECC) Steering Committee on Iran-Pakistan (IP) Pipeline that it had “branches in different countries of the world and therefore it feared that these branches could be closed due to US sanctions.” Subsequently, the NBP pulled out of the project. In December 2011, the Oil and Gas Development Company Limited (OGDCL) “already cash constrained due to the circular debt, informed that its US investors had threatened to retreat if the company financed the IP Gas Pipeline Project.” Subsequently, OGDCL pulled out of the project.  On March 14, 2012, the Beijing-based Industrial and Commercial Bank of China Ltd (ICBC) also backed out of a deal to finance this gas pipeline project. On May 14, 2012, Gazprom, the largest extractor of natural gas in the world, too pulled out of this pipeline project.[xi]  Consequently, Pakistan was left with no other choice but to ask Iran to finance the pipe line project inside Pakistan. But, as mentioned earlier, Iran’s economy is hard pressed because of the US sanctions; it must be very difficult for it to finance the project. The condition of Iranian economy can be judged from the fact that Iran defaulted on payments for wheat imports from Ukraine on February 6, 2012; and on February 7, 2012, Iran defaulted on payments worth $ 144 million for rice shipments from India.[xii]

It is not merely the US’ concerns with regard to its future in Afghanistan; the IP project has also much to do with the future of the US sponsored TAPI pipe line, which is to pass through Turkmenistan, Afghanistan, Pakistan and India; and which is a projected means of materializing the US’ geo-strategic and geo-energy objectives in the Eurasian and South Asian region.[xiii]  But the future of TAPI as well as of CASA-1000 electricity transmission line between Kyrgyzstan, Tajikistan, Afghanistan and Pakistan, is highly uncertain because of the internal situation of Afghanistan. As long as law and order are not restored in Afghanistan, and writ of the government established in the tribal areas of Pakistan, one cannot expect to see these projects getting finalized. Furthermore, the rapidly changing internal situation of Afghanistan and the prospects of Taliban emerging as a potential political force is likely to make the situation more complex; for, it was the same TAPI project which is said to have triggered conflict between the US and Taliban in late 1990s. [xiv] It is for this very reason that the US is repeatedly expressing its concerns over IP Gas pipeline Project, which offers a much better alternative to TAPI; for, without keeping Pakistan engaged in this projected constructive engagement or pipe line politics, the US might have to face more difficulties not only in withdrawing its forces but also in paving war for its military or non-military presence in Afghanistan. That is why Pakistan must view US objections to the pipeline project with scepticism; for, they exist in a broader regional context. The pipeline will, for example, help Iran check growing US influence in Afghanistan and Pakistan. By exploiting its vast gas reserves, Iran can improve its economy and exert political leverage; and the last thing Washington wants to deal with is a Tehran enjoying more regional clout and therefore defying US’ pressure[xv], as also keeping Pakistan dependent on the US backed-project.

The above explained factors show that geo-political factor is one of the most important factors in determining foreign policy objectives, and economic strangulation as one of the most applied means of foreign policy application as well as attainment of those objectives. The geo-political importance is primarily determined by the location and power potential of a state; however, the external environment in which states function also considerably shapes a state’s importance under the given circumstances. The regional geo-political scenario of West and South Asia and the US’ presence in Afghanistan for the attainment of its objectives are the primary factors behind the pipe line politics. The US is able to attain its objectives not only through use of force but also through economic strangulation of the target countries, hence sanctions. The intricate dynamics of economic strangulations and imposition of sanctions have more geo-political underpinnings than economic; these are non-militant but coercive. It is the peculiar structure of international economic system which enables the major states to be in a position to achieve their objectives by economically and politically isolating the target states. The US, because of its domination of international economic system, is trying to pressurize Pakistan and Iran by giving threats of sanctions and economic strangulation because the IP Pipe Line Project is likely to jeopardize the US’ objectives in the region.



[i] Michael Veseth, “What is Political Economy?” International Relations, Vol. 2, International Political Economy (2001), 3    http://www.eolss.net/Sample-Chapters/C14/E1-35-02.pdf (Accessed 15 March 2013)

[ii] Julien Reynaud, Julien Vauday, “IMF Lending and Geo-Politics” European Central Bank 965(2008), 11  http://ssrn.com/abstract_id=1292331, (Accessed March 1 2013)

[iii] Oyvind Osterud, “The uses and abuses of Geo-politics.” Journal of Peace Research 25 (1998), 191

[iv] Julien Reynaud, Julien Vauday, 15

[v] Kenneth Katzman, “Iran Sanctions” Congressional Research Service (2013), 7, http://www.fas.org/sgp/crs/mideast/RS20871.pdf (Accessed 15 March 2013)

[vi] Ibid.

[vii] See March 11 statement of Victoria Nuland, the US State Department’s SpokeWoman.

[viii] See Pakistan’s then Foreign Minister, Shah Mahmud Qureshi’s statement of June 20, 2010.

[ix] Editorial The News International, April 3, 2010, http://www.thenews.com.pk/daily_detail.asp?id=232339 (Accessed June 15 2010)

[x] Kenneth Katzman, 44

[xi] Dr Farrukh Saleem, “Pipedream,” The News International, March 10, 2013, Sunday; http://www.thenews.com.pk/Todays-News-9-164477-Pipedream  (Accessed 20 March 2013)

[xii] Ibid

[xiii]     John Foster, Afghanistan, the TAPI Pipeline, and Energy GeopoliticsJournal of Energy Security (2010) http://www.ensec.org/index.php?option=com_content&view=article&id=233:afghanistan-the-tapi-pipeline-and-energy-geopolitics&catid=103:energysecurityissuecontent&Itemid=358 (Accessed 6 April 2012)

[xiv] Ahsan Ur Rehman Khan, “Taliban as an Element of the Evolving Geopolitics: Realities, Potential, and possibilities.” Institute of regional Studies, Islamabad 19 (2000-2001): 98-99

[xv] Huma Yousuf, Dawn (Islamabad), April 4, 2010, http://www.dawn.com/wps/wcm/connect/dawn-contentlibrary/ dawn/the-newspaper/columnists/huma-yusuf-pipeline-politics-440 (Accessed 20 March 2013)

Author Bio: The author is a research-analyst of International and Pakistan affairs. He can be contacted at salmanrafisheikh@hotmail.com

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