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Will China Join the Iran-Pakistan-India Pipeline?

Publication: China Brief Volume: 10 Issue: 5
March 5, 2010 12:41 PM Age: 5 yrs
Category: China Brief, Foreign Policy, Energy, Home Page, China and the Asia-Pacific

For over a decade Iran, Pakistan and India (IPI) have took pains at negotiating a major pipeline deal whereby Iran would send natural gas from its territory to the region. Yet geopolitical and commercial issues have repeatedly prevented the deal's fruition despite Tehran's growing need to diversify gas sales to Asian markets and Asian countries desire to find a stable, reliable source of gas supplies. In recent years, India’s participation in this project has become more uncertain, which is partly responsible for the long delay that the project has suffered to date. Iran’s repeated attempts to raise the price of gas, U.S. pressure on India to refrain from participating in the pipeline, external skepticism about Iranian capability to fill the pipeline as it promises, Indian concerns about the overall stability of Pakistan, and in particular, the possibility of terrorism in Pakistan’s Balochistan province through which the pipeline would travel all contributed to India's angst (Jane’s Intelligence Review, February 11). Indeed, Iran recently warned India that there is a limit to its patience in waiting for New Delhi to decide (Thaindian.com, February 9). Iran was apparently able to present this ultimatum because it believes that it now has the “China card” in its deck. In early February, Iranian Foreign Minister Manucher Mottaki reportedly said that Iran was ready to start the pipeline at any time—even without India—and urged Pakistan not to heed U.S. pressure against the pipeline as China could soon replace India in the deal (Press Trust of India, February 8).

Background

Iranian President Mahmoud Ahmadinejad and his Pakistani counterpart Asif Ali Zardari inked a $7.5 billion agreement in Tehran on May 23, 2009 to transfer gas from Iran to Pakistan. According to the deal, Iran will initially transfer 30 million cubic meters of gas per day to Pakistan, but will eventually increase the transfer to 60 million cubic meters per day. The pipeline will be supplied from the South Pars field. The initial capacity of the pipeline will be 22 bcm of natural gas per annum, which is expected to be raised later to 55 bcm (Zawya.com, February 5).

After many months of negotiations, on February 11, 2010 Islamabad and Tehran were able to finalize the agreement on the issues, including the issuance by Pakistan of a "comfort letter" that provided Iran with the assurance that India—or China—could be brought into the project later. The two parties have vowed to sign the formal agreement by March 8 in Ankara, Turkey. The News reported:

Under the comfort letter, the government of Pakistan would allow the third country to import gas through [the] IP [Iran-Pakistan] line in case any country in future comes to join the project, but the permission will be subject to the gas tariff and transit fee to be worked out as per best practices of that time (The News [Pakistan], February 15).

Chinese Interests in the IPI Pipeline

Perhaps the most interesting aspect of Iran’s most recent announcement is that China has yet to comment publicly on the pipeline except that it is studying the Pakistani proposal. And that was in 2008. Chinese foreign minister, Yang Jiechi said at that time: “We are seriously studying Pakistan’s proposal to participate in the IPI gas pipeline project” (Steelguru.com, May 3, 2008; Asia Times Online, March 6, 2008).

Pakistan clearly wants China to join the pipeline for many reasons. Islamabad desperately needs the gas that might not come otherwise if there is no third party to make the deal profitable to Iran. Second, it would gain much revenue from the transit fees for the gas going to China and benefit considerably from the ensuing construction of infrastructure within Pakistan. Third, it would further solidify its “all-weather” relations with China. Those goals have always been part of Pakistan’s foreign policy and explain not only its interest in the original pipeline plan but also its previous invitations to China to join the project. The prospect of an invitation to China was also used in the past to galvanize India’s decision-making process regarding the pipeline (Steelguru.com, May 3, 2008; Asia Times Online, March 6, 2008).

Throughout the spring of 2008, former Pakistani President General Pervez Musharraf and his government frequently courted Chinese leaders to join the pipeline project, a pitch that Musharraf also tied to an earlier proposal of establishing a corridor linking Pakistan to China through rail, road and fiber optics. At that time, China promised to consider the proposal and then asked for more information, but did nothing else, leaving the issue in abeyance (Indian Express, April 15, 2008; The Indian, June 19, 2008). Subsequently, Pakistani media reports claimed that China was keen on joining the pipeline and would send a delegation to negotiate the deal, but clearly, nothing came of it (The Indian, June 26, 2008). In 2009, Iran’s ambassador to India, Seyid Mehdi Nabizadeh, told Indian journalists that China was interested in the pipeline, but he too refused to confirm if talks with China were taking place (The Indian, September 15, 2009). Based on this precedent, it may be possible that these Pakistani and Iranian gambits were spurious to begin with and its purpose was to pressure India or entice China into joining the pipeline project.

There is considerable interest among external observers in the pipeline and from Chinese officials have sporadically expressed an interest in it For example, China’s ambassador to India in 2006, Sun Yuxi, said that China has no objections to the IPI, while India’s minister for State Planning M.V. Rajashekaran, also said that once the pipeline is completed it could be extended to China [1]. Gazprom and the Russian government have long since indicated a desire to participate in sending oil and/or gas to the subcontinent through the IPI (ITAR-TASS, April 17, 2007). Indeed, one Russian official, Gazprom’s man in Tehran, Abubakir Shomuzov, has even advocated extending the IPI pipeline to China to tie Russia, China, India, Pakistan and Iran together in a very big project having major strategic implications as well as a huge number of consumers. Presumably, such statements—if not plans—are intended to mollify Chinese concerns about the possibility of Russian energy being diverted from it to India (The Hindu [Internet Version], May 7, 2007). Nevertheless, if one correlates China’s recent maneuvers in Central Asia concerning pipelines with its deals with Iran, it is clear that China is contemplating a pipeline network running from Iran either through Central Asia, or prospectively through Pakistan and/or India to China (Central Asia Caucasus Analyst, September 19, 2007).

In this context, the IPI pipeline poses several risks and opportunities for Beijing. If India exited the pipeline, that would lessen Iran’s leverage to drive a hard bargain on gas prices. At the same time, as part of the overall strategy to build pipelines from Iran to China, or at least to Gwadar from where gas or oil could be shipped directly to China, Chinese participation would create a new overland energy link that could complement China’s energy diversification strategy. Nevertheless, the project also faces several political and logistical difficulties that could scuttle Chinese participation. The pipeline is planned to traverse a very difficult terrain in Pakistan’s Gilgit region. That would increase the costs and time required to eventually connect the pipeline to Xinjiang. Moreover, the risks inherent in Pakistan and Iran also pose problems. The massive investment required to link China to the pipeline would be susceptible to many risks since it falls along a major fault line of instability, as there could be large-scale terrorism in the territory of the pipeline or more generally from a mass civil upheaval in Pakistan. In view of these positive and negative aspects to the deal, some observers suggest that Beijing might just be feigning interest in the IPI pipeline to get a better deal in negotiations with Russia on relatively safer Siberia-China gas pipelines [2]. Certainly if the prospect of China obtaining a secure and stable supply of gas from Iran would reduce its need to get that gas from Russia and give it even more leverage over Russia in the current negotiations on gas pipelines from Siberia to China than it already possesses [3].
There is another aspect to this deal too. China has recently stuck its neck out for Iran in its call for continuing negotiations with Iran over its nuclear enrichment programs irrespective of the fact that Tehran is clearly defying the IAEA and the offers of the six negotiating partners (United States, Great Britain, France, Germany, sand Russia). On February 24, 2010 Foreign Ministry Spokesman Qin Gang stated that, "China holds that the parties should continue to step up diplomatic efforts in a bid to maintain and promote the process of dialogue and negotiations," said Qin, "China hopes the parties demonstrate more flexibility and create conditions conducive to a comprehensive and proper solution to the Iran nuclear issue through diplomatic means" (China Daily, February 24).

Chinese sources also report that Iran is able to resist the United States because the political situation in Iran is stabilizing (Xinhua News Agency, February 24). This suggests a more optimistic view of the domestic situation in Iran than might be the case elsewhere. Likewise, it appears that China suspects U.S. motives in the region. High-level visits by U.S. Secretary of Energy Steven Chu to Saudi Arabia and by another high-level Israeli delegation to China aim to wean China away from Iran in return for the United States brokering increased oil exports from Saudi Arabia to China. The Chinese media apparently considers this a trap to get China to renounce its principles for transitory economic gain (China Daily, February 24).

Conclusion

At the same time, if China did become a full partner in the IPI pipeline that would offer it another opportunity to build on Beijing’s so-called strategy of building what has been called a “string of pearls” across the Indian Ocean. Chinese officials have publicly stated their desire to turn the Chinese-built Pakistani port of Gwadar into an energy hub. China also has substantial interests in overland transport links in Pakistan through the Karakorum Highway and participation in the IP pipeline would extend those interests deeper. Indeed, many observers in New Delhi and Washington view Sino-Pakistani collaborations to build naval facilities and oil refineries at Gwadar as a prelude to the establishment of a Chinese naval base there. Whether this is true or not, if China joins the IPI project, then the odds of China supporting American efforts to isolate Iran would effectively be reduced to zero because it would depend too much on Iranian gas, in addition to its recent oil contracts to antagonize Iran by siding with Washington [4]. While we wait to see how China decides to play this issue, the United States needs to understand that Beijing's decision to join or stand aloof from this pipeline will have major geopolitical repercussions and comparable geo-economic repercussions across Asia, another sign not only of the integration of south and southwest Asia with East Asia, but also of China’s rising importance as the nexus of the Asian continent.

Notes

1. “The Energy Game,” Heartland: Eurasian Review of Geopolitics, November, 2005, www.heartland.it
2. Zachary Fillingham, “India, China & the IPI Pipeline,” www.geopoliicalmonitor.com, November 5, 2009.
3. Stephen Blank, ”Russia’s New Gas Deal With China: Background and Implications,” Northeast Asia Energy Forum, VI, No. 4, Winter, 2009, pp. 16-29.
4. Fillingham, op. cit.

[The views expressed here do not represent those of the U.S. Army, Defense Department, or the U.S. Government.]


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