The slope seems slippery both ways

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Rejecting any foreign pressure against Iran-Pakistan gas pipeline project, Foreign Minister Hina Rabbani Khar has made it clear that the country will pursue the energy project with its neighbour despite US pressure as it is vital to overcoming the country's energy crisis.

Khar averred: "As far as bilateral relations and co-operation is concerned we don't make it contingent on views and policies of any third country.

I think all our friends are encouraged to understand the real energy crisis that is in Pakistan.

We can't afford to be selective of where we receive our energy supply from.

Pakistan is going through a serious energy crisis and it is indeed in our national interest to pursue energy from wherever it comes."Earlier, Hillary Clinton, US Secretary of State, clearly and unambiguously, warned Pakistan that proceeding with the Iran-Pakistan (IP) gas pipeline project could invoke US sanctions and further 'undermine' Pakistan's 'already shaky' economy.

The two countries have become increasingly acrimonious in recent months.

The relations between Washington and Islamabad took a drastic turn for the worst when the US carried out a covert raid that killed Osama bin Laden and air strikes that killed 24 Pakistani soldiers.The US annoyance is the Iranian move towards seeking affections of Pakistan during a period of intense hardship.

The US warning clearly comes in the wake of a revelation made by Dr Asim Hussain, Special Assistant to the Prime Minister on Petroleum and Natural Resources, that Iran had not only offered 80,000 barrels of crude to Pakistan but also 250 million dollars in loan to begin implementation of the IP gas pipeline project.That the Iranian offer may be tempting cannot be denied.

However, there are a few caveats that need to be identified.

Iranian crude has not only a high wax content but the offer would meet less than 22 percent of our daily requirements implying thereby that reliance on existing fuel suppliers namely Saudi Arabia, United Arab Emirates and Kuwait would have to continue - countries that do support the US on a broad range of international issues and enjoy less than cordial ties with Iran.Additionally the Iranian offer is on the basis of deferred payment for three months, a time period which is not sufficient to enable Pakistan to allow the liquidity starved energy sector to be released from the suffocating inter-circular debt that accounts for generation companies operating at well below capacity.Trade between the two countries has soared to around $2 billion in recent years.

Since Iran has no diplomatic relations with the US, Iranian interests in Washington are represented by the Pakistan embassy in the US capital.

Additionally Iran has approached the government to procure wheat on a barter system - a system that would not only benefit Iran which is struggling under the US-led European Union-supported sanctions but also Pakistan which continues to require massive external injections for balance of payment (BoP) support.

The attractiveness of the Iranian offer, premised on its rising geopolitical concerns attributed to its nuclear ambitions, therefore cannot be underestimated by the Pakistani government.Unfortunately though there is a downside to the attractive Iranian offer and Hillary Clinton quite clearly and unambiguously highlights this.

At stake for us is the US civilian grant assistance estimated at around 1.5 billion dollars every year as per the Kerry-Lugar bill as well as military assistance extended under the Coalition Support Fund that covers our entire cost of the war on terror.

Clinton also hinted that our exports maybe compromised, particularly textile exports, if the Pakistan government proceeds to enhance relations with Iran.The US accounts for 16.1 percent of our total exports and 4.7 percent of our total imports as well as being the source of 18.6 percent of our remittance income (after Saudi Arabia and the UAE).

There is also little doubt that the US will succeed in successfully persuading its western allies, including the European Union and other OECD countries for example Canada and Japan, to sanction Pakistan.This is a serious threat as Pakistan's exports to OECD were 42 percent of our total exports last year, a trend likely to increase this year if the EU trade incentive package to Pakistan for two years is implemented (expected to enhance our exports by around 500 million dollars) while imports from OECD was 22.4 percent.

In contrast, our trade with Iran is not much significant.

The US has also indicated that including the tasking of a resolution on our exports may be compromised, particularly textile exports, if the Pakistan government proceeds to enhance trade with Iran.Shrewdness that involves an aggressive attitude and the truculent deed, including the tabling of a resolution on Balochistan in the House of Representatives on the part of the US notwithstanding, any denial of considerable US leverage in our economy would be as unfruitful as discounting what the Iranian offer can do to benefit our floundering economy.Although, 'not as bad as the US's' as aptly summed up by adviser to Ayatollah Khamenei, Ali Larajani, in answer to a question about his country's state of economy at a talk show in the US a few months ago, there is hardly any doubt about the fact that Iran's economy is in shambles and encountering serious challenges.

Tehran has been consistently denying, but sanctions are woefully telling on Iran's economy.

It is, therefore, highly unlikely that Iran would be still providing crude to Pakistan on a sustainable basis because the country is faced with profound economic prospects.Much of Iran's oil and electricity infrastructure is old and badly maintained.

It has caused a profound impact on the country's oil production capacity.

In the absence of foreign investment and technical expertise, the country has little or no chance of competing with the top producer in the Persian Gulf - Saudi Arabia - even in the long-term: Saudi Arabia is the largest Gulf oil producer, Iran a distant second.Thus, it is not a simple matter of taking advantage of the Iranian attractive offer, which incidentally may be withdrawn if Iranian policy changes and the country is no longer sanctioned by the West, as the decision necessarily entails abandoning the favourable economic ties with the US.However, government policy in all countries is and should be premised on economic interests that clearly dictate that the US be proactively wooed as it is not only a large market for foreign products but a major influence in the international arena.

Thus to deny overwhelming US leverage in our economy would be as unfruitful as discounting that the Iranian offer can benefit our economy.

However given that its an either or situation, the question is which way should the Pakistan government go?Today the Pakistan government is between a rock and a hard place: the rock in place can be defined as a serious deterioration in bilateral relations in the aftermath of the strike at the Salalah check-post and the continuing drone strikes that are becoming an election issue and the hard place is US pressure on both the civilian government and the military establishment to 'do more' in terms of following its foreign and military policy dictates.The Parliament is also set to review US-Pakistan relations and it is unclear which direction the government would take, though its inclination is to sustain our ties with the US reflected by allowing the US to use Pakistan airspace to maintain supplies to its troops in Afghanistan and the recent Clinton-Khar meeting in London.

However, one hopes that the US sweetens the pot and in order to facilitate the decision by the government offers a tariff incentive package for Pakistani exports similar to that offered by the European Union.Pakistan has suddenly found itself in a situation where the slope seems slippery both ways.

Our policymakers are, therefore, required to tread this path carefully and cautiously, asking questions with a view to finding out a dignified exit from a muddy and boggy battleground of mutual hostilities and recriminations between the US and Iran.

If we are serious about the gravity of the situation we will need statesmanship, not brinkmanship.

Courtesy: Business Recorder

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