"Saving the Peace Pipeline"

Op-Ed, Agence Global

August 17, 2007

Authors: Abbas Maleki, Associate, International Security Program, Kaveh L. Afrasiabi

Belfer Center Programs or Projects: Energy Technology Innovation Policy; International Security; Science, Technology, and Public Policy

The Iran-Pakistan-India Pipeline (IPI) project has been dealt a major jolt by the news that New Delhi and Islamabad have rejected the draft final agreement circulated by Iran, which calls for a 3-year review cycle concerning the gas price. Causing yet another delay in the trilateral deal on which so much rides for the national interests of the three countries, the pricing dispute will either be resolved by a new round of negotiations or turn into an unbridgeable difference putting the IPI’s fate under question marks.

Prior to his resignation last week, Iran’s Petroleum Minister, Kazem Vaziri Hamaneh, had announced that the seventh round of negotiations for the IPI contract would be held in Tehran on July 29, 2007, and it did not happen. What is more, a former Iranian deputy oil minister, Hadi Nejad Hosseinian, has questioned the deal on the ground that it gives a huge discount to India and is some 30 percent below the value of gas sold to Turkey. Another Iranian politician, Ali Akbar Mohtashamipour has publicly questioned the wisdom of exporting Iran's gas at a time when the colder regions of Iran face gas shortages.

The euphoric expectation of a high-level signing ceremony this summer has evaporated into a sense of frustration and even exasperation on the part of officials involved in the marathon negotiations stretching back to the mid-1990s. Unless the parties demonstrate flexibility and sufficient foresight, the whole IPI is in danger of becoming a pipedream, irrespective of its benefits to all, and the tremendous progress made so far in removing the numerous hurdles — internal, regional, and international — facing this ambitious project.

From the vantage point of Iran, there is little substance to New Delhi’s criticism that it has unilaterally altered the terms of the 25-year gas agreement by its insistence on a periodic (3-year) review. According to various Iranian officials, including Nosratollah Seifi, an executive of the Iran National Gas Export Company, from the outset of negotiations, India favored a longer, 7-year review cycle, but Iran’s position has always been consistent in insisting on the shorter review period, based on the perpetual fluctuations of the energy market. Per their confidential agreement last January, the three parties had agreed to adopt crude oil prices as the benchmark for determining the adjustments to the gas prices.

Part of the problem here is structural and is rooted in the volatility of the global gas market, hampered by the absence of an OPEC-type pricing mechanism. With the occasional talks of a similar “gas OPEC” yet to yield any results, details of the IPI agreement will likely be shaped by the pull and push of negotiations among the three states.

Fortunately, the gap between Iran, on the one hand, and India and Pakistan, on the other, is not insurmountable. The necessity of periodic review is irrefutable and the question is really only about a suitable review cycle.

Both sides should consider the viability of a compromise, a 5-year cycle, which has the advantage of allowing sufficient time for periodic deliberations on the changing gas prices and avoids the frictions associated with too quick a review that may put the project under the constant strains of negotiations and re-negotiations.

In addition, in light of the IPI’s potential contribution to regional development, complementing the North-South corridor under consideration by the member states of the Economic Cooperation Organization (ECO), it may be a good idea to revamp the IPI into a consortium that opens the possibility of a future role by other regional parties, both in terms of investment as well as linkage with the regional gas network. Thereby, for instance, Turkmenistan’s gas could also be exported to Pakistan and India through the IPI pipeline. In fact, by forming a consortium and allowing a role for other ECO countries — Iran and Pakistan, together with Turkey, are the founding members of this regional organization of ten member states (which could induct India as an observer) — the regional dimension of IPI becomes immediately more pronounced.

These recommendations would not only ensure that the IPI does not devolve into endless intra-state wrangling, but materializes as it has been envisioned. Also, they add to its significance and reduce the impact of future shocks that may be of political or geo-strategic in nature.

By increasing the pool of regional participants through a consortium, the IPI project glues the three countries into a greater web of cooperation and cements this cooperation through the positive input of the other participants. As the experience of the BTC (Baku-Tblisi-Ceyhan) pipeline clearly demonstrates, cooperative pipelines contribute to the sustainable growth and stability of the region. By all indications, the IPI would be no different.


Abbas Maleki, Ph.D., is the Director of the International Institute for Caspian Studies in Tehran and a visiting senior research scholar at International Security Program, Kennedy School of Government, Harvard University.

Kaveh Afrasiabi, Ph.D., is a political scientist and author of books on Iran's foreign and nuclear policies.

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