Pakistan-Iran Trade: Navigating the Complexities of US Sanctions – By: Hamza Arshad
Understanding the implications of continued trade between Pakistan and Iran amidst US sanctions:
Pakistan and Iran have a long history of trade and economic cooperation, with bilateral trade valued at millions of dollars annually. However, the ongoing US sanctions against Iran have created a complex situation for Pakistan, which must navigate the implications of continued trade with its neighbor.
Iranian President Ebrahim Raisi commenced his three-day visit to Pakistan on Monday, against a backdrop of heightened tensions in the Middle East. Accompanied by his spouse and a high-level delegation including the foreign minister, cabinet members, senior officials, and a substantial business delegation, President Raisi engaged in talks with Pakistani Prime Minister Shehbaz Sharif and other officials during his visit. Security was reinforced with the deployment of hundreds of additional police and paramilitary forces.
While such high-level visits often aim to convey significance, President Raisi’s emphasis on enhancing bilateral trade has been positively received. Both sides agreed to elevate their trade to $10 billion and formulated a joint strategy to address shared challenges like terrorism.
Although the agreements primarily centered on international trade and bilateral relations, key issues with the potential to significantly enhance ties—such as the long-pending gas pipeline project—remained unresolved. Nonetheless, the signing of eight agreements and Memorandums of Understanding (MoUs) signifies a commitment to collaborate on various fronts, including security, trade, science and technology, animal health, culture, and legal matters.
The ongoing issue is the gas pipeline, initially proposed in the 1990s, has seen numerous delays due to fears of US sanctions. Despite this, Iran has already invested $2 billion in the project, showcasing its commitment to regional cooperation. Pakistan, too, has reiterated its dedication to the project, with Prime Minister Shahbaz Sharif recently assuring Iran of enhanced security and economic collaboration.
The US sanctions pose a significant hurdle, as they threaten to disrupt the project’s progress and potentially harm Pakistan’s economy. The US has been vocal about its disapproval of the project, citing concerns over Iran’s nuclear program and regional activities.
The United States’ opposition to Pakistan’s pipeline construction is clear, yet the effectiveness of Pakistan’s lobbying efforts and other strategies to secure a waiver remains uncertain. Regardless, Pakistan is confronted with the formidable challenge of convincing Washington that the project could be mutually beneficial without incurring penalties from Iran. The pivotal issue revolves around Pakistan’s ability to sway the United States into granting a waiver for the pipeline’s construction, with the Iranian President’s visit potentially playing a significant role in the project’s progression.
Despite these challenges, Pakistan and Iran remain resolute in their pursuit of energy cooperation. The gas pipeline is crucial for Pakistan’s energy security, as it faces a significant energy deficit. Iran, too, stands to benefit from the project, as it seeks to expand its regional influence and economic ties.
The ongoing tensions between Iran and other countries in the region, including the US, Israel, and Saudi Arabia, could negatively impact Pakistan’s economy if Pakistan is seen as being too close to Iran.
If Pakistan continues to trade with Iran, the US could implement the following sanctions: freezing of Pakistani assets in the US, restrictions on Pakistani banks’ access to the US financial system, trade restrictions on Pakistani goods and services, travel bans on Pakistani officials and business leaders, and cutting off of US aid and military assistance to Pakistan.
