Pakistan-Iran Trade: Navigating the Complexities of US Sanctions
Understanding the implications of continued trade between Pakistan and Iran amidst US sanctions
By Hamza Arshad,
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.
Pakistan’s trade with Iran is heavily imbalanced, with Iran exporting significantly more to Pakistan than Pakistan exports to Iran. This trade deficit could lead to economic challenges for Pakistan if not addressed.
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.
Smuggling like oil and other illicit activities from across the border also hamper Pak-Iran trade. A report submitted to the Prime Minister’s office revealed that annually, 2.802 billion liters of oil is smuggled to Pakistan, incurring 60 billion rupees of revenue loss.
Pakistan’s energy imports from Iran could be affected by US sanctions, leading to energy shortages and increased energy costs for Pakistan.
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.
In solution, while trade between Pakistan and Iran is important for both countries, Pakistan must carefully navigate the complexities of US sanctions to avoid economic challenges. By addressing trade imbalances, smuggling, and limited payment mechanisms, and diversifying its trade partners, Pakistan can mitigate the risks and maximize the benefits of its trade with Iran.
Hamza Arshad (IB&M, UET Lahore)
