Iran to build oil refinery in Pakistan

Chabahar, Iran is only about a hundred miles away from Gwadar, Pakistan.
Chaba­har, Iran is only about a hun­dred miles away from Gwadar, Pak­istan.

Iran has inked a deal to build an oil refin­ery in Gwadar, Pak­istan.

In a major move to boost bilat­er­al coop­er­a­tion, Iran has agreed to set up a $4 bil­lion oil refin­ery in Gwadar with an esti­mat­ed capac­i­ty of about 400,000 bar­rels per day.

Prime Minister’s Advis­er on Petro­le­um and Nat­ur­al Resources Dr Asim Hus­sain told Dawn on Wednes­day that an under­stand­ing to this effect had been reached dur­ing a meet­ing between Iran­ian del­e­ga­tion led by Oil Min­is­ter Ros­tam Ghase­mi and Prime Min­is­ter Raja Per­vez Ashraf.

This rep­re­sents a rather sub­stan­tial invest­ment on Iran’s part, even if the amount of oil it will process is not world-alter­ing. But what I find inter­est­ing is the ques­tion: why?

Just a hun­dred miles away from Gwadar, Iran has its own brand new port city, called Chaba­har. It even has oil facil­i­ties already built there. What Iran does­n’t have is a way to eas­i­ly sell oil to Pak­istan: under the crush­ing sanc­tions regime spear­head­ed by Pres­i­dent Oba­ma, Iran­ian ener­gy has con­tract­ed by about 45%. They’re des­per­ate for new mar­kets and sales.

Pak­istani-Iran­ian ener­gy coop­er­a­tion is an old sore point for the U.S. The UN sanc­tions against Iran do not apply to many types of ener­gy-relat­ed trans­ac­tions. The sanc­tions regime put in place by the US, Cana­da, and Europe (and oth­ers) does restrict oil sales, but Pak­istan is not a par­ty to those.

Still, Pak­istan is vul­ner­a­ble under Amer­i­can sanc­tions, which as of last month added penal­ties for oth­er coun­tries doing busi­ness with Tehran, includ­ing in the ener­gy sec­tor.

Regard­less, Iran and Pak­istan are pro­ceed­ing with fur­ther ener­gy links. In addi­tion to the Gwadar refin­ery, Islam­abad has agreed to build a new nat­ur­al gas pipeline from Iran to Pak­istan.

It is impor­tant to keep in mind that this is South Asia, and with­in South Asia this is Baluchis­tan. A low-lev­el insur­gency has been roil­ing Baluchis­tan for years, enough to scare away the investors who might con­ceiv­ably devel­op the regions own gas reserves (which are sub­stan­tial). And in gen­er­al, projects in Pak­istan tend to last sev­er­al years longer than they’re meant to — if they even hap­pen at all. So it’s not clear yet if this is any­thing oth­er than a talk­ing point between the two coun­tries (or an elec­tion stunt for Pak­istani Pres­i­dent Zardari).

But it also impor­tant to keep in mind that Pak­istan is its own coun­try and will make deci­sions that max­i­mize its own inter­ests. They are not there to do Amer­i­ca’s bid­ding, and the U.S. has built up enough bad blood over the last decade to make com­ply­ing with any sanc­tions regime — no mat­ter how nec­es­sary peo­ple think it is — incred­i­bly dif­fi­cult.

Joshua Foust used to be a foreign policy maven. Now he helps organizations communicate strategically and build audiences.

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