What is the thinking on Iran-India Gas Pipeline?

For quite sometime now (since 1990), India and Pakistan have been discussing -- on and off -- transporting gas (natural gas) from Iran oilfields to India. The pipeline for such transport from Iran to India will be through Pakistan and even some parts of Afghanistan. That and the enormous estimated cost ($7.5 billion) make the proposition very complicated, if not almost impossible. There are challenging political, economic and diplomatic considerations. Here are just a few --

Assuming that the India-Pakistan political and economic relations are honky-dory, Afghanistan is a mine-field. The political uncertainty and instability in Afghanistan for the last 30 years is evident. So how will the safety of the pipeline be assured? What is the guarantee that the pipeline will not become hostage to political and even religious angst and anger?

Of course, the relations between Pakistan and India is far from reliable. Even as late as in years 1999-2000, India and Pakistan were poised to go to war. Of course, there are constant disagreements over small and big issues -- terrorism, cross-border military incursions, perceptions of slight.

Most difficult of all these challenges is the Kashmir valley. The Kashmir valley issue has no solution at all. Pakistan political leaders are unlikely to ever give up the claim that Kashmir valley should be transferred to Pakistan -- in fact, no Pakistan political leader can afford to do this politically. Of course, India will never let anyone impinge or question its sovereignty -- Kashmir is an integral part of India. If Kashmir valley was not such a narrow and small geographic area, and if there were some natural geographic divides, may be there could have been some give-and-take on the land. But that is not the case.

What if the Iran-Pakistan-India pipeline becomes a reality, and India starts using the enormous amount of natural gas for consumer and industrial purposes, and five years down the road, some political leader in Pakistan or some terrorist in Afghanistan decides to hold the pipeline hostage? India's economy will suffer devastating consequences.

What if Iran decides to raise the price of the natural gas? By supplying such large volumes of natural gas, and with the economic necessity of using the pipeline, Iran will have a near-monopolistic power. Even as the project is on the drawing board, Iran has already demonstrated its unreliability. So what can be of the future?

The pipeline project reached a setback on July 16, 2006 when Iran demanded a price of $7.20 per million British thermal unit ($6.80/GJ) of gas against India's offer of $4.20 per million British thermal unit ($4.00/GJ). The Indian spokesperson then stated that the price demanded by by Iran was more than 50 percent above the prevailing market price in India. India and Pakistan finally agreed in February 2007 to pay Iran $4.93 per million British thermal units ($4.67/GJ) but some details relating to price adjustment remained open to further negotiation.

Finally, the political instability and volatility in Iran is too obvious.

Given all these risks, it is not at all clear why India is investing so much time and effort in exploring this alluring but illusional opportunity.

Added to all these complications are two other elements. First, the United States is stoutly against this project as the U.S. is against any relations with Iran. That political reality may soften but it is not likely to change completely. Both Pakistan and India want the good will of the United States for different reasons -- for security reasons for Pakistan and for aspirational reasons for India. Second, China now wants to be part of this project adding to another level of complexity.

So why this project? It just does not add up.

Background: The project was mooted in 1990 with expectations that it will benefit both India and Pakistan, who do not have sufficient natural gas to meet their rapidly increasing domestic demand for energy. The IPI pipeline is a proposed 2,775-km-long pipeline to deliver natural gas from Iran to Pakistan and India. According to the project proposal, the pipeline will begin from Asalouyeh and stretch over 1,100 km through Iran. In Pakistan, it will pass through Balochistan and Sindh but officials now say the route may be changed if China agrees to the project. The gas will be supplied from the South Pars field. The initial capacity of the pipeline will be 22 billion cubic meter of natural gas per annum, which is expected to be later raised to 55 billion cubic metre. It is expected to cost $7.5 billion.