EurasiaNet Eurasia Insight - Caspian Basin: A Look at the Southern Factor in the Regional Energy Equation

EURASIA INSIGHT

CASPIAN BASIN: A LOOK AT THE SOUTHERN FACTOR IN THE REGIONAL ENERGY EQUATION
A EurasiaNet commentary by Stephen Blank 11/29/07

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The Caspian Basin energy equation is growing more complex, with Iran, India and Pakistan now renewing a commitment to build a natural gas pipeline across South Asia. On November 28, Indian officials confirmed that discussions with their Iranian counterparts were continuing.

Earlier in November, Iran and Pakistan expressed readiness to proceed with construction on the export route, dubbed the Peace Pipeline, with or without India. At the time of that announcement, New Delhi’s interest in the project was believed to be lukewarm. Political analysts speculated that the Indian government was reluctant to proceed with the project, due to a desire to not rankle the United States, which is a steadfast opponent of Iranian involvement in any Caspian Basin export arrangement. Others factors were also cited: uncertainty about socio-political conditions in Pakistan, which would serve as a transit nation for India; and the recent discovery of a major reserve of gas off India’s Eastern coast in the Krishna-Godavari Basin.

In a written statement distributed November 28, India’s External Affairs Minister Pranab Mukherjee specifically denied that US pressure was influencing India’s pipeline stance. Mukherjee also revealed that the Ministry of Petroleum and Natural Gas has been engaged in ongoing talks with Iranian officials on pricing and other issues.

Iranian media outlets quoted Ayatollah Ahmad Jannati, the head of Iran’s Guardian Council, calling for closer bilateral relations. "Iran’s policy is based on the expansion of friendly relations with other countries. Tehran has many cultural bonds with Eastern states, especially India," Jannati said November 27 while on a visit to New Delhi.

The pipeline, as currently envisioned, would stretch roughly 2,775 kilometers, and deliver upwards of 30 million cubic meters of gas from Iran’s South Pars field to Pakistan and India. The projected cost of construction now hovers around $7.4 billion. The three countries have talked about the project since the mid-1990s, with frequent disruptions due to political and economic factors, in particular tension between India and Pakistan.

The single largest obstacle to a deal has been, and still is connected to pricing and transit fees. India balked at meeting Iran’s original asking price of around $7 per million British thermal units or Btu. That price, for instance, is significantly higher than the $130 per thousand cubic meters of gas that Russia agreed to pay Turkmenistan recently. [For background see the Eurasia Insight archive]. India also has had to factor in transit fees sought by Pakistan.

In June, the three countries appeared to have settled on a price of $4.93 per million Btu, but a final agreement stalled when Iran sought to insert a provision that would allow for a pricing adjustment every three years. India and Pakistan wanted the price to remain fixed for the lifetime of the 25-year deal.

Despite the renewed desire to build the pipeline, the political and economic issues that have impeded talks in the past have not miraculously disappeared. New Delhi additionally frets about the security of much-needed energy supplies that would have to pass through Pakistan, with which India has had often hostile relations for 60 years. An added wrinkle is the fact that Indian leaders now worry about internal stability in Pakistan, underscored by the state of emergency that exists in the country. The peace pipeline would cross Baluchistan, an area of Pakistan that is the scene of an ongoing insurgency. On November 28, three government security troops were killed in an ambush on a convoy in which they were riding. The attack occurred in the Panjgoor District, bordering Iran.

Political wrangling inside Iran could also come into play. In August, the country’s Energy Minister, Kazem Vaziri-Hamaneh, was sacked, and in comments made during farewell ceremony, distributed by the Iranian Student New Agency, he criticized the policies of President Mahmoud Ahmadinejad’s administration. If existing policies were not quickly altered, he suggested, Iran would face an energy crisis within 15 years. Concurrent with Vaziri-Hamaneh’s dismissal, a report issued under the auspices of a parliament-controlled research center indicated that Iran’s ability to export natural gas would be severely limited in the coming years. The report cited high domestic demand as the main constraint on exports. "It seems that for at least the next 10 years there will not be any extra gas for export. Iran is advised to remove gas export from the country’s policy due to the limited production capacity," stated the report.

On top of everything else, the United States has actively tried to scuttle the pipeline. Washington has tried to exert political pressure exerted on New Delhi. American officials also have sought to dull Pakistan’s enthusiasm for the project with an offer to help Islamabad secure energy supplies from Central Asia, in particular electricity generated in Tajikistan and possibly Kyrgyzstan.

For the Peace Pipeline to at last become reality, it will take a lot more than joint desire. Substantial political and economic obstacles still stand in the way. Of the three nations involved, the pressure seems greatest on India to find a solution to existing dilemmas. According to an energy forecast report issued in November by the International Energy Agency, energy demand in India is set to double by 2030. To meet that growing demand, India will have to spend about $1.25 trillion on infrastructure improvements, the report predicted.

Editor�s Note: Stephen Blank is a professor at the US Army War College. The views expressed this article do not in any way represent the views of the US Army, Defense Department or the US Government.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

The views expressed in this publication do not necessarily represent the position of the Open Society Institute and are the sole responsibility of the author or authors.