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The new vision for economic collaboration with Iran will benefit Pakistan hugely

September 13, 2023 at 11:22 am

Iranian President Ebrahim Raisi (R) meets Pakistan Prime Minister Shehbaz Sharif (L) on September 20, 2022 [Iranian Presidency/Anadolu Agency via Getty Images]

Pakistan and Iran have many cultural, linguistic and historical ties, as well as geographical linkages and economic potential. They are in the same region and share a 909-kilometre border. They are both rich in natural resources with enormous economic potential, key geostrategic locations with the ports of Chahbahar and Gwadar, and cultural and religious affinities as seen in Persian poetry in Pakistan and strong Pakistani attachments to cultural or religious landmarks in Iran. The 21st session of the Iran-Pakistan Economic Cooperation Organisation decided to increase bilateral trade to $5 billion by this year.

On 18 May, Iranian President Ebrahim Raisi and Pakistani Prime Minister Shehbaz Sharif opened the first border market. This was the first of six planned along the Pakistan-Iran border as part of a 2012 agreement; it is located in the isolated village of Pishin in Pakistan’s southern Baluchistan region, with Mand on the Iranian side of the border. Raisi and Sharif also officially inaugurated a power transmission line that will provide Iranian electricity to rural Pakistan. Sharif informed Raisi that Pakistan would make every effort to bolster border security with Iran. He also asked Raisi to visit Islamabad, Pakistan’s capital, and stated that both parties had agreed to deepen their trade and economic ties.

The premier emphasised that discussions on the China-Pakistan Economic Corridor (CPEC) and the Free Trade Agreement (FTA) had taken place and that both countries had agreed to conclude the latter. Relations between Iran and Pakistan have been strained as a result of cross-border attacks by Pakistani extremists. Small separatist organisations have been fighting for Baluchistan’s independence from the federal government in Islamabad. In recent years, anti-Iran extremists from Pakistan have attacked the Iranian border, heightening tension between the two countries.

READ: Pakistan to buy more electricity from Iran amid worsening energy crisis

In 2013, the two countries signed a deal allowing Pakistan to acquire Iranian gas despite US opposition. At the time, Tehran claimed, “The West has no right to block the project.” The agreement could not be implemented because of US sanctions against Iran. Pakistan has attempted to retain relations with Shia-majority Iran while also maintaining close connections with Sunni-majority Saudi Arabia. Long-time foes Riyadh and Tehran reached an agreement earlier this year mediated by China.

The opening of the Mand-Pishin border market and the 100-megawatt Gabd-Polan power transmission line marked the beginning of a new chapter in Pakistan-Iran ties. This will make use of the great potential for bilateral energy and petroleum projects between the two countries for the benefit of both peoples.

As collaboration expands into other areas, such as solar energy, delegations from each country are likely to visit the other. Iran and Pakistan have a long history of friendship that symbolises Islamic unity. This link, however, was not reflected in bilateral trade and investment. The Mand-Pishin border market will be a buzzing centre for economic development, offering new opportunities for local businesses. The Gabd-Polan transmission line will help Pakistan’s energy problems. Greater cooperation is the key element.

Pakistan may purchase oil and gas from Iran at reduced prices without incurring significant freight charges, saving the country millions of dollars in pricey oil imports. Iran can reduce its economic insecurity while also boosting its reputation as a peaceful and cooperative nation by opening new commercial lines with Pakistan. It could also reduce Baluchistan border grievances, and the wellbeing of people in the neighbouring provinces could improve. It is hoped that extremism, terrorism and sectarianism will fade following strong people-to-people exchanges.

Coal is another commodity in which Iran and Pakistan can collaborate; importing it from South Africa is expensive. Because of the peace pipeline, Pakistan’s ability to meet its energy needs has improved. Iran proposes a barter system in which crops are exchanged for imported oil. Despite Pakistan’s hopes for cheaper Russian oil, shipping charges for Russian petroleum are increasing. The EU was close to finalising a deal that would cap Russian oil sales at $60 per barrel. The G7 nations are pushing for a deal to cut Russia’s oil revenue, which is used to fuel its conflict in Ukraine. Owners attempting to charge a premium for the risk are nonetheless willing to transport Russian crude. Tariffs from the Baltic Sea to India are being negotiated at roughly $15 million, or $20 per barrel, for loads after 5 December.

READ: Pakistan abandons gas pipeline project with Iran due to US sanctions threat

Why does Pakistan need Iranian petroleum products? They are relatively inexpensive; they reduce dependence on Saudi oil; and strengthen bilateral ties. Only 20 per cent of Pakistan’s petroleum needs can be met locally; the remainder must be imported, at a cost of $2.22bn.

Pakistan is currently embroiled in one of its most challenging battles, with both its political and economic landscapes in change due to worldwide price hikes, and is unable to stem the rise in petroleum prices. The new vision for economic collaboration with Iran can have enormous benefits for Pakistan.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.