Saadat Hassan

CPEC Geo-economics Strategy for Greater Eurasia

Date of publication : October 1, 2017 21:55 pm
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Pakistan's Former Prime Minister Nawaz Sharif arrives at the stage to speak at a ceremony in Gwadar port, some 700 kms west of Karachi on November 13, 2016

Historically, Iran and Pakistan enjoyed friendly relations and this relationship has noticeably improved in the recent years. The two countries have been successful in harmonizing their differences over Afghanistan where they have no more to enter into contestation, given Iran’s reconciliation with the Taliban and the two countries’ common threat perceptions over the rise of the Islamic State in the ‘AfPak’ region. Pakistan’s regional posture is India-centric, while Prime Minister Narendra Modi has also enunciated on several occasions a policy of encircling and isolating Pakistan regionally and internationally. Along those lines, India has substantially increased its influence in Afghanistan, and it has recently, too, started stepping up its engagement with Iran. Meanwhile, Pakistan, instead of countering Indian engagement in Iran, is directing its ire at Iran itself. This has further alienated Tehran, which has its own interests to pursue.
 
 As per 2013 Pew Poll found that 69 per cent of Pakistanis had a favorable view of Iran, the highest percentage of 39 countries polled worldwide on perceptions of the Islamic Republic. According to a survey, conducted by the Pakistan Institute of Peace in 2013, political and religious parties in Pakistan hold on to the notion that Pakistan’s ties with Iran should not be determined by the fears of upsetting the US but need to be based on Pakistan’s own national interest. It will not only improve relations with Iran, but also promote security, economic cooperation and, sectarian harmony. According to a report by the International Monetary Fund (IMF) in 2013, while Pakistan ranked as the 11th largest trading partner of Iran, trade between the two countries has been well below its true potential despite geography and the infrastructure available under the Economic Organization Cooperation (ECO) framework. There is, however, a high volume of trade between the two countries through third country channels, smuggling and other illegal modes of financial transactions, mainly because of the western imposed sanctions on Iran, and the threats of penalties on the countries doing business with Iran.
 
Covering a land area of 1,648,195 km2 (636,372 sq mi), Iran is the second-largest country in the Middle East and the 18th-largest in the world. With 78.4 million inhabitants, Iran is the world’s 17th-most-populous country. It is the only country with both a Caspian Sea and an Indian Ocean coastline The country’s central location in Eurasia and Western Asia, and its proximity to the Strait of Hormuz, makes it of great geostrategic importance. Iran is heir to one of the world’s oldest civilizations, beginning with the formation of the Proto-Elamite and Elamite kingdoms in 3200–2800 BC. The area was first unified by the Iranian Medes in 625 BC, who became the dominant cultural and political power in the region. It is important to note that Tehran is very closely watching the realignments taking place in the region as well as at the international levels to assess its future plan of action. With a new block emerging in the region, Iran is fast shifting its weight towards China. Iran can join this coalition which aspires to keep the region peaceful and economically vibrant.
 
Iran, situated astride the Persian Gulf, Gulf of Oman and Caspian Sea, has Pakistan, Armenia, Afghanistan, Iraq, Azerbaijan, Turkmenistan and Turkey as its neighboring states. Being an energy abundant country, exports petroleum, cement, chemical products, carpets and fruits and imports capital goods, consumer goods, Industrial supplies and technical services. Iran’s trading partners include China, Japan, India, Turkey, South Korea and UAE. Initially opposing Gwadar as a perceived economic threat to Chabahar, Tehran has recently shown its inclination to participate in China–Pakistan Economic Corridor (CPEC) with intent to enhance land connectivity for trade purposes77. With Iran’s positive disposition towards CPEC the erstwhile Iran-Pakistan-India (IPI) pipeline could be rechristened as Iran-Pakistan-China (IPC) Pipeline. Iran’s participation in the Project is likely to go a long way in bringing stability to the region, particularly Afghanistan. A train link connecting Pakistan, Iran and Turkey78 will not only strengthen Pakistan-Iran-Turkey partnership but would also ensure a safe trade route from South-Asia to Middle East and from Turkey right into Europe.
 
The willingness shown recently by President Rouhani to join with the world’s economic giant through CPEC is actually not linked to benefit economically but also the strategic significance of this new emerging alliance is also being taken care of. The bottom line is that both Iran and Pakistan regard China as a bulwark against US hegemony. The CPEC also brings in an economic dimension. Moving on, Iran’s inclusion in CPEC will help Pakistan in a number of ways. One, Iran’s re-entry into the active international fold after the recent lifting of sanctions bodes well for Islamabad. For Iran, there’s no looking back. Trade and economic representatives from all over the world are scrambling to Tehran to woo Iran to do business with them. Analysts are predicting a turnaround of fortunes for the Iranians as well as transformation of the oil market mechanistic dynamics.
 
For Pakistan, Iran’s resurgence is nothing but good news, especially as far as the long-forgotten Iran-Pakistan pipeline project is concerned. There is now a reason to believe that some progress will be made in the changed set of circumstances. Before Iran was hit by international sanctions, bilateral trade between with Pakistan was around $1.6 billion annually. After the economy-crippling sanctions were imposed, Pak-Iran bilateral trade was reduced to around $300 million. Now that the West lifted its sanctions against Iran due to the nuclear deal reached in 2015, the Iranian economy and, consequently, Pak-Iran bilateral trade, are slowly recovering.
 
Having said that trade and energy cooperation between Pakistan and Iran can be increased through the revival of the Iran-Pakistan gas pipeline. The gas pipeline could meet 25 per cent of Pakistan’s energy needs. The total cost of the project is estimated at US$7.50 billion with the cost, on the Pakistani side, of about US$1.25 billion. The project would supply 750 mcft daily through its 1700 km length, and it is estimated that at least 5000 MW of electricity could be generated through the use of Iranian gas. The pipeline can also become a part of the larger China-Pakistan Economic Corridor initiative;. According to South Asia analyst Michael Kugelman, “Iran may have concerns about Gwadar from a geopolitical standpoint, given that Gwadar and the broader pattern of Chinese investment in Pakistan is a competitor to the India-led transport infrastructure project that centers around the port of Chabahar in Iran. Based on scale and amount of investment, the Chinese investments in Pakistan are more formidable than India’s in Iran.” Kugelman continues, “At the same time, Gwadar could have benefits for Iran. China has suggested its broader CPEC project in Pakistan could include financing the Pakistani side of a new gas pipeline from Iran. Also, China’s massive investments in Pakistan could merely be the precursor to broader Chinese regional infrastructure investments, including in Iran. Who knows – we could even see the Chinese making some contributions to Chabahar. Anything is possible.”
 
Pakistan is especially interested in improving and coordinating its economic relations with Iran. With the lifting of the international sanctions on Iran, all legal hurdles of doing trade with Iran have now been removed. This will give a boost to economic relations between the two countries and both the countries would no longer have to rely on indirect trade. While economic relations will be the major focus of future relations, there will be many foreign policy issues that will impact such relations. Of particular concern would be China‟s efforts to develop the China-Pakistan Economic Corridor (CPEC), and Iran‟s growing relations with India.
 
The mounting ties between China and Iran is an important factor that needs to be weighed by the leadership in Pakistan to immediately take necessary steps to ensure a trilateral cooperation among Pakistan, Iran and China. There is an added factor to push this kind of cooperation forward. During a visit to Iran by Chinese President Xi Jinping in January 2016, both Iran and China signed a US$600 billion trade deal. Both agreed to expand multidimensional ties and increase bilateral trade more than tenfold in the next decade. The two countries signed seventeen accords including agreements on cooperation in nuclear energy to become a part of China‟s „One Belt, One Road‟ initiative.
 
For Iran, the corridor would provide the country with much required openness to the east. In  addition, Iran‘s  entrance in  this venture would  lead  to  an  era  of  improved  economic  development  across  the  Sistan-Baluchistan  province  by enhancing trade  between Pakistan,  China, and Iran  and would  offer a  cost-effective gateway to  the Gulf region for states like Russia and India. Presently, the need for Pakistan is to take into account the concerns of Iran especially if  Pakistan  wants to balance India‘s  influence  in the region and  wishes to fulfill the old dream of Iran-Pakistan gas pipeline. Iran must look forward to the removal of non-tariff barriers and Pakistan must set mechanism to purchase oil from Iran instead of going miles away. Strategic importance of Gawadar does haunt neighboring countries but Pakistan has to mainstream this right strategic narrative of cooperation for greater good of both countries. Pakistan as friendly gesture could lay modes of connectivity between Chabahar and Gawadar.
 


Saadat Hassan, PhD scholar at School of Politics and International Relations, Quaid-i-Azam University, in Islamabad, is the expert on South Asia affairs. Contact him via: qaura1@gmail.com


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