Even-handed approach to sanctions?

What should not have happened has happened. Iran has moved the International Court of Arbitration in Paris against Pakistan for not completing its portion of the gas pipeline and failure to have an intake of 750 mmcfd gas under the Iran-Pakistan gas pipeline. In turn, the government of Pakistan has hired the services of three reputed global law firms to fight its case in the global arbitration court.

This is an unfortunate development, which would not only cost both the nations significantly in terms of fees of lawyers and court, but would also affect the bilateral relationship between them.

The two neighbouring countries have a long history of social, cultural and religious cohesion and connectivity. On many occasions this relationship stood the test of times - more in favour of Pakistan at the time of its Independence and its wars with India.

With this background, bilateral issues could have been amicably worked out as both have understandable reasons for their cases.

Iran has significantly invested in completing its part of the pipeline with no recourse for return on its investment while Pakistan is checked by US sanctions to move ahead with its commitment of completing the other half in its territory. It appears the fault lines between the two countries are far deeper and override historic relations.

The project has been facing a 10-year delay since 2014. The GSPA (Gas Sales Purchase Agreement) was signed in 2009 under the French law with place of arbitration at the Arbitration Court at Paris which decides disputes that arise between two countries. Reportedly, the Arbitration Court does not recognise US sanctions.

Under the original agreement, Pakistan is bound to pay $1 million per day to Iran from January 1, 2015 under the penalty clause. The project was to be implemented under a segmented approach, meaning Iran had to lay down the pipeline on its side and Pakistan was to build the pipeline on its territory.

It was to be completed by December 2014 and become functional from January 1, 2015. “The authorities in Pakistan had planned to partially implement the IP gas pipeline project by laying down an 81-km pipeline from Gwadar to the Iran border to show its seriousness towards the project. But this strategy also could not be implemented,” officials said.

The Inter-State Gas Systems (ISGS) of Pakistan and National Iranian Gas Company (NIGC) inked the revised contract in September 2019. Under the contract, Iran would not approach any international court if there was a delay in construction of the pipeline.

Under the revised contract, Pakistan was bound to erect the portion of pipeline inside its territory till February-March 2024, after which it would have an intake of 750 million cubic feet of gas from Iran daily. Iran facilitated Pakistan and extended the 180-day deadline that expired in September 2024. The authorities, however, again failed to lay down the pipeline. Then Iran served its final notice.

Under the French law, if Iran does not exercise its right to move the Arbitration Court till September 2024, it would lose its right to initiate a legal battle against Pakistan. Iran earlier issued its second legal notice to Pakistan in November-December 2022, asking Islamabad to construct a portion of the gas pipeline in its territory till February-March 2024, or be ready to pay a penalty in billions of dollars.

Pakistan cited its limitations to move ahead on the project and reportedly stated: “It is unable to move on with the project due to US sanctions and tried hard with US government to seek a US waiver which was not granted and that it has been warned of serious consequences if it gets in bed with Iran on the IP gas line project’.”

Both Pakistan and Iran are in a dilemma. Iran has incurred substantial costs in laying its part of the pipeline with no return on investment and that if it did not exercise its right to move the Arbitration Court till September 2024, it would have lost its right to initiate a legal battle against Pakistan, whereas Pakistan desperately needs gas from Iran to fuel its industry and businesses for its economic revival. US sanctions do not make it happen.

On the contrary, India made the best out of the sanctions on Russia in the wake of the Ukraine war.

India has overtaken Saudi Arabia as Eu-rope’s top supplier of refined fuel. In 2023, Europe saw a significant increase in its imports of refined oil from India, coinciding with a notable rise in India’s imports of Russian crude oil. This trend suggests that European consumers likely received large volumes of oil products originally sourced from Russia via India, despite sanctions imposed following Russia’s invasion of Ukraine, a report by The Independent said.

India, maintaining its diplomatic balance, continues to purchase Russian oil amid the Ukraine conflict, simultaneously fostering closer defense and trade relationships with Western nations.

Data from independent sources shows that India became the top importer of Russian crude oil in 2023, with an average of 1.75 million barrels per day, marking a 140% increase from 2022. Concurrently, the European Union’s import of refined products from India surged by 115%, from 111,000 barrels per day in 2022 to 231,800 barrels per day in 2023.

Sources state that this figure represents the highest in the past seven years and possibly the highest-ever. An analysis, for example, explains: “It has worked two-fold - India has been able to buy cheap oil for its refineries, then it has been able to refine that oil and sell the refined products at full price, and into a market (Europe) that is willing to pay up for them because it desperately needs to replace the loss of Russian material that it has applied sanctions on.”

This phenomenon of India capitalising on sanctions explains much about the sanctity of the sanctions; it is more self-interest based and discriminatory, to say the least. It satisfied the dire need of Europe for refined oil, whereas India’s trade-off with the West with supply of defence goods worked well for all parties. More than this it explains that nations with economic muscles and global clout can have their way in global diplomacy. And this well explains different sanction rules for Pakistan and India.

Copyright Business Recorder, 2024