Talk about a hefty target! In his meeting with Iranian Foreign Minister Javad Zarif earlier this week, PM Nawaz Sharif underlined the need to achieve bilateral trade of $5 billion between the two countries. Let’s put that number into perspective: as per SBP data, Pak-Iran trade is just $31 million as of FY16, or $0.03 billion!

The statement may well have been diplomatic eyewash, but it warrants a look into Pak-Iran trade. Now that banking channels are opening up and some trade between the neighbours has resumed, particularly in rice (See yesterday’s column on rice exports), this is an opportunity to improve our ever-increasing current account deficit.

Prior to the sanctions, Pakistan had always maintained a trade deficit with Iran. Oil was our primary import from Iran, accounting for around 80 percent of total Iranian imports. From our end, rice (mostly Basmati) made up 80 percent of exports to Iran. This was in FY10. Then the sanctions happened.

In November 2011, then-President Barrack Obama signed an executive order authorizing ‘the imposition of certain sanctions with respect to the provision of goods, services, technology, or support for Iran’s energy and petrochemical sectors.’ Since then, Iran’s exports to the world dropped massively, as they did with Pakistan, and vice versa. Then at the onset of FY13, another executive order authorized additional sanctions on Iran. From then onwards, Pak-Iran trade has been negligible.

Now that trade is resuming, Pakistan can reap some benefits of that lost trade. Firstly, purchasing oil from Iran as compared to Saudi Arabia and the Gulf states will be relatively cheaper due to geographical proximity and lower freight costs, so that’s a plus. Secondly, barring competition from India, Basmati exports to Iran are picking up and earning much-needed forex. Recall that Basmati is considered a premium, high-end rice and is more expensive, thereby earning more dollars.

That being said, Basmati rice is not without its problems – a high cost of doing business, lack of research and development into new varieties, low yields, water shortages, etc. Moreover, there is a dire need for product diversification. Simply put, without oil, Iran is of no significance to Pakistan; without Basmati rice, Pakistan is of no significance to Iran. Currently, a Pak-Iran FTA is in the works, slated to be finalised by end 2017.

Hopefully, the entire emphasis of the document will not be on just these two products, and some roadmap will be formulated to at least come close to the $5 billion target.