After staling for over a decade, the time has come when the threat of yet another international litigation feels inevitable. Pakistan is facing $18 billion litigation risk from Iran over the Iran Pakistan Gas Pipeline Project – a project that has been in limbo for over 12 years. Ironically, Iran has already completed construction of over 900 km within its territory and has spent over $2 billion on its part of the pipeline. Pakistan, on the other hand, has not even begun working on the construction.

IP Pipeline project was first inked in the 90s between Pakistan and Iran, whereas, the Gas Sales Purchase Agreement (GSPA) was signed in 2009 for 25 years for the transport of 750 mmcfd gas from Iran to Pakistan. As per the original agreement, the country had to pay a penalty of $1 million per day from Jan 2015 – when the gas flow was initially supposed to flow between the two countries. However, under the revised agreement for the construction of the IP Pipeline by the National Iranian Gas Company (NIGC) and the Inter State Gas Systems of Pakistan (ISGSP), the penalty was shifted till 2024 and was hinged upon the non-completion of the construction of the pipeline by Pakistan.

The two countries – Iran and Pakistan – have not had a very smooth ride when it comes to bilateral relations. However, the main factor hindering the project has been the consistent resistance from the West. The pipeline has been stalleddue to US sanctions on Iran. But that’s not it. The pressure has also come from KSA that has also had strained relations with Iran.

Only recently, the project has come up the priority ladder for the government and likely so due to the looming risk of a hefty penalty. In order to bridge the rising energy gap due to the shortage of LNG, there were report in the latter halfof 2022 that the government was considering restarting the construction of IP Pipeline.

So far, all that is known is that that the government ministries are planning inter-ministerial meeting as well as discussions will the US and Iranian counterparts IP project is not just an energy infrastructure project between two neighboring countries; it has been testing foreign diplomacy of the two countries, its allies and adversaries with interest of major global powers at stake.

While it looks like there is no option left but slapping the country with a penalty, there are some glimmers of hope as the authorities are optimistic about the smoothening of the relations between Iran and KSA that is backed by China. And the a Authorities are eyeing for a waiver of relief from the US over sanctions on Iran and also some waiver inpenalty from Iran in case Pakistan fails to meet the deadline of February-March 2024.