Pakistan and Iran, two neighboring nations with shared borders, culture, and history, hold untapped economic potential that remains largely underutilized. Their cooperation, particularly in the areas of energy trade and connectivity, can bring mutual benefits and contribute to regional stability. This editorial evaluates the economic prospects of Pakistan-Iran collaboration with a special emphasis on energy partnerships such as the Iran-Pakistan gas pipeline and infrastructure connectivity. While challenges exist, the potential gains in energy security, regional trade, and geopolitical alignment make a compelling case for advancing bilateral cooperation.
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Historical Background of Bilateral Ties
Despite geographic proximity and cultural links, Pakistan-Iran relations have historically been shaped more by geopolitics than economics. Since the 1947 partition, both countries have maintained cordial relations, with shared interests in border security and religious diplomacy. However, regional alignments, particularly Iran's tensions with Western powers and Pakistan's alliance with the United States and Gulf countries, have restricted the full flowering of bilateral economic cooperation. Consequently, trade volumes have remained modest, hovering around $1.5 billion annually, far below their potential.
Energy Dependency and the Case for Diversification
Pakistan's growing energy demands are a central driver for exploring deeper cooperation with Iran. The country faces chronic electricity shortages, over-reliance on imported petroleum, and vulnerability to global oil price shocks. In contrast, Iran holds the world’s second-largest natural gas reserves and has the capacity to meet much of Pakistan’s energy needs through cost-effective supply. This energy asymmetry presents a natural synergy. Pakistan's reliance on Gulf-based LNG suppliers could be reduced through stable overland gas imports from Iran, potentially improving energy affordability and reliability for Pakistani industries and households.
The Iran-Pakistan Gas Pipeline: A Strategic Opportunity
The Iran-Pakistan (IP) gas pipeline project, initiated in the 1990s, represents one of the most strategically significant ventures for both countries. Originally envisioned as the Iran-Pakistan-India (IPI) pipeline, the project lost Indian participation due to diplomatic constraints. Despite several bilateral agreements and Iranian completion of their side of the pipeline up to the Pakistani border, Islamabad has delayed construction due to financial challenges and pressure from the United States, which opposes energy deals with sanctioned Iranian entities.
Nevertheless, recent geopolitical shifts, such as Pakistan's growing energy crisis, closer ties with China under the China-Pakistan Economic Corridor (CPEC), and evolving global attitudes toward multipolar cooperation, have reopened discussions. If completed, the pipeline could deliver up to 750 million cubic feet of natural gas per day, significantly reducing Pakistan’s energy deficit. This would lower production costs, reduce load-shedding, and stimulate export-oriented industries.
Enhancing Regional Connectivity through Infrastructure
Beyond energy, connectivity projects between Pakistan and Iran can transform regional trade dynamics. Iran offers Pakistan access to Central Asia and Europe via land routes and to the Persian Gulf through the Chabahar Port. For its part, Pakistan's Gwadar Port provides Iran a shorter route to the Arabian Sea and broader Indian Ocean. Although Gwadar and Chabahar are sometimes seen as rival ports, collaborative development could turn them into complementary hubs that serve the entire region.
A potential Pakistan-Iran transit corridor, aligned with the International North-South Transport Corridor (INSTC), could integrate land, rail, and sea routes to link South Asia with Europe and Russia. This integration would not only reduce logistics costs for both countries but also generate transit revenue, create employment, and boost bilateral trade. The development of road networks such as the Mirjaveh-Taftan highway and customs facilitation centers could further streamline cross-border movement of goods and people.
Trade Expansion and Currency Cooperation
A practical economic benefit of Pakistan-Iran cooperation lies in trade expansion, especially in sectors such as agriculture, pharmaceuticals, construction materials, and food processing. Iran can export oil, gas, petrochemicals, and electricity, while Pakistan can supply textiles, surgical instruments, and rice. To overcome challenges related to dollar-based trade amid sanctions on Iran, both countries have explored barter systems and local currency exchanges.
In 2023, Pakistan and Iran inaugurated border markets and agreed to boost barter trade, which allows the exchange of goods without relying on international banking channels. This mechanism, if expanded and institutionalized, can help both countries sidestep global sanctions regimes and stabilize their bilateral trade. Furthermore, local currency usage would reduce pressure on Pakistan's foreign exchange reserves, which often face depletion during import surges.
Geopolitical Constraints and Western Sanctions
Despite the mutual economic benefits, Pakistan-Iran cooperation continues to face significant geopolitical barriers. Chief among them is the United States’ economic sanctions on Iran, which discourage international companies and banks from engaging in Iran-related transactions. Pakistan, a recipient of Western financial assistance and reliant on institutions such as the International Monetary Fund (IMF), has been hesitant to proceed with large-scale agreements that may risk secondary sanctions.
In addition, Pakistan’s close ties with Saudi Arabia, a rival of Iran, create diplomatic complexities. Balancing these relationships requires careful strategic maneuvering. However, recent trends, including Saudi-Iran rapprochement and China’s growing regional influence, present an opportunity for Pakistan to pursue an independent and balanced foreign policy that prioritizes economic needs over external alignments.
China’s Role and the Regional Balance
China’s Belt and Road Initiative (BRI), of which CPEC is a flagship project, places Beijing in a favorable position to support regional integration involving both Pakistan and Iran. China has invested in infrastructure projects in both countries and has expressed interest in developing Iran’s energy sector. As the largest importer of Iranian oil and a close economic partner of Pakistan, China can act as a facilitator for trilateral projects that are shielded from Western scrutiny.
Moreover, a potential energy corridor involving Iran, Pakistan, and China would strengthen regional resilience and promote economic interdependence. Such collaboration can also increase bargaining power for all three countries in global markets, allowing them to negotiate better trade and investment terms with Western and Eastern powers alike.
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While the economic rationale for Pakistan-Iran cooperation is compelling, its implementation remains constrained by external political forces, bureaucratic inertia, and security concerns. The gas pipeline, despite being technically feasible, is subject to frequent delays due to financial bottlenecks and diplomatic uncertainty. Both countries must navigate a complex web of regional politics, sanctions, and domestic challenges. Nevertheless, the future of their economic relationship depends on bold leadership, transparent policymaking, and long-term vision that prioritizes economic welfare over temporary alignments.
The economic potential of Pakistan-Iran cooperation, especially in the domains of energy trade and connectivity, offers a viable path toward sustainable development and regional integration. The Iran-Pakistan gas pipeline, if realized, could transform Pakistan's energy landscape, while expanded infrastructure and trade initiatives would deepen bilateral ties and reduce dependence on external actors. To unlock these benefits, both countries must move beyond geopolitical hesitation and embrace a policy framework that favors pragmatism, diversification, and mutual gain. By doing so, Pakistan and Iran can convert their strategic geography into shared prosperity.
