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Iran threatens to impose $18 billion penalty on Pakistan: Here is why

Iran’s Ministry of Energy has given Pakistan a deadline of February-March 2024 to build a portion of the Iran-Pakistan gas pipeline project on its territory or else pay a heavy penalty.

The troubles of an already financially struggling Pakistan are unlikely to end anytime soon.  A crisis-hit Pakistan may soon have to pay a penalty of $18 billion as Iran has warned the country to either complete the construction work on a multi-billion dollar gas pipeline project or pay the penalty.

As per Pakistani media reports, Iran’s Ministry of Energy has given Pakistan a deadline of February-March 2024 to build a portion of the Iran-Pakistan gas pipeline project on its territory or else pay a heavy penalty.

Notably, Iran has already finished construction on their part of the pipeline, which stretches from the gas fields in the west of Iran to its eastern neighbour Pakistan.

Time and again, Pakistan has expressed its inability to complete the construction of the pipeline project due to US sanctions imposed on Iran. 

Iran-Pakistan Pipeline Project

The Iran-Pakistan Pipeline Project, also known as Peace Project, had initially included India as well. The plan was to export Iranian gas via a pipeline running through Pakistan to India. The $7.5 billion construction project, extending to 1700 miles, was to bring gas from the South Pars gas field through Balochistan into India.  A deal between the three countries was signed, however, India pulled out of the deal owing to security concerns and high tariffs being levied by Pakistan. 

After India pulled out of the deal, Pakistan and Iran went ahead with the plan and signed a deal in 2009, the project was supposed to be completed by 2014-15. However, Pakistan failed to fulfill its commitment due to the US sanctions imposed against Iran. 

In September 2019, Iran and Pakistan signed a revised deal, wherein, the two countries decided to mutually chalk out a plan to complete the construction work of the project. According to the agreement signed between Inter State Gas Systems (ISGS) of Pakistan and the National Iranian Gas Company (NIGC), Iran also agreed not to approach any International court if Pakistan completes the project by 2024. 

As the deadline for Pakistan to complete the project is approaching, Iran has warned Pakistan to fulfill its commitment by March 2024 or be ready to pay a penalty of $18 billion. Currently, it looks beyond Pakistan’s capabilities to pay the amount due to the ongoing economic crisis in Pakistan.

Economic crisis in Pakistan 

Pakistan is experiencing its worst economic crisis in years as the country is dealing with a shortage of food, shortage of power, sky-high inflation, and a collapsing currency. The economy of Pakistan has been spiraling out of control due to the vicious cycle of debt and partial payments. 

In addition to running out of money, Pakistan has also run out of flour to feed its population, and the country is facing massive power cuts as well.

With expanding debt, rising energy import costs, depleted foreign reserves, political instability, a protracted decline in GDP growth millions losing jobs, the country desperately needs a bailout.

The situation in several cities of Pakistan is so grave that flour is being rationed and guarded by armed guards. Prices of flour and wheat have witnessed a dramatic surge. 

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OpIndia Staff
OpIndia Staffhttps://www.opindia.com
Staff reporter at OpIndia

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