May 5, 2014

TSG IntelBrief: Overlapping Orbits: Iran & Saudi Arabia Circle Each Other In Pakistan

• With Iran and Saudi Arabia vying for leverage across the region, both rivals are now heavily courting Pakistan’s favor

• As regional powers Iran and Saudi Arabia seek geopolitical preeminence, Pakistan endeavors to work both sides for badly needed actual power, in the form of electricity and fuel
• Pakistan is backing away from the “peace pipeline” natural gas project with Iran (which has already built its side of the pipeline), creating tensions between Islamabad and Tehran, and opportunity for Riyadh
• Saudi Arabia’s military purchases from Pakistan are less a reflection of military needs and more indicative of Riyadh’s own pivot away from the US over, among many issues, serious concerns about Iran’s nuclear program.


Long-running regional trend lines are converging over Pakistan, with rivals Iran and Saudi Arabia seeking advantage in their dealings with Islamabad. Chief among these trends are Iran’s nuclear program and Saudi opposition to it; both countries’ desire for regional influence and power; and the Sunni-Shi’a divide, the fault line of which runs through Pakistan.

Pakistan, which has strong historic ties to both countries, is less concerned with geopolitical power than it is actual power, as its electrical grid consistently fails to meet demand and it imports nearly all its oil and gas. Each player in this three-way dance has its own reasons for spinning around the others:

Saudi Arabia is making a public show of displeasure with the US over issues such as the negotiations surrounding Iran’s nuclear program and its perceived lack of support for the Syrian rebels Riyadh has backed. Its recent assumed purchase of the Pakistani-Chinese co-produced JF-17 fighter is less a fulfillment of a military need than it is a political statement, since the US is the traditional source of most of Riyadh’s military sales.

Saudi officials have also hinted that the country could obtain a nuclear weapon from Pakistan (which does have an unfortunate history of exporting such technology) were Iran to press ahead with its own nuclear weapons program. The Saudi kingdom provides the majority of Pakistan’s imported oil, and provides badly needed financial assistance, including a $1.5 billion “gift” last month. Trade between Riyadh and Islamabad exceeds $5 billion annually, with Saudi Arabia providing oil and petrochemicals and Pakistan providing textiles and food, especially rice. As the seat of Sunni Islam, Saudi Arabia is determined to closely bind Pakistan’s Sunni population (80% overall) to its orbit, as a way of minimizing the gravitational pull of Iran’s shared border.

Iran, which shares a long border and history with Pakistan, is trying to work around crippling sanctions related to its nuclear program. It had hoped the long-planned Iran-Pakistan (IP) natural gas pipeline (also known as the “peace pipeline”) running from Iran through Pakistan, would generate new markets and opportunities for energy exports. It has already completed construction of the pipeline up to the Pakistani border, but Islamabad has backed out of the project, citing concerns over international sanctions surrounding business deals with Iran. Islamabad’s move followed the $1.5 billion gift from Riyadh. China and India have already moved away from the $7.5 billion project, dealing a serious blow to Iran’s regional energy aspirations.

Iran does provide significant electricity to Pakistan, over 75 megawatts, with talk of going much higher. Most of this electricity is to meet demand in the vital port city of Gwadar. Trade between the two countries is just over $1 billion annually, with Pakistan providing textiles and food while Iran provides electricity, petrochemicals, and iron ore.

Tensions over Pakistani Sunni extremist groups targeting Iranian officials and Pakistan’s Shi’a minority have long exacerbated bilateral relations. Still, both countries have an interest in controlling the shared and restive Baluchistan region, even as each country periodically accuses the other of harboring Baluch extremists. That said, Iran is keen on increasing economic and cultural ties with Pakistan, as it seeks to cultivate any allies it can get in the region.

Pakistan finds itself in the middle of this geopolitical dance. Prime Minister Nawaz Sharif plans to visit Tehran later this month to “pave the way for enhanced cooperation and further cementing of the brotherly relations between Iran and Pakistan.” Pakistan badly needs to increase capacity in its electric grid, an issue with which Iran can most directly help. The lack of a dependable power supply is a big deal and a significant factor in the relative slowing of the economy to only 2.3% growth this year, insufficient to meet the needs of a growing population. The countries share the common desire to combat internal extremism, even if they lack it when it comes to external extremism, with both sides engaging in tit-for-tat destabilizing actions, especially in Afghanistan.

At the same time, Sharif has close ties to Saudi Arabia, where he spent eight years in exile. In fact, the IP project was signed by Sharif’s predecessor, Asif Ali Zadari, in 2013, over strenuous US and Saudi objections. Sharif, who has better relations with Riyadh than Washington, backed out of the deal last month. Though Islamabad does want stable and productive relations with Iran, the sheer weight of Riyadh’s influence suggests that Tehran will come up short.

In addition to the oil and financial assistance that Pakistan receives from Saudi Arabia, the Kingdom alone accounted for 30% of Pakistani expatriate workers’ $14 billion in remittances in 2013, which represent a rare stabilizing force in Pakistan’s volatile economy, helping to reduce debt and unemployment. Pakistan has learned that foreign money in the form of foreign direct investment and official development assistance is fickle, while remittances from workers in countries like Saudi Arabia are relatively consistent. Saudi Crown Prince Salam bin Abdul Aziz visited Islamabad last month, the latest in a flurry of high-level visits between the two countries in the last year.



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