India's 'pipe' dream

India, Pakistan and Iran will sign a deal this month to build a natural gas pipeline to help feed the subcontinent's desperate need for energy, a major blow to American sanctions against Tehran and a defeat for US influence in South Asia.

The $7.5 billion, 1,700-mile Peace Pipeline (IPI) project would bring gas from the South Pars Gas Fields through Balochistan (in Western Pakistan) into India. The project has stalled multiple times since first proposed in 1994 due to political tensions, changing governments, conflicts over prices, and most recently, the weight of American opposition.

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The agreement comes amid growing tension between the United States and Iran, which the US has sought to isolate from the world community. But rising fuel prices and a soaring Indian economy seem to have outweighed America's desires--as well as a rival plan for a US-backed pipeline from Turkmenistan.

Though Iran and Pakistan finalized a deal earlier this spring, India remained noncommittal. IPI advocates say the reluctance is due to American pressure: The 2006 US-India nuclear agreement puts pressure upon India to cooperate with American foreign policy goals, and bolstering the Iranian economy through oil imports is hardly on Washington's to-do list.

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Riskier, perhaps, is Pakistan's fall-back: to bring the oil down the Himalayas into China, since Islamabad gets transit fees regardless of where the pipeline ends. Though actually building a line to China would be difficult, "Pakistan is smart to talk about China," says Thomas Pickering, former US Ambassador to India and Russia.

The China threat seems to have jostled India. After talks with Iranian officials in Jeddah, Saudi Arabia, India's Petroleum and Natural Gas Minister Murli Deora made a surprise announcement June 23 that he too is ready to move forward. Since his announcement, Deora says he's been "continuously meeting" with Iranian and Pakistani officials and expects a formal agreement by month's end.

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Meanwhile, an American-backed alternative languishes. The TAPI plan, to bring gas from Turkmenistan through Afghanistan and Pakistan into India, would keep Iran out and diminish Russian influence in Central Asia.

But projected costs have doubled since 2002 to $7.6 billion, and energy experts remain skeptical of the new number, given that the pipeline passes directly through war-torn Afghanistan. Former World Bank economist and energy expert John Foster believes TAPI proponents are underestimating their budget in order to compete more aggressively with the IPI plan. "There are some games going on with that number," he says.

There are doubts too about TAPI's output: the Asian Development Bank, financiers for the project, have yet to reveal data regarding Turkmenistan's energy resources. As a result, says Deora, "TAPI is at a very primitive stage. We're not even sure if there's gas there, or how much." India's growing economy, he says, cannot wait any longer for an energy lifeline. In 2007, when global energy consumption rose 3 per cent, India accounted for a third of that growth.

In today's economy, says Ambassador Pickering, "energy is increasingly more important to development," not only as a resource for cars and computers, but as a powerful commodity market. For Pakistan, the IPI brings $200 million a year in transit fees and a form of strategic advantage over its larger, wealthier neighbour.

American opposition or not, the IPI project seems to be headed for a formal contract signing this summer. On paper, India and Pakistan may have addressed US objections by allowing each nation to organize its own leg of pipeline construction. In previous rounds of talks, Gazprom and British Petroleum surfaced as potential bidders.

Behind the scenes, however, officials admit that the South Asian nations are simply ignoring American directives. Dr. Noor Jehan Panezai, MP, who represents the region in Western Pakistan where the pipeline will run, welcomes the plan as an employment package for her constituents. "Indians and Pakistanis," she says, "will choose our own projects. We have decided that the United States has no business in our problems."

Given the crucial role India and Pakistan play in American strategy, experts say it's unlikely that Washington will punish its allies politically or financially for dealing with Iran. Until the deal is inked, however America may exert its best efforts behind the scenes. "The current administration," says Pickering, "might try to impose conditions on India, and I'm sure they are trying to dissuade Pakistan."

If the IPI deal wins out, then it will send an uplifting message about Indo-Pak collaboration, but also a sobering one about America's international clout.