Iran would provide Pakistan with 750 million cubic feet of gas a day from its massive offshore South Pars field in the Persian Gulf for the next 25 years, greatly alleviating Pakistan's worsening energy deficit.
Despite strong pressure from Washington to abandon the plan, Pakistan recently put out tenders for the project, said officials of state-run Inter State Gas Systems, which will oversee development of the pipeline inside Pakistan.
They said ISGS hopes to start work on the $1.6 billion project by late 2012, with gas flowing by December 2016.
That may be a trifle optimistic, to put it mildly.
Pakistan is having major problems securing financing for the segment of the line on its territory, which runs through violence-plagued Baluchistan province, to reach Pakistan's power-short industrial north.
The Industrial and Commercial Bank of China, the country's biggest bank, had been ready to finance the Pakistani end of the project but withdrew in March as U.S. and European sanctions against Iran escalated.
The Chinese were concerned they'd be cut out of doing business with the U.S. economy, underlining the growing economic pressure on Iran, a key supplier of oil to China.
Pakistani officials led by Foreign Minister Hina Rabbani Khar, insisted that alternative financing would be forthcoming.
But U.S. Secretary of State Hillary Clinton warned of "damaging consequences" if Islamabad persisted in pursuing the project, known as IP since India dropped out of the venture.
Iran, increasingly desperate to maintain energy exports in the face of tightening U.S. and European sanctions aimed at forcing it to abandon its contentious nuclear program, says it's already built its 560-mile section of the pipeline up to the Pakistani border.
The moves by Tehran and Islamabad to get the pipeline up and running and both sides have urgent economic as well as geostrategic reasons for wanting to get the pipeline built, is sure to intensify the growing strains between Washington and Islamabad.
The Americans have invested a lot of time and effort, and probably treasure as well, in trying to torpedo the pipeline plan, to deepen Iran's international isolation and choke off the energy exports that are its economic lifeblood.
It's not too far-fetched to suggest that the Americans have leaned on financial institutions not to aid the pipeline project.
"Predictably … Islamabad is convinced that the CIA, India's intelligence agency RAW, the Israeli Mossad and Britain's MI6 have been actively conspiring to get some sort of Greater Baluchistan to secede from the central government … and balkanize Pakistan," the Asia Times observed.
But as the anti-American mood in Pakistan darkens amid continued U.S. drone attacks on al-Qaida and other militants, with high civilian casualties, Islamabad's under immense domestic pressure to defy Washington.
The pipeline project, first mooted in 1996, was originally intended to run 1,620 miles from Iran, which has the world's second largest gas reserves after Russia, through Pakistan to India. It was known as IPI.
But India, reportedly under intense pressure from Washington, lost interest in 2009.
However, Iran ramping up the price of gas and the United states giving India access to civil nuclear technology, undoubtedly dampened New Delhi's enthusiasm for the project.
India's now looking at a planned pipeline from Turkmenistan in Central Asia via Afghanistan and Pakistan, with India and Pakistan sharing some 2.6 billion cubic feet of gas a day from the former Soviet republic.
Washington is backing the troubled 1,057-mile TAPI project, which has the support of the Asia Development Bank. But the Pakistanis fear the 10-year-old war in Afghanistan could sink that undertaking.
The bottom line is that Pakistan's in dire need of Iran's natural gas and, as relations with Washington sink lower by the day, Islamabad could stick with the Islamic Republic just to thumb its nose at the Americans.
Pakistan only produces 30 percent of the gas it requires. It desperately needs the Iranian gas for power generation -- at least 5,000 megawatts, equivalent to the current peak power shortage.
Petroleum Minister Asim Hussein has warned Pakistan's entire energy system could collapse because the demand-supply gap has reached 2.2 billion cubic feet unless there's a massive infusion of gas.
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