If everything goes as planned, this much-delayed, controversial project could wreck U.S. efforts to check Iran's expansionist ambitions.
U.S. energy analyst Gal Luft said the pipeline could also "have profound implications for the geopolitics of energy in the 21st century and for the future of South Asia."
Iran and Pakistan signed an agreement for the construction of the 560-mile, $7.5 billion pipeline from the huge offshore South Pars gas field in the Gulf through Pakistan's unruly Balochistan province to Sindh province.
The project is crucial for Pakistan's growing energy requirements. Iran will supply 750 million-1 billion cubic feet of gas per day by mid-2015.
The project was first mooted in 1994. It was intended to carry gas through Pakistan to India in a 1,724-mile pipeline. But India, under intense pressure from the United States, withdrew in 2009, citing disputes over prices and transit fees. There was also deep misgivings in New Delhi about dealing with its longtime foe Pakistan.
India has invested instead in nuclear power to meet its ever-rising demand for energy in its burgeoning economy. It signed a landmark deal with the United States in 2008 for nuclear equipment.
There has been no official explanation about why the Americans would allow Pakistan to go ahead and sign a pipeline agreement with Iran at a time when Washington is striving to isolate the Islamic Republic and paralyze its economy.
But the Americans cannot afford to antagonize Pakistan at a time when Washington needs Islamabad's support to fight al-Qaida and the Taliban. Pakistan is already suffering serious energy shortages with an electricity shortfall of 3,000 megawatts. These cause politically troublesome long and frequent blackouts.
The United States had been pressing for a pipeline to South Asia from gas-rich Turkmenistan in Central Asia via Afghanistan that would bypass Iran. But the security situation in Afghanistan made such a project unlikely.
India hasn't closed all doors to the project and may still rejoin. It is expected to require 146 billion cubic meters of gas per year by 2025 and its options are limited.
China, ever hungry for energy to fuel its mushrooming economy, has indicated that it might sign on and run an extension of the pipeline from Pakistan.
It may provide financial assistance to Islamabad for the project, which would provide an overland energy corridor less vulnerable to interference by the United States -- or others -- than the long tanker route from the Gulf across the Indian Ocean to the Pacific.
China is the main obstacle preventing the United States mustering the U.N. Security Council behind new sanctions on Iran. Sanctions would cut 10-12 percent of China's oil imports and jeopardize oil contracts worth hundreds of billions of dollars.
Iran desperately needs this project. Its potential in the energy sector is enormous. It has the second largest gas reserves in the world after Russia, roughly 15 percent of the world's gas supply.
But U.S.-led sanctions have prevented it from exploiting this through high-volume exports. The pipeline to Pakistan, and possibly the massive markets in India and China as well, could change all that and immunize Tehran from U.S. pressure.
The geopolitical implications of the Iran-Pakistan pipeline going through are immense. If the Americans relent, they may secure concessions from Iran and would certainly win influence in Pakistan by helping it out of a worsening energy crisis.
"By connecting itself with the world's second largest gas reserves, Pakistan would guarantee reliable supply for decades to come," says Luft, director of Washington's Institute for Analysis of Global Security, which focuses on energy security.
"If the pipeline were to be extended to India it could also be an instrument of stability in often tense Pakistan-India relations as well as a source of revenue for Islamabad through transit fees." One estimate puts that at around $600 million a year.
But, Luft concludes, "Should the worst happen and a Taliban-style regime takes over in Pakistan, the economies of the world's most radical Shiite state and that of what could be the world's most radical Sunni state would be connected to each other for decades to come, like conjoined twins."
And there's one other thing. Pakistan already has nuclear weapons and, under that scenario, Iran would, too.
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