Iran-Pakistan Gas Pipeline: A Conditional Path to Energy Security

Bilal Aftab, Shahzada M. Naeem Nawaz and Rubina Ilyas
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Bilal Aftab: Pakistan Institute of Development Economics, Islamabad
Shahzada M. Naeem Nawaz: Pakistan Institute of Development Economics, Islamabad
Rubina Ilyas: Pakistan Institute of Development Economics, Islamabad

No 2026:74, PIDE Policy View Point from Pakistan Institute of Development Economics

Abstract: The possible gas supply via the Iran-Pakistan pipeline is still considered a strategically significant option. However, it cannot be considered under the same conditions as were present when the agreement was signed in 2009. The possible supply of 750 MMCFD of gas could provide an additional energy source, but its economics and absorptive capacity must first be demonstrated before further consideration. The proposed pricing formula would mean that the Brent equivalent slope would be around 13.45 percent. At a Brent price of $75, this translates into $10.09 per MMBtu and the obligation to purchase almost $2.84 billion worth of gas on an annual basis. However, the key question is the total cost of delivery via pipeline (including all costs associated with construction, financing, operations, security, insurance, losses in the system, and exchange risk) versus the marginal/avoidable cost of currently used LNG supplies. Legal sanctions and supply risks remain unresolved. Iran has threatened arbitration with reported exposure of up to $18 billion, a figure that has not been independently verified or adjudicated. The limited sanctions relief issued in June 2026 (OFAC General License X) was itself revoked and replaced by a wind-down license (General License X1) on July 7, 2026, underscoring that no authorization to date has established clearance for pipeline gas, construction, or project financing. The proposed way forward would be conditional revival, subject to independent legal and technical review, sanctions clearance, renegotiated commercial terms, verified demand, and milestone-based investment. Pakistan should consider negotiating a settlement and developing a solid defense against the threat of litigation, in case these steps are not taken in the next 12-18 months.

Pages: 10 pages
Date: 2026
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