Iran has issued a final warning to Pakistan, threatening to take the country to the international court of arbitration in France over delays in completing the Iran-Pakistan (IP) gas pipeline project. Tehran is seeking damages amounting to approximately $18 billion if Pakistan fails to meet the construction deadlines by September 2024.
The Iran-Pakistan gas pipeline project, initially set in motion under a Gas Sales and Purchase Agreement (GSPA) signed in 2009, was intended to deliver 750 million cubic feet of gas daily to Pakistan over a 25-year period. Governed by French law, the agreement has been plagued by continuous delays on Pakistan’s side, with construction halted since 2014.
Despite the imposition of US sanctions on Iran, the GSPA remains legally enforceable under French law, exempt from these sanctions. Pakistan’s Interstate Gas Systems (ISGS) and Iran’s National Iranian Gas Company (NIGC) revised the agreement in 2019, offering Pakistan additional time to complete the project.
Iran had previously avoided escalating the issue to arbitration, extending deadlines in the hope that Pakistan would complete the pipeline by February-March 2024. When the deadline was missed, Tehran granted a further 180-day extension to September 2024. However, Pakistan has yet to start construction, prompting Iran to serve the final legal notice.
Should Iran proceed with arbitration and Pakistan be found liable for failing to fulfill its contractual obligations, the damages could be crippling. Iran’s potential case would seek $18 billion in compensation under the GSPA’s penalty clauses.
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Iran’s final notice follows earlier warnings issued to Pakistan. In November-December 2022, Tehran delivered a second legal notice, cautioning that it would seek damages if the pipeline construction was not completed by the revised deadline of early 2024. The first legal notice had been served in February 2019, signaling Iran’s growing frustration over the prolonged delays.
Sources confirmed that Pakistan’s Petroleum Division has received the final notice. The government is now scrambling to formulate a response, seeking assistance from foreign law firms to navigate the looming legal battle. Failure to meet the extended September 2024 deadline could result in Iran formally initiating arbitration proceedings, a move that would automatically extinguish Iran’s right to further delay legal action.
Background
The IP gas pipeline was designed as a major regional energy project, aimed at addressing Pakistan’s growing energy needs. However, political and economic hurdles, coupled with US-imposed sanctions on Iran, have significantly impeded progress on the project. Despite these challenges, the legal framework governing the IP agreement remains intact, placing Pakistan in a difficult position as the arbitration deadline approaches.
The outcome of this dispute could have long-lasting implications for Pakistan’s energy sector and its relations with Iran. As the clock ticks toward September 2024, the government’s strategy in responding to Iran’s notice will be closely watched by regional and international stakeholders.
