Iran and Pakistan have drawn up plans for an oil pipeline despite the United States' opposition and growing pressures on Islamabad.
The move will not be welcomed by the US, given that it recently expressed strong opposition to a gas pipeline project between Iran and Pakistan, going so far as to threaten Islamabad with sanctions.
The oil pipeline plan emerged after Iran offered Pakistan oil supplies on a long-term deferred payment scheme. The pipeline would be laid from Iran to Gwadar port, where Iran will also set up a refinery to process crude oil.
Petroleum Minister Dr Asim Hussain said that the two sides had been discussing the proposal of an oil pipeline in different meetings. "But I am not aware about finalization of the proposal," Hussain said.
"I am also not aware of any discussion taken place about the oil pipeline in a recent meeting of Pak-Iran JEC meeting," he added. However, documents seen by The Express Tribune suggest otherwise.
Officials said that the two countries have signed a memorandum of understanding, adding that ratification of the memorandum will be sought from the federal cabinet. Joint working groups have been formed to take the proposal from plan to reality.
The oil pipeline was first touted when President Asif Ali Zardari visited Tehran on July 15, accompanied by Interior Minister Rehman Malik and Petroleum Minister Dr Asim Hussain. During the trip Iranian authorities reportedly extended support to Pakistan's energy sector. Sources revealed that Iran also offered to provide oil on six-month deferred payments to meet Pakistan's domestic needs.
Proposals for the pipeline and the oil refinery were also discussed during the recent 18th session of the Iran-Pakistan Joint Economic Commission meeting held in Islamabad.
Deputy Managing Director Aftab Ahmad told The Express Tribune that Pakistan Refinery Limited was designed in 1962 to process Iranian oil, though consumption of Iranian oil in Pakistan is very low. "No refinery in Pakistan can process 100% Iranian crude oil," he said. Therefore the pipeline between Iran and Pakistan would only be feasible if Iran also sets up a refinery.
Another industry source said that Iranian oil had more components of furnace oil. Pakistan's furnace oil requirements have increased from three to four million tons in 2004-2005 to nine million tons in the current financial year. Refineries in Pakistan currently have a furnace oil production capacity of just three to 3.5 million tons per year.
At present, Pakistan State Oil imports furnace oil to meet the power sector's requirements. "If India is importing Iranian oil, why should Pakistan not import it to meet furnace oil and other petroleum product requirements of the country?" asked the industry source rhetorically, adding that Pakistan will save 20 cents per barrel as it will no longer have to bear the costs of transporting Iranian oil.