While geopolitics plays an important role in the prices of energy products, super powers are also keen in controlling the logistics. It is on record that Iran has been facing sanctions for more than three decades and the only purpose is not to allow its oil to reach international markets. However, lately, China, India, Japan and Korea have emerged as main buyers of Iranian oil.
Taking Iranian oil to China is costing a fortune and also consumes a lot of time. To overcome this problem one of the suggestions was to develop a route for transport of oil from one of the Pakistani ports to China. Keeping in view congestion at Karachi and Bin Qasim one of the suggestions was to use Gwadar port. This will be a win-win situation for the three countries. Iran will not require too many tankers and the distance will reduce to less than 2000km as compared to existing 5,500km. The added advantage will be saving of transportation cost.
To further facilitate Pakistan in overcoming its immediate gas shortage, lately Iran and Pakistan have agreed to complete remaining work of Iran-Pakistan gas pipeline. The ground breaking ceremony is scheduled for 11th March this year. Besides this, Iran has also announced to build a refinery at Gwadar, in Balochistan province of Pakistan. This will spur China’s energy plans in Pakistan and sets up Gwadar to become a major oil city near the Strait of Hormuz and out of Washington’s hands.
The Iranian-funded refinery – announced by Iran but not yet signed into force by the two parties – will have a 400,000 barrel per day capacity and comes on the heels of an announcement that construction on a massive Iran-Pakistan pipeline would begin on March, 11, despite sanctions threats from the US and shadow attempts by the US and Saudi Arabia to sabotage these plans. This will give greater impetus to Chinese oil and gas plants in Pakistan, and reshape Pakistan’s foreign policy clearly towards China and Iran and out of Washington’s hands. What would happen next would be this: China would revive its own oil refinery plans at Gwadar and eventually build its own pipeline from Gwadar to western China.
China is on a solid footing in Gwadar, though its projects have been stop and start over the past several years. In February 2013, China took over operational control of the port and agreed to become its largest investor. For China, this is a significant port because of its proximity to the Strait of Hormuz. For the US, this development is significantly negative as it will not only give Iran more influence in the Strait of Hormuz, but it creates an Iran-Pakistan-China triangle of influence over this key strategic oil and gas transit point. China will feel less insecure about the volatility in Balochistan with Iran pursuing a refinery there as well. Essentially, this means a merger of the Hormuz Strait, Iran, and a Chinese-Pakistani energy corridor. US threats of sanctions will not sabotage the projects. The timing of these announcements is also important, as Pakistan has general elections coming up and Iran is keen to get these deals finalised before any potential government upset in which the US is expected to meddle.
The world will watch for a strategic shift to Gwadar as a major energy hub for Asia and as an emergent petrochemical center in the next 3-5 years. In addition to the Iranian-led refinery, analysts expect a Chinese oil refinery and petrochemical facilities and storage complexes to go up here, turning Gwadar into an “oil city”. However, the only concern is how the United States is going to respond to these initiatives. The super power has already started warning Pakistan of dire consequences and also started offering other ‘lucrative’ proposals. Now it depends on the Government of Pakistan.
India has joined the United States on handing over of Gwadar port to China. While India may talk about as many as adverse point against this arrangement the point is simple. India has invested billions of dollars in constructing Chabahar port in Iran and linking it by road and rail to central Asia via Afghanistan. Once Gwadar port becomes fully functional importance of Chabahar will be undermined significantly.
The entire world knows that Pakistan is the most cost effective corroder for the transportation of energy products. Since pipeline, road and railway track has to pass through Balochistan there are constant efforts to keep law and order situation precarious in the province. Not only that people are killed, electricity and gas transmission and distribution lines are blown up. Some of the US senators are demanding creation of independent Balochistan. All these attempts are being made to keep energy resources and their logistic under the control of a few companies.