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In dire straits

Anilesh S. Mahajan        Print Edition: April 14, 2013

Two developments over the past six weeks in Pakistan have left wonks in Washington D.C. red-faced, and in New Delhi worried. On March 11, when President Asif Ali Zardari arrived at Chah Bahar town in southeastern Iran, his Iranian counterpart Mahmoud Ahmadinejad was waiting to greet him.

Iran is reeling under sanctions by the United States and European Union, and the visit was closely watched. Not wasting time, Zardari announced Pakistan would start building a 750-km pipeline to bring natural gas from Iran.

This was Zardari's second trip to Iran in as many weeks. On a February 27 visit to Tehran, he had secured an Iranian promise to invest $4 billion in a refinery at Gwadar, a western Pakistani port. The management of the port had been handed over to a Chinese state-run company just a week earlier, making India's ministry of external affairs see red.

The decisions may well be Pakistan's attempt to address local issues such as its electricity shortages, and pandering to the hostility many Pakistanis have towards the US. But they have adverse strategic implications for India. The transfer of Gwadar port to Chinese Overseas Port Holdings has New Delhi worried over Beijing's growing influence in the region. Indian security analysts see the move as part of Beijing's "String of Pearls" plan that involves building ports in South and Southeast Asia. Chinese firms have built ports at Chittagong in Bangladesh, Hambantota in Sri Lanka, and Sittwe in Myanmar where they also manage three other ports. India's worries about the deal were made clear by Defence Minister A.K. Antony. "This is matter of concern for us," he said in February.

Kanwal Sibal, former Foreign Secretary
Iran's proximity to Pakistan and China will surely make India's efforts in Afghanistan more vulnerable: Kanwal Sibal, former Foreign Secretary
The concern stems from the fact that the Gwadar port is located close to the Strait of Hormuz. India imports nearly 69 per cent of its crude oil from West Asia, and the strait is the most important supply route.

"China's presence in the Arabian Sea raises the threat level to India," says a cabinet secretariat official on condition of anonymity. Defence analyst C. Uday Bhaskar says the impact on India of China's presence near the Strait of Hormuz could be similar to the socalled Malacca Dilemma that Beijing faces. The term refers to China's dependence on the Strait of Malacca, which is located between Malaysia and Indonesia, for its oil imports. The US has naval presence in the area. India also has beefed up its military facilities on the Andaman and Nicobar islands, located near the strait's northern entrance.

Islamabad and Beijing have sought to dispel India's concerns on the port deal. Pakistani media reports had a foreign ministry spokesperson calling India's concerns "unwarranted". China has said the port project is a commercial deal and it has no plans for a military base there.

What could worsen India's headache is Iran's plan to set up the refinery near Gwadar with a capacity of 400,000 barrels of crude per day. Iran will also lay a pipeline to transport crude to the refinery. The refinery would help Iran offset sanctions imposed by the US and the European Union over its alleged nuclear weapons programme.

"In next five years, China will start getting Iranian oil and gas from the Gwadar port," says Avinash Chandra, a former head of India's hydrocarbons regulator. Beijing could also build an alternative supply route via northern Pakistan to western China to cut dependence on the Strait of Hormuz, he says, adding China's presence in the region could make it difficult for India to pursue a proposal to construct a pipeline for importing gas from Oman.

Some experts say blocking the strait is impossible because of US military presence in Bahrain, Qatar and Oman. In December 2011, Iran threatened to close the strait but backed off after US warnings. "It is in China's interest to keep the strait open," says Talmiz Ahmad, a former Indian ambassador to Saudi Arabia, Oman and the UAE. Some experts feel China's influence could grow as the US cuts its dependence on crude oil from West Asia.

A.R. Ghanashyam, Joint Secretary in charge of Gulf affairs at the Ministry of External Affairs, plays down talk of a rivalry between India and China. "This is an age of collaboration and cooperation, not confrontation," he says.

The Iran-Pakistan gas pipeline is a big blow not just to India but also to the US. "Pakistan has hit two birds with one stone," says Ravi K. Mehrotra, Chairman of the UK-based energy company Foresight Ltd. The gas pipeline will open another source of revenue for the sanctions-hit nation. The pipeline was initially envisaged to bring gas to India as well but New Delhi pulled out of the project in 2009 citing security concerns and tariff disputes.

The US, opposed to the project, instead backed the TAPI pipeline, which involves transporting gas from Turkmenistan via Afghanistan to Pakistan and India. But with the Iran tie-up, Pakistan has little incentive to work on the TAPI pipeline.

The China-Pakistan-Iran alliance could also affect India's plans to explore iron ore and other minerals in Afghanistan. "Iran's proximity to Pakistan and China will surely make India's efforts in Afghanistan more vulnerable," says Kanwal Sibal, a former foreign secretary. India had earlier offered to help Iran develop the Chah Bahar port to gain an entry into Afghanistan. But progress has been slow because of sanctions on Iran. India is also reducing its oil imports from Iran. Still, Sibal says it is in India's interest to maintain a relationship with Iran. "The stakes are high for the US," he says. "We need to observe how Pakistan's new government deals with the issue. If it escapes [sanctions], then we can rework our Iran strategy."

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