Pakistan Stream Gas Pipeline: Russia’s Key to South Asia?

Russian Energy Minister Nikolai Shulginov and Pakistan’s ambassador to Moscow, Shafqat Ali Khan, signed a revised agreement on May 28 that initiates the construction of the planned Pakistan Stream Gas Pipeline (PSGP) (Minenergo.gov.ru, May 28). Formerly known as the North-South Gas Pipeline, this infrastructural mega-project (1,100 kilometers in length) is expected to cost up to $2.5 billion and should be completed by 2023. The pipeline will secure the delivery of 12.3 billion cubic meters (bcm) of natural gas per year from the liquefied natural gas (LNG) terminals in Karachi and Gwadar to the large north-central city of Lahore. Importantly, this project will be the first such large-scale economic initiative between Moscow and Islamabad undertaken since the mid-1970s.

From an economic point of view, the PSGP promises to be highly beneficial to Pakistan. On the one hand, as a net importer of energy, Pakistan will be able to obtain new steady sources of natural gas indispensable for its economy and transport this gas to the densely populated industrialized north. At the same time, the project will enable the country—whose main industries are still dependent on the consumption of coal—to take a decisive step away from the use of this dirty and incredibly carbon-intensive fuel, gradually replacing it with relatively more ecologically sustainable natural gas (RIA Novosti, May 28).

For Russia, the future gas pipeline is also expected to yield significant value. During the construction stage, the main corporate beneficiary will be the Eurasian Pipeline Consortium (ETK), an entity controlled by Alexei Karmanov, a close associate of the notorious Rotenberg brothers, who are themselves close to President Vladimir Putin. But as stated by Igor Yushkov, from the Financial University Under the Government of the Russian Federation, aside from those direct (construction-related) profits, Russia should expect to receive substantial indirect benefits. Specifically, he argued that “the greater the volumes of natural gas Pakistan will be consuming—even if it [gas] does not come directly from Russia—the better it will be for Russia. […] This pipeline, which envisages the building of LNG terminals will attract foreign players, and Qatar in particular, which will decrease competition between Russian and Qatari companies on both European and Asian LNG markets.” At the same time, Yushkov assumes that Qatar’s growing involvement with LNG projects in South and Southeast Asia (and Pakistan in particular) would effectively help Russia to increase its presence on the Chinese market via the Power of Siberia pipeline.

In turn, Boris Volkhonsky, from the Institute of Asian and African Countries at Lomonosov Moscow State University, linked the strategic importance of the project to Pakistan’s key role in the Chinese Belt and Road Initiative (BRI). According to Volkhonsky, the PSGP is to become a notable milestone and a new step that is to usher in a range of new economic prospects and opportunities for Russia in South Asia. He particularly highlighted the fact that the project might result in a breakthrough in economic ties between Moscow and Islamabad, which had stagnated for decades (incidentally, there are no direct flights between Moscow and Islamabad or Karachi): cooperation on the PSGP, Vokhonsky predicted, may subsequently spread to joint collaboration in other strategic areas or sectors (Vzglyad, May 29).

That said, from an economic/business prospective, it appears that, while the project is beneficial to both countries, it is Pakistan (and potentially third parties) that is likely to receive most of the economic benefits. This stems from three main factors. First, the current version of the agreement signed by Moscow and Islamabad is essentially a reworked version of a previous document that had been much more beneficial to Russia. Now, the Russian side stands to receive only a 26 percent stake in the PSGP (initially, Russia expected to receive 85 percent), whereas the Pakistani side will retain a controlling stake (74 percent) in the project (Neftegaz.ru, March 22). Second, although the Russian side will be in charge of providing all the necessary materials and specialized equipment indispensable for the actual building of the pipeline, the Pakistani government managed to hammer out one crucial concession: the entire construction process will be supervised by an independent Pakistani-based company, which will substantially boost Pakistan’s influence at each and every development stage (Riafan.ru, November 29, 2020). Third, the vast bulk of the gas transported via the pipeline will likely come from Qatar, which will further strengthen Qatar’s role in the Pakistani energy sector (Energy Voice, February 26, 2021).

Aside from its economic/business aspect, the PSGP also has clear geopolitical implications. On the one hand, it signals Russia’s growing involvement in South Asia; and on the one hand, it points to some notable transformations currently taking place in this macro-region. Of particular interest in this regard is a recent interview by the former foreign secretary to the government of India, Kanwal Sibal. The retired Indian official admitted that formally, his country has no reason to oppose or object to Russia’s attempts to secure economic opportunities in Pakistan. And he underscored Moscow’s skillful diplomatic maneuvering and its ability to avoid potential confrontations with both India and Pakistan as well as China, noting that the above-mentioned infrastructural project is not a part of the China-Pakistan Economic Corridor (CPEC) (Times of India, June 15). True as this may be, the ongoing dynamic within the India-Russia-Pakistan triangle is nevertheless not favorable for New Delhi; and the PSGP project—though not directly aiming to challenge India and/or jeopardize its posture in the region—is rather symptomatic of that larger trend. Notably, last spring’s (March 18) international “extended troika” conference on Afghanistan, which was held in Moscow, assembled representatives from the United States, Russia, China and Pakistan but left out India (even though the latter has important strategic interests in Afghanistan). This omission caused a strong negative reaction in New Delhi (Kommersant, March 17).

The Pakistan Stream Gas Pipeline will surely become an important instrument for Russia to reactivate the South Asian vector of its foreign policy. The project’s purpose is not to reap immediate economic benefits; it is more strategic in nature. While Russian relations with India are cooling, Moscow is likely to boost ties with Pakistan—where another, in addition to the PSGP, area of cooperation is likely to become nuclear energy, which was explicitly mentioned by Russian Foreign Minister Sergei Lavrov, during his recent visit to Islamabad (Kommersant, April 8). Such an expansion of relations with Pakistan will allow Russia to gain a more solid foothold in the South Asian part of China’s BRI, thus opening up a range of new lucrative opportunities for Moscow.