Muhammad Nawaz Awan
Law, when stripped of political influence, becomes a mere framework of rules, but as Hans Kelsen argued, legal authority holds weight only when backed by enforcement. The Pakistan-Iran gas pipeline exemplifies this reality: a binding contract now caught in the crossfire of external pressures that threaten to override sovereign agreements. The intersection of law and geopolitics rarely yields a straightforward resolution; instead, it exposes the raw mechanics of power, where contracts cease to be legal instruments and instead become battlegrounds for sovereignty and survival.
At its core, Pakistan faces a legal paradox: It is contractually bound to complete the pipeline under the 2009 Intergovernmental Agreement (IGA) and Gas Sales and Purchase Agreement (GSPA), yet doing so would risk violating U.S. secondary sanctions imposed on Iran’s energy sector. The stakes are immense, with Iran recently issuing a Notice of Dispute, signaling its intent to initiate international arbitration against Pakistan. If Iran proceeds, Pakistan could face penalties exceeding $18 billion, an outcome that would further strain its already fragile economy. Consequently, this is not merely a legal dispute; it is a test of Pakistan’s strategic autonomy, a battle between sovereign contractual commitments and extraterritorial power projection through sanctions.
The Pipeline’s Origins & Stalled Progress
The pipeline project, in 1990, was conceived as a part of a broader regional energy cooperation strategy. Initially, India was also a part of this envisioned plan, aiming to provide a reliable gas supply to energy-deficient South Asian Markets. Pakistan and Iran formalized the initiative through the 2009 Intergovernmental Agreement (IGA) and Gas Sales and Purchase Agreement (GSPA), mutually committing to construct their respective sections of the pipeline within their territories. Iran, despite facing international sanctions, has completed its section; however, Pakistan has not completed its commitment yet, citing financial constraints and external geopolitical pressures.
The withdrawal of India from the proposed project in 2008 further complicated the matter. As Islamabad struggled to move forward, its energy crisis deepened, amplifying the urgency for alternative solutions while leaving the pipeline in political and legal limbo.
The Legal Tightrope: Contract vs. Sanctions
Pakistan faces a critical legal dilemma, honoring its contractual obligations to Iran or complying with U.S. secondary sanctions that threaten financial isolation.
Pakistan’s Contractual Obligations
Signed Agreements: Under the 2009 Intergovernmental Agreement (IGA) and Gas Sales and Purchase Agreement (GSPA), Pakistan is bound to complete its section of the pipeline and import 750 million cubic feet per day (MMCFD) of Iranian gas.
Financial Penalties: Failure to comply could trigger international arbitration, with Iran seeking up to $18 billion in damages for breach of contract.
Sanctions Law & Compliance Risks
U.S. Secondary Sanctions: Engaging with Iran’s energy sector could lead to Pakistani banks losing access to SWIFT, crippling international trade.
UN Sanctions Risk: If the JCPOA collapses, UN snapback provisions could reinstate broader restrictions, further complicating Pakistan’s position.
Legal Dilemma: Can Pakistan Abandon or Renegotiate?
Abandoning the Project: Risks arbitration losses, but Pakistan could invoke force majeure (though tribunals rarely accept sanctions-based claims).
Renegotiating with Iran: May involve financial compensation, alternative energy deals, or diplomatic mediation to minimize penalties.
Pakistan’s next move must balance legal integrity, diplomatic leverage, and economic survival in an increasingly complex geopolitical landscape.
Pakistan’s Strategic Options & Legal Defenses
Pakistan faces a legal and diplomatic challenge regarding the Iran-Pakistan gas pipeline, where contractual obligations collide with U.S. secondary sanctions that could isolate its financial system. The key question remains, can Pakistan justify non-compliance, or must it renegotiate to avoid arbitration risks?
Pursuing Sanctions Waivers
India previously secured sanctions waivers for Iranian oil imports, raising the question of whether Pakistan could follow suit. However, several obstacles exist:
- Limited Diplomatic Influence: Unlike India, Pakistan lacks strong lobbying channels in Washington, making exemptions less likely.
- Geopolitical Constraints: As Henry Kissinger said, “America has no permanent friends or enemies, only interests.” Whether Pakistan secures a waiver depends on whether it aligns with U.S. foreign policy objectives.
Relevant Precedent: Ministry of Defence & Support for Armed Forces of Iran v. International Military Services Ltd (2019): The English High Court ruled that sanctions prevented Iran from enforcing arbitral award payments, showing how economic restrictions can override contract enforcement.
Force Majeure, Can Pakistan Claim Legal Immunity?
Pakistan may invoke force majeure, arguing that U.S. sanctions are an unforeseen external barrier making contract performance impossible. However, Iran counters that:
- Pakistan had alternative financing options, such as Chinese investment.
- Sanctions-based force majeure claims have been rejected in past arbitration cases.
Relevant Precedent: Impact of International Sanctions on Arbitral Proceedings: It found that sanctions complicate force majeure claims, making it difficult for states to justify contract termination solely due to external restrictions.
Doctrine of Necessity, A Last-Resort Defense?
If force majeure fails, Pakistan may cite the doctrine of necessity, arguing that honoring the pipeline contract would cause severe economic harm due to sanctions. While Argentina relied on necessity during its financial crisis (ICSID Arbitration, 2000s), courts have consistently imposed strict requirements:
- The peril must be grave and imminent to justify breaching obligations.
- No alternatives must exist, though Iran would argue Pakistan had financing options.
Relevant Precedents: International Law Commission (ILC) Draft Articles on State Responsibility, Article 25: It establishes that necessity can be invoked only when it is the sole means to protect an essential interest, a difficult standard to meet.
Another Precedent: Argentina’s Financial Crisis Cases: Tribunals often ruled against Argentina, stating alternative policy measures were available, making necessity inapplicable.
Negotiating a Settlement
If arbitration becomes unavoidable, Pakistan may mitigate financial exposure by renegotiating with Iran:
- Partial financial compensation to limit penalties.
- Revised energy trade agreements offering Iran economic alternatives.
- Third-party diplomatic mediation to avoid litigation.
Relevant Precedent: State of Necessity as a Justification for Internationally Wrongful Conduct: It found that necessity claims are strongest when paired with diplomatic mediation, reinforcing Pakistan’s need for negotiation alongside legal defenses.
Conclusion
Pakistan’s legal position on the Iran-Pakistan gas pipeline highlights the complexities of international agreements amid geopolitical constraints. As arbitration looms, past precedents on necessity and force majeure will shape how sovereign commitments are assessed in global energy disputes and legal frameworks.
The writer is an associate at HSU Advocates.
