By James M. Dorsey 12 January 2019
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Pakistan is traversing minefields as it concludes agreements on investment, balance of payments support and delayed payment oil deliveries with Saudi Arabia and the United Arab Emirates worth USD$13 billion that are likely to fawn growing distrust in its relations with neighbouring Iran.
Pakistani prime minister Imran Khan expects to next month sign a memorandum of understanding with Saudi Arabia on a framework for US$ 10 billion in Saudi investments, primarily in oil refining, petrochemicals, renewable energy and mining. The signing would take place during a planned visit to Pakistan by Saudi crown prince Mohammed bin Salman.
The memorandum follows the kingdom’s rewarding of Mr. Khan for his attendance of a foreign investors summit in Riyadh in October that was shunned by numerous CEOs of Western financial institutions, tech entrepreneurs and media moguls as well as senior Western government officials because of the killing of journalist Jamal Khashoggi in the Saudi consulate in Istanbul.
Mr. Khan walked away from the summit with a US$3 billion deposit in Pakistan’s central bank as balance of payments support and a promise to defer up to US$3 billion in payments for oil imports for a year.
The United Arab Emirates is expected to conclude similar agreements with Pakistan in the coming weeks.
Perhaps the most sensitive investment is likely to be a plan by Saudi national oil company Aramco to build a refinery in the Chinese-backed Baloch port of Gwadar close to both Pakistan’s border with Iran and the Indian-backed Iranian 486-hectar port of Chabahar. Both Pakistan and Saudi Arabia are monitoring progress in Chabahar with Argus eyes.
A potential Saudi investment in troubled Balochistan’s Reko Diq copper and gold mine would further enhance the kingdom’s foothold in the strategic province.
As always, the devil could be in the details of the Pakistani-Saudi investment agreement. Haroon Sharif, the chairman of Pakistan’s Board of Investment, cautioned that foreign investment would require a “better law and order situation and ease-of-doing-business opportunities.”
Pakistan’s security situation has somewhat improved in the last year, but the country continues to risk blacklisting by the Financial Action Task Force (FATF), an international anti-money laundering and terrorism finance watchdog because of the Pakistani military’s selective support of militants and close ties between militants and political parties, including Mr. Khan’s Pakistan Tehreek-e-Insaf (PTI).
Adding an additional layer of complexity is the fact that funds from the kingdom have been flowing into the coffers of ultra-conservative anti-Shiite, anti-Iranian Sunni Muslim madrassahs or religious seminars in Balochistan. It was unclear whether the funds originated with the Saudi government or Saudi nationals of Baloch descent and members of the two million-strong Pakistani Diaspora in the kingdom.
Saudi Arabia sees the Pakistani region as a launching pad of a potential effort by the kingdom and/or the United States to destabilize the Islamic republic by stirring unrest among its ethnic minorities, including the Baluch. While Saudi Arabia has put the building blocks in place for possible covert action, it has to date given no indication that it intends to act on proposals to support irredentist action.
The flow of funds coincided with the publication in November 2017 of a study by the International Institute for Iranian Studies, formerly known as the Arabian Gulf Centre for Iranian Studies, a Saudi government-backed think tank, that argued that Chabahar posed “a direct threat to the Arab Gulf states” that called for “immediate counter measures.”
Iran’s Revolutionary Guards were the target of a rare suicide bombing in December in the port city that killed two people and wounded 40 others.
Iranian officials, including Foreign Minister Mohammad Javad Zarif and Revolutionary Guards spokesman Brigadier General Ramadan Sharif suggested without providing evidence that Saudi Arabia was complicit in the attack.
The attack “underscores the anti-regime sentiment boiling under the surface in provinces such as Sistan and Baluchestan and Khuzestan, as well as security vulnerabilities in Chabahar and beyond,” said Brian M. Perkins, a risk management consultant and former US Navy signals intelligence analyst.
Khuzestan is Iran’s impoverished, oil-rich province that is home to the country’s ethnic Arab community while Chabahar is located in the Iranian province of Sistan and Baluchistan that boasts the country’s highest unemployment rate.
Saudi thinking about stoking unrest strokes with that of President Donald J. Trump’s national security advisor John Bolton, who before assuming office, publicly advocated destabilization of Iran.
Mr. Bolton, in a policy speech in Cairo, asserted this week that the United States had “joined the Iranian people in calling for freedom and accountability… America’s economic sanctions against the (Iranian) regime are the strongest in history, and will keep getting tougher until Iran starts behaving like a normal country.”
Mr. Bolton was referring to harsh US sanctions imposed after Mr. Trump last year withdrew the United States from a 2015 international agreement that curbed Iran’s nuclear program.
Desperately in need of financial support and investment, Pakistan’s agreements with Saudi Arabia and the UAE come at a moment that “Pakistan-Iran relations are at a crossroads, according to Muhammad Akbar Notezai, Dawn newspaper’s plugged in Balochistan correspondent.
A far cry from four years ago when the Pakistani parliament refused a Saudi request that Pakistani troops join the kingdom’s ill-fated military intervention in Yemen, Iran now sees Pakistan as a Saudi ally in the kingdom’s rivalry with Iran.
Similarly, Pakistan fears that Chabahar will allow India to bypass Pakistan in forging closer economic and political ties with Iran as well as Afghanistan and Central Asian nations. Pakistani analysts expect an estimated US$ 5 billion in Afghan trade to flow through Chabahar after India last month started handling the port’s operations.
Pakistan is further concerned that Iran, in response to the Saudi funding that its sees as part of an anti-Iranian US-Saudi plot, could step up support for Baloch nationalists in a bid to raise the stakes for the South Asian nation.
Pakistan is also worried that deteriorating Pakistani-Iranian relations offers India an opportunity to subvert the US$45 billion plus China Pakistan Economic Corridor (CPEC), a crown jewel of the People’s Republic’s Belt and Road initiative.
In November, the nationalist Baloch Liberation Army claimed responsibility for an attack on the Chinese consulate in Karachi, Pakistan’s commercial and industrial heartland.
Writing in the Pakistan Security Report 2018, published by the Islamabad-based Pak Institute for Peace Studies (PIPS), Mr. Notezai noted that “to many in Pakistan, such concerns were materialized with the arrest of Kulbushan Jadhav, an Indian spy in Balochistan who had come through Iran. Ever since, Pakistani intelligence agencies have been on extra-alert on its border with Iran.”
The journalist warned that “the more Pakistan slips into the Saudi orbit, the more its relations with Iran will worsen… If their borders remain troubled, anyone can fish in the troubled water. This is what is (already) happening in the border region.”