Iran and Pakistan are well on their way to mending diplomatic ties.

In a crucial diplomatic move, Iranian President Ebrahim Raisi visited Pakistan in late April, engaging with the country’s top leadership. This visit, marked by the signing of eight key agreements across various sectors including energy, trade, science and technology, agriculture, health, culture, security, and commerce, aims to fortify the bonds between the two nations.

The visit comes on the heels of an unprecedented exchange of missile strikes in January, which had considerably strained Iran-Pakistan relations. President Raisi’s journey to Islamabad is part of broader efforts to mend ties, influenced also by the escalating tensions in the Middle East stemming from heightened tensions between Iran and Israel. In this volatile environment, Raisi’s outreach is seen as an attempt to consolidate support from neighboring countries.

A critical point of discussion between the two countries was the long-delayed multibillion-dollar gas pipeline project. Originating from a 2010 agreement, this project was designed to supply Pakistan with up to a billion cubic feet of natural gas per day from Iran’s South Pars gas field over 25 years. The pipeline was to stretch over 1,900 kilometers, with 781 km within Pakistan and 1,150 km within Iran. Iran has completed its segment with a substantial $2 billion investment. In contrast, the Pakistani side has languished, primarily due to international sanctions imposed on Iran.

In 2014, Pakistan secured a 10-year extension for the pipeline’s construction, which is due to expire in September. Iran has the option to escalate the matter to the international court, potentially levying fines of up to $18 billion against Pakistan for non-compliance. Facing this stark possibility, Pakistan agreed in principle earlier this year to initiate construction of an 80 km segment of the pipeline.

Amidst these negotiations, Pakistan sought a U.S. sanctions waiver in March, signaling the delicate balance Islamabad is trying to maintain. The U.S. stance remains unsupportive of the project, highlighting the potential sanctions risks associated with the proceeding. This stance by the U.S. is pivotal as Pakistan is simultaneously preparing to negotiate a new bailout package with the International Monetary Fund (IMF) scheduled for later this year. Given the country’s severe energy needs—exacerbated by dwindling natural gas reserves and costly LNG imports—the completion of this pipeline is of strategic importance.

Iran, boasting the world’s second-largest gas reserves according to BP’s Statistical Review of World Energy, sees the pipeline as a crucial step toward becoming a major natural gas exporter, although Western sanctions and political strife have impeded its progress. The original deal also included India, which later withdrew.

Recently, Pakistan has reaffirmed its commitment to the pipeline, beginning construction work from Gwadar towards the Iranian border. This move signifies a step towards energy security but also reflects the geopolitical tightrope Pakistan must walk amid ongoing regional and international pressures.

As the geopolitical landscape shifts, Raisi’s visit to Pakistan highlights a critical moment for Pakistan, which is carefully navigating its relations with the U.S. and Iran amidst escalating sanctions and regional conflicts. The visit, which took place under the cloud of increased U.S. sanctions against Iran due to its nuclear program and the recent conflict with Israel, underscores Pakistan’s precarious position as it seeks to avoid attracting U.S. sanctions for engaging with Iran.

On April 25, Pakistan’s Defence Minister Khawaja Asif voiced optimism that the obstacles hindering the completion of the Iran-Pakistan gas pipeline would be overcome, and he hailed President Raisi’s visit as a significant development. This expression of hope came just as the United States renewed its warnings to Pakistan, cautioning against proceeding with energy projects that might incur sanctions, particularly in light of the recent business deals between Iran and Pakistan.

In the aftermath of the visit, the two nations issued a comprehensive 28-point joint statement. The statement detailed their agreement to swiftly finalize a free trade agreement and enhance bilateral trade to $10 billion over the next five years through joint economic projects. These projects include establishing joint border markets, economic free zones, and new border openings. The agreements aim to transform the shared border from a ‘border of peace’ to a ‘border of prosperity,’ with a reiteration of the importance of cooperation in the energy sector, notably including the contentious Iran-Pakistan gas pipeline project. Both countries emphasized the need for long-term socio-economic development in Iran’s Asli Baluchestan and Pakistan’s Balochistan provinces.

To ensure the swift finalization of the free trade agreement, both sides agreed to hold the next sessions of the Annual Bilateral Political Consultations (BPC) and Joint Business Trade Committee (JBTC) as well as the 22nd round of negotiations of the Joint Economic Commission (JEC) soon. They also agreed to facilitate the regular exchange of economic and technical experts, along with delegations from chambers of commerce from both countries to intensify economic cooperation. Additionally, the declaration of the ‘Reemdan border point’ as an international border crossing point under TIR and the opening of the remaining two border sustenance markets were confirmed.

The consensus was also reached to fully operationalize barter trade mechanisms between the two sides to facilitate economic and commercial activity, particularly under ongoing collaborative endeavors, such as border sustenance markets. Regarding connectivity, the two sides expressed satisfaction over the regular shipment of goods under the TIR Convention and agreed to fully operationalize the Convention for further efficient, speedy, and barrier-free trade.

As members of the Economic Cooperation Organization (ECO), Iran and Pakistan expressed a firm resolve to enhance cooperation in connectivity, infrastructure development, and energy sectors and agreed to expand linkages between Gwadar and Chahbahar ports. They also expressed their agreement to start negotiations on free trade in ECO.

Meanwhile, the American reaction to the visit was predictably cautious. The U.S. has expressed displeasure with the Iranian president’s visit, viewing it as contrary to its efforts to isolate Tehran. This comes just days after the U.S. imposed sanctions on four firms, including three Chinese companies, for allegedly aiding Pakistan’s ballistic and long-range missile program—a move interpreted by some observers as a warning to Islamabad amid its hosting of the Iranian president.

Despite the geopolitical pressures, Pakistan has maintained a careful stance in balancing its ties with both Iran and Saudi Arabia, the latter of which has shown a recent improvement in relations with Iran. Pakistan’s energy needs are pressing, and while it wishes to finalize the gas pipeline project with Iran swiftly, the broader regional geopolitics hinder these developments. Officially, the visit did not yield significant progress on the stalled gas pipeline project, illustrating the complex interplay of international relations and economic strategies.

In sum, President Raisi’s visit served more as a symbolic gesture of normalizing relations between two historically strained neighbors rather than a breakthrough in substantive economic or diplomatic terms. Pakistan continues to navigate the challenging waters of its relationships with both Iran and the U.S., a balancing act crucial for its future stability and economic prosperity.