Pakistan And Iran Draw Closer

by Christopher Nadeem

Sajjad Khan is one of more than a thousand rickshaw drivers in Peshawar, the capital of Pakistan's North West Frontier Province (NWFP). Like many other drivers, he has not visited a gasoline station for months, preferring instead to tank up at little shops in the city.

It makes good economic sense to them. At 24 to 25 Pakistani rupees (41 U.S. cents) per litre, the gasoline from the shops is about 7 rupees cheaper than from the gasoline station, a big saving. Sajjad said his daily expense on gasoline has dropped and that "almost all the rickshaw drivers" are using the petrol.

The fuel, which apart from rickshaws powers a roaring black market in Peshawar, comes from Iran. Pakistanis in the neighbouring province of Balochistan, which shares a border with Iran, are familiar with the fuel but Peshawaris are catching on quickly as well.

Ijaz Khan, a businessman, drives to just outside the city once every four or five days to fill the fuel tank in his car. "petrol prices are going up every month so having the Iranian petrol is a great relief," he said.

Cheap Iranian products -- not just fuel -- are plentiful in neighboring Afghanistan. In Pakistan, the same products must compete with other goods smuggled in from a dozen countries.

But the low-priced Iranian fuel sells quickly against a backdrop of volatile oil prices and the prospect of another oil crisis -- and are also able to make their way to Pakistan through Afghanistan now that the Taliban, which was a thorn in bilateral ties because Islamabad used to back it and Tehran to oppose it, is out of power there.

Pakistan annually imports oil worth between $3 billion and $3.5 billion, a good amount of it from Saudi Arabia, but it is seeking closer ties with neighboring Iran. A good beginning was made in December with Iranian President Mohammad Khatami's visit to Islamabad, the first by any Iranian president in 10 years.

Both countries have been part of economic alliances -- as part of the U.S.-led Cold War-era Central Treaty Organization (CENTO) in the mid-1950s, the Regional Cooperation for Development (RCD) organization of the early 1960s and its successor, the Economic Cooperation Organization (ECO).

In the 1980s and 1990s however, conflicting regional interests between the two countries caused the relationship between them to cool.

"Pakistan's backing of the United States against the former USSR, the removal of the pro-Iranian government of Burhanuddin Rabbani (in Afghanistan) and then the emergence of the Pakistan-backed Taliban have remained the main irritants between the two Islamic states," says Adnan Sarwar, chairman of the Department of International Relations, University of Peshawar.

What certainly froze was the level of economic activity between them. According to data from the Ministry of Trade and Commerce, Pakistan's exports to Iran were $118 million in 1995-96 and that figure plunged to $11 million in 1998-99.

Following the fall of the Taliban in Afghanistan however, the bilateral balance sheet is looking much healthier -- Pakistan imported petroleum and petroleum products from Iran worth $13 million in 1998-99 and that number has soared spectacularly to $323.9 million for 2000-2001.

The Sajjad Khans and Ijaz Khans of Peshawar, though, are happy with arrangements being exactly as they are, but successive Pakistani governments have tried and failed to prevent smuggling of items like fuel across Afghanistan. Black marketeering exploits the Afghan transit trade agreement between Pakistan and Afghanistan and the long and porous border between the two countries.

Cheap gasoline helps rickshaw drivers through the daily grind, but Faiz Rasool, an industrialist in the NWFP and former president of the provincial Sarhad Chamber of Commerce and Industries, pointed out that the black market has affected the growth of industries in the NWFP.

A World Bank study showed that in 1996-97 the estimated trade between Afghanistan and Pakistan was $2.5 billion, of which an incredible 98 percent was thought to be based on cross-border smuggling.

A large component of that activity now is Iranian fuel, and official estimates place the annual revenue loss from oil smuggling at $85 million. But the official loss is a gain for many.

A businessman in Torkham, the border town between Pakistan and Afghanistan at the head of the Khyber Pass, said that were the smuggling of Iranian oil to stop, Pakistani border guards and customs officials would be the losers. "They get huge sums for allowing the oil in," he explained.

Now, more eagerly than border guards eyeing a rickety old truck, economic planners and businessmen alike are looking to the proposed $3.5 billion Iran-Pakistan-India natural gas pipeline to provide a huge economic boost to the region.

Aliaghi Khamoosh, president of the Iranian Chamber of Commerce who headed a business delegation which accompanied President Khatami, said as much: "We are looking for long-term economic cooperation and relations with Pakistani investors."

Sarwar believes that the prospects of improved Pakistan-Iran relations are bright: "Both countries feel their role in Afghanistan has been marginalised by the United States -- since the feeling is common, they are closing ranks."