Pakistan: Now or Never?

In India-Iran oil spat, nuclear row trumps Afghan war

Not too long ago, you could have predicted relatively easily how regional rivalries would play out in Afghanistan.  Saudi Arabia would line up alongside Pakistan while Iran and India would coordinate their policies to curb the influence of their main regional rivals. 

But that pattern has been shifting for a while — the row over Indian oil payments to Iran is if anything a continuation of that shift rather than a dramatic new departure in global diplomacy.  And as two foreign policy crises converge, over Iran’s nuclear programme and the war in Afghanistan, the chances are that those traditional alliances will be dented further. It is no longer a safe bet to assume that rivalry between Sunni Saudi Arabia and Shi’ite Iran will fit neatly into Pakistan-India hostility so that the four countries fall easily into two opposing camps come any final showdown over Afghanistan.

India, which has been working to improve its relationship with the United States for much of the last decade, already earned Iran’s wrath by voting against it at the International Atomic Energy Association (IAEA) over its nuclear programme, first in 2005 and then again in 2009. Though India has since been trying to repair the damage, comments by Supreme Leader Ayatollah Ali Khamenei late last year criticising India over Kashmir soured the mood further between the two former allies.

The decision by the Reserve Bank of India (RBI) last week to suspend payments for oil imports made by Indian companies from Iran that use the Asian Clearing Union (ACU), a clearing house used to process multilateral payments between South Asian countries and Iran, was pretty much in line with that trajectory of slowly deteriorating relations.

As a caveat, it would probably be unwise to read too much into the oil payments row — Indian media have complained that the RBI decision was not coordinated across government departments and reported that the timing of its announcement came as a surprise even to the foreign ministry.  But extend the trajectory further and the outlook for coordination between India and Iran on Afghanistan does not look too promising.

India, Iran and Russia all supported the then Northern Alliance which opposed the Taliban when they were in power from 1996 to 2001.  But Washington and others have since accused Iran of covertly backing the Taliban — an allegation Tehran denies — in order to maintain pressure on the United States.  In the event of an escalation of the nuclear row, it could ratchet up support for the Taliban to make life even harder for the United States. That is anathema to India, which sees the Taliban as a Pakistan-backed movement used by Islamabad to try to maintain its influence in Afghanistan.

Meanwhile India has been cultivating ties with Saudi Arabia, which was one of only three countries along with Pakistan and the United Arab Emirates to recognise the Taliban government when it was in power.  In February last year, Prime Minister Prime Minister Manmohan Singh made the first visit to Saudi Arabia by an Indian leader since 1982, seeking to build economic ties and to enlist the kingdom’s help in improving regional security.

What price Saudi oil bill deferrals for Pakistan?

A report in the Financial Times that Saudi Arabia has agreed in principle to defer payments for crude oil sales to Pakistan worth $5.9 billion has raised speculation about what it is looking for in return.

The Daily Times suggests that the Saudis are buying political stability in Pakistan, which may include throwing a lifeline to President Pervez Musharraf.  “Apparently, the immediate impact will be on PML-N chief Nawaz Sharif’s politics of confrontation with Musharraf, which will have to be diluted significantly in line with ground realities,” it says. ”The Saudis, like the Americans, want a stable transition to civilian rule and no confrontation between the politicians and the military, including Musharraf.”

The Saudis have no interest in seeing Pakistan descend into chaos, not least because this would further strengthen al Qaeda which has set its own sights on the kingdom’s rulers. It may also see Sunni-dominated Pakistan as a potential counterweight to Shi’ite Iran. So it would make sense for it to buy stability in Pakistan.

At the same time, Saudi Arabia is looking to use Pakistani farmland to grow grains  to protect itself from food shortages and rising prices, as indeed are other Gulf states.  So there may be an element of oil-for-food as well as oil-for-stability in the deal.

The  Daily Times adds a note of warning however in a subsequent editorial. It says Islamabad must also look to alternative sources of energy so that the Saudi bailout does not become “politically suspect”.

One to watch, with no doubt far more to come before this deal is fully played out.

Should Pakistan grow food for the Gulf?

This is an idea that looks crazy at first glance — Pakistan, struggling with its own food shortages and rising prices, rents out its farmland to grow grains for the rich Gulf states instead. 

But the idea appears to be gaining momentum. Saudi Arabia is holding talks with officials in Pakistan, among other countries, to set up projects to grow wheat and other grains to protect itself from crises in world food supplies. Dubai-based private equity firm Abraaj Capital has already said it is looking at investing in agriculture in Pakistan  and other Gulf countries are also showing an interest.

So is this good or bad news for Pakistan?

U.S. News & World Report says there may be ”potential for large and enduring benefits on both sides. The reported sellers of under-developed farmland, Pakistan and Sudan, for example, are poor and lack the resources to make their own land productive,” it says. “Foreign investment is meant to help the investor, but in these cases it might also help the host countries by improving roads and irrigation and, of course, providing cash.”

The Financial Times last month quoted a senior Pakistani official  as saying of the talks to sell farmland to the United Arab Emirates: “Our aim is not to do away with precious farmland but in fact to raise the productivity of our farms and turn barren land in to fertile farmland.”

On the positive side is the potential for big investments in Pakistan from wealthy Gulf economies looking to use windfall oil profits to diversify away from oil.  According to one expert, the cumulative sovereign wealth fund wealth in the Middle East is now about 1.5 trillion dollars, mostly in the United Arab Emirates; and their assets could triple or quadruple in five to 10 years time.

Pakistan also has an interest in keeping relations sweet with Saudi Arabia as it seeks a deal on deferred oil payments  to ease its own financial crisis. Is this the beginning of a new version of oil for food deals?