Atanu Dey On India's Development

The Iran-India Pipe Bomb

No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempts to remedy a present ill by sowing the seeds of a much greater ill for the future. —- Ludwig von Mises

Indian policy makers’ optimism is matched only by their short-sightedness when it comes to dealing with matters of national security. To recount all the instances when they have been caught with their pants down would require a book-length treatment, not a short few paragraphs on a blog. But I cannot pass up the latest blunder in the making. I hope that I don’t have to say I told you so in a few years’ time. I hope I am wrong in my analysis but I am afraid that I will be proved right.

It appears that the 1,625 mile long pipeline project carrying liquefied natural gas from Iran to India is on track, as UPI reported on Aug 4th. Over a period of 25 years, India will import about 1.2 million metric tons of LNG each year, for a total of $40 billion.

India’s urgent energy needs are undeniable and much of it has to be met through importing hydrocarbon-based energy. India should really be investing heavily in developing renewable energy sources for it to achieve energy independence. Relying on foreign oil and gas is not a good idea in the first place. However, that is a matter which needs to be dealt with separately. For now, let’s focus on the pipeline. The really scary part of this US$4 billion pipeline is that about 475 miles of it will traverse through the terrorist state of Pakistan.

I do not share the optimism displayed by Reuben when he wrote:

As I see it, the pipeline could potentially be one of the biggest guarantors of peace on the sub-continent. Pakistan will earn substantial amounts of money from rights-of-way revenue from the pipeline. Therefore, they have strong incentive to keep the peace.

The operative word above is “potentially.” Potentially, one can imagine all sorts of great win-win outcomes in any strategic game. But more often than not, they are not what game theorists call “Nash equilibria”. As is well-recognized in literature and seen in actuality, the equilibrium obtained is sub-optimal. The incentives ex-ante differ from those ex-post with predictable results.

OK, let’s cut to the chase. Pakistan, the story goes, gains transit fees from allowing the gas pipeline to go through Pakistan and every year makes, say, a few hundred million dollars. So, it is argued, Pakistan will not sabotage the pipeline when push comes to shove because it will stand to lose the transit money. That is flawed thinking because it does not take into account the fact that Pakistan could “gain” in another way: by imposing heavy losses on India.

I take it for granted that someone will have to pay for the $4 billion pipeline and I am assuming that India pays for it to be built. The pipeline is planned to be operational in 2009. By 2011, India has started relying on the delivery of a couple billion dollars of LNG and about $10 billion dollars worth of industry is dependent on it. Assume that there is some conflict between Pakistan and India – say the Kashmir problem, or some river water dispute. Now Pakistan says very softly to their Indian counterparts at the negotiating table – off the records – “Guys, shape up or we will blow the f**king pipeline up tomorrow at 5 AM.” The stupid Indians will exclaim, “Naah, you wouldn’t do that. If you did that you will lose $100 million in transit fees.”

“Oh yeah?” the Pakistanis would taunt. “And how much would you lose, you morons? You will lose a $4 billion pipeline, and you will lose $10 billion of industrial output that you have built around the imported LNG. So stick that in your infidel pipes and smoke it, you losers.”

The Indians would respond, “No, you will not do that, will you? After all, haven’t we been friends with all those Samjhauta buses and all those nice things we do like play cricket with you guys and invite your lovely dictator to come and stay for free at our tax payers’ expense? Surely you cannot be saying that you will not play nice with us after all our attempts at being nice to you. Please say it ain’t so. Pretty please.”

“Listen up, kuffars,” the Pakistanis would reply, “and listen up real good. If you don’t toe the line as we say, some terrorists will blow the f**king pipe up. We will disclaim all responsibility, of course. The US – you know, our big-daddy who calls us the “frontline state against terrorism” – will realize how important a job we are doing against terrorism and will immediately announce the gift of a few dozen F-18s and military aid amounting to $2 billion. I hope you are getting the picture, you silly sons of bitches.”

Well, admittedly a crude rendition of what perhaps happens in diplomatic meetings but I think it is essentially what will happen if India is stupid enough to build a pipeline to deliver it essential energy through a state that has repeatedly demonstrated that it is willing to be a suicide bomber. A few years ago, they were on the verge of lobbing a few nukes at India. Were they concerned that they would be vaporised as well? Not really. After all, if they get nuked in retaliation, they will go straight to heaven but they would have destroyed the kuffar state in the end.

  • http://indicview.blogspot.com Kiran

    That is a rather regular, simplistic and naive view.

    It is an old joke in India, that the “People who are intelligent enough to govern the country are too intelligent to enter politics”. But that is all it is – a joke. What is very obvious to us is definitely all the more obvious to the Oil Minister and all the others clamouring for the pipeline – Dhirubhai Ambani, one of the most celebrated business minds in this country was an early exponent of the pipeline, even at around the time of Kargil. Why, one may ask? Do people go mad when they achieve such stratospheric levels of success?

    Not really. There are some very simple requirements in such a deal, which are not widely publicised. For example, India has already made it very clear that India will not take gas unless all its security concerns are addressed. How do you address the concerns? Iran with or without Pak, must guarantee us that they will either supply the gas at our border, or else pay us. It is called a supply-or-pay clause, which is signed by every seller in an international pipeline deal. This clause complements the buy-or-pay deal that the buyer signs too.

    Of course Iran has refused to sign the supply-or-pay clause (they are offering to supply CNG via ships instead), but India will definitely not go ahead without either that or some other form of equally strong security. I trust there would not be enough people smart enough to have the money and dumb enough to invest on “trust” in Indo-Pak bonhomie.

  • http://www.MykesWeblog.com Myke

    Terrorists love pipelines, especially long ones in rugged, friendly terrain. :-)

  • http://jyote.blogspot.com Jyoti Iyer

    Very vivid. Yea, the Indian government is actually begging the enemy to hold them at ransom – and paying them to do so! And that’s how the cookie crumbles..

  • http://opinion.paifamily.com Nitin

    Atanu,

    Pakistan’s ability to ensure the security of the pipeline (against attacks by Baloch insurgents) is at best questionable.

    The most worrying thing about the pipeline is that some of its Indian advocates take the view that it will bring peace because it creates ‘mutual dependencies’. Strange is the mentality that likes to feel secure by putting its cojones in the hands of its adversaries. Indeed, simply putting a multi-billion dollar investment within the grasp of an unreliable Pakistan is poor form; putting something that is quite likely to be a vital element of India’s economic security is positively suicidal.

    I have always argued that there is a better way of going about the Iran LNG deal; by investing in a state-of-the-art container terminal on India’s Western seaboard. Such an investment will allow India to procure gas from Iran (by way of LNG tankers), and also from any other country that can supply LNG or crude oil.

    Given that almost all the investment will go into building domestic infrastructure, jobs, collateral economic benefits and spinoffs will accrue to India.

    Of course, simply comparing costs of transportation (ie pipeline vs shipping) may make the pipeline attractive. The problem is that while these costs are quite easy to calculate, estimating the cost of risk is much more difficult. But I’d hazard a guess that if those risks are well quantified, the pipeline will turn out to be not that good an idea after all.

  • tantrum

    Hi Atanu,

    An interesting analysis of the Indian economy can be read here:

    http://www.isj.org.uk/index.php4?id=107&issue=106

    Good luck,

    Someone who prefers to be anonymous

  • http://krish78@gmail.com krishna

    absolutely righltly put.

    muslim terrorist and a country like pakistan, is not to be believed. any sane quy will not invest that much money in such a project..why don’t you think bio-diesel, bio-ethanol, which will give jobs to indian here in the villages and at the same time.. give biomass to do bio-gas plants..?? biogas can be as good as CNG.

    i am not sure who is filling mani shankar aiyars pockets or has gone insane..

    Pakistan is doing all this CBM(confidene building measures) stuff to get the pipeline project going so that… they have a lever.. incase of a conflict or war.

    trade with pakistan..

  • http://krish78@gmail.com krishna

    absolutely righltly put.

    muslim terrorist and a country like pakistan, is not to be believed. any sane quy will not invest that much money in such a project..why don’t you think bio-diesel, bio-ethanol, which will give jobs to indian here in the villages and at the same time.. give biomass to do bio-gas plants..?? biogas can be as good as CNG.

    i am not sure who is filling mani shankar aiyars pockets or has gone insane..

    Pakistan is doing all this CBM(confidene building measures) stuff to get the pipeline project going so that… they have a lever.. incase of a conflict or war.

    trade with pakistan..

  • http://amitz.blogspot.com amit

    Dear Atanu

    Nice analysis – agree fully.

    Kindly read my post in my blog over the same issue abit diffrently
    Correct me if wrong :

    You wanted to mention KAFIR(infidel) and not kuffar ( Lie) you used.

    Cheer

    Amit Chaudhry

  • lawry

    hi atanu,
    your language which described pakistanis had a major shock value on me! maybe because of my typical rural convent education!
    it’s true that we cannot trust our energy lifeline with a terrorist nation, but a thought for pondering is, is Pak a terrorist nation…

    How can our own far relatives turn against us so violently and harbour so much of vengeance… It’s true that their madrasa universities have been able to depict india as an evil nation. but we need to find a solution for it.

    i feel the only way we can make like us is by bringing up their aspirational value. as you said, right now they dont care much if their country goes up in smoke. but they surely would if they are a little more prosperous
    is this thought worth pondering…
    regards
    lawry from bangalore

  • Shahryar

    I hope the following story will inform your readers!

    ————————————————————-
    http://in.rediff.com/news/2005/jan/29pak3.htm

    Another Pak pipeline blown up

    January 29, 2005 19:48 IST

    Suspected Baloch rebels in Pakistan damaged a major gas pipeline and triggered bomb blasts near Lahore even as a key member of the ruling coalition threatened to pull out of the government if Army launched full-scale operations against the rebels.
    The main gas pipeline passing over the Balloki-Sulemanki Canal in Okara district of Punjab province was blasted by suspected rebels, disrupting supply of gas to Lahore and other places.

    This is the second such attack against gas installations and pipelines in the last three weeks by rebels, who are demanding more autonomy for Balochistan province.

    In another incident, two bombs exploded at the residence of a Railway official and the Officers Club of Pakistan Railways.in South West Quetta, capital of Balochistan, late last night. No one was injured.

    Meanwhile, the Muttahida Quami Movement (MQM), a key partner in the ruling alliance supporting President Pervez Musharraf, asked the government to desist from using force against Baloch rebels and demanded negotiations to resolve all issues.

    An all-party conference organised by the MQM in Quetta adopted a seven-point resolution urging the government to not launch a full-scale military operation against rebels and favoured negotiations.

    Addressing the conference over phone from London, self-exiled MQM leader Altaf Hussain said his party would pull out of the pro-Musharraf ruling coalition if Army was deployed in Balochistan to deal with nationalist rebels.

    Assuring full support to Baloch parties in their struggle for more autonomy, Hussain said army actions in the past in East Pakistan, which later became Bangladesh, Balochistan, Karachi and Hyderabad have only aggravated the situation.

    “Past experiences told us that political and democratic issues should be settled purely through political means and not through guns as these methods would create complications and develop hatred and ill-will towards the federation,” the local daily Dawn quoted him as saying.

    The meeting was boycotted by former Prime Minister Benazir Bhutto-led Pakistan Peoples Party (PPP) and the Islamist Muthahida Majlis Amal (MMA), but was attended by ruling Pakistan Muslim League-Q (PML-Q), which, however, abstained when the resolutions were put to vote.

    Hussain demanded complete autonomy to all provinces so that they could run their affairs without interferences and usurpation of their resources by the Centre, rejecting the Centre’s strict policy of centralisation of the 70s, which he said had led to the dismemberment of the country.

  • Shahryar

    Are you guys aware that Rudolph Diesel said:

    “The diesel engine can be fed with vegetable oils and would help considerably in the development of agriculture of the countries which use it”

    “The use of vegetable oils for engine fuels may seem insignificant today. But such oils may become in course of time as important as petroleum and the coal tar products of the present time.”

  • Shahryar

    http://pakistantimes.net/2005/04/01/index.htm

    Friday April 01, 2005

    Gas pipeline blown up in SW Pakistan
    Pakistan Times Balochistan Bureau Report

    QUETTA: Suspected tribal insurgents blew up a pipeline supplying natural gas to a major southwest city in Pakistan’s restive Baluchistan province, officials said on Friday.

    Police said the Thursday night attack damaged the pipeline but did not disrupt gas supplies to Quetta, the provincial capital of Baluchistan.

    “Saboteurs detonated explosives which damaged a three-metre (10-foot) part of the pipeline in Dhadhar,” a town some 90 kilometers (56 miles) southeast of Quetta, local police official Ali Akbar Magsi said.

    Recap

    Bombs and rockets targeting railway tracks, government installations and natural gas facilities have exploded almost daily since the start of the year in Baluchistan, the biggest and poorest of Pakistan’s four provinces.

    Police have blamed the string of attacks on nationalist tribesmen demanding a bigger share of the region’s natural resources and jobs in state projects as well as more political rights.

    On March-17 eight paramilitary soldiers and dozens of civilians and tribesmen died in violent clashes at Dera Bugti, near the country’s largest gasfield at Sui.●

  • http://radix-lecti.blogspot.com prashanth

    you forget that Pakistan is a very volatile country politically. Who knows what will be in Pakistan in 2014. Democracy or even a Afghanistan type govt. full of tribal warlords.

  • http://journalofnitya.blogspot.com/ Nitya
  • http://www.ankushblogs.blogspot.com visit my blog..and you will kow

    I am not sure if Pakistan skies are open to Indian Airwys and Vice Versa. But the concern being discussed here applies to air traffic too. And if such concerns were to deter the developments, we would not have had trade routes to any country.

    Ofcourse the matter is of grave concern considering terrorism, but the pipeline would not just a set of pipe in series for transporting fluids which any tom, dick and harry can set ablaze. They would definitely be much more than that.

  • http://techpolicy.typepad.com/anuplog/2005/03/i_want_to_say_o.html Anup

    It is called interdependence. There is more to the deal for Pakistan than just the transit fees. For example consider this: India builds power plants just east of border in India, and supplies electricity to Pakistan using the LNG that comes through Pakistan. If something goes wrong with the pipeline, Pakistan stands to loose its electricity supply, and potential damage to its grid.

  • Pakistani

    Well…….

    I am surprised how Indians are overly exagerating the security situation in the tribal areas of Pakistan (These Tribal areas have always been like this since the Britishers time)….

    First that its in India’s favour that it gets cheap gas through the Iranian pipeline…. but I can see that stupid Indian demands of penalities are gonna make this nearly impossible…. why should Pakistan be so nice when you have been violating Indus Water TReaty and Building Dams on the Pakistani Rivers.

    I am a Pakistani and live in USA… Honestly, many of you will know how ignorant American people are about the outside world and they believe whatever their Government tells them and we all know that its wrong …….
    ……now whether you want to believe it or not but the FACT is that Indians are misinformed about Pakistan the same way as the Americans are misinformed about the outside world…. they shout about Kargil but forget about Siachen….. Pakistan’s role in ‘war on terror’ is crticzed but they forget they have been refusing to implement a UN resolution for over 55 years……………. Grow up!!!

    you can’t paint everythign as white or black………… Pakistan is what it is not what you believe it to be….

  • Baalaach

    I read all the comments, but the fact is that neither India nor Iran and not even Pakistan can lay a gas pipeline through the Baloch land without the permission of the Balochs. Until and unless we get our rights, it is impossible to have billions of rupees for Pakistan, and it is our mission. We invite India and US including all other countries to invest in Balochistan and specially Gwadar, but we dont bear Pakistan and its friends. Thanx

  • http://www.vichaar.org/ chanakya

    Building a pipeline through Baluchistan without the explicit consent and participation of the Baluchis is a strategic mistake. Baluchistan might blow up in India’s face just like Sri Lanka did. Do we want to be on the wrong side of the fence again ?

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  • mohsen

    help me to buy the bomb cng for Iran for amount number

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