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April 28, 2015

China, Iran and Pakistan in Energy Partnership

An energy deal two decades in the making looks like it’s finally coming to fruition.
A natural gas pipeline will be built from Iran to energy-needy Pakistan. Dubbed the “Peace Pipeline,” the project brings Iran and Pakistan – countries that have often been at odds – into a mutually beneficial partnership.
China is a part of this deal, too. In fact, the Chinese are funding 85% of the project. The country is footing the $2-billion bill for the 485-mile Pakistani section of the pipeline. The 560-mile Iranian section is already completed.
The project is being managed by a subsidiary of the China National Petroleum Corporation, and will take about two years to complete.
When and if the project is completed, it’ll truly be a blessing for Pakistan. The pipeline will bring in enough natural gas to power 4,500 megawatts of electricity generation. That’s nearly equivalent to the country’s current electricity shortfall!
Of course, all of this depends on whether the sanctions on Iran are eased.

Bearing Big Gifts

The specifics surrounding the “Peace Pipeline” were agreed to when Chinese President Xi Jinping visited Pakistan to formalize a $46-billion infrastructure package between the two countries called the China Pakistan Economic Corridor.
That $46 billion is nearly triple the amount of foreign direct investment that Pakistan received since 2008! It also dwarfs prior U.S. aid packages to Pakistan.
The package includes other energy projects, a fiber-optic cable linking the countries, roads, and railways.
A cornerstone of the corridor will be the development of the Gwadar warm-water port, which will include an airport. The port in Pakistan will make it easier to ship goods into Western China, which is far from China’s active east coast ports.
The transport links will also give China valuable access to the Indian Ocean and key export markets in both Central and South Asia.
But all of this is dependent on if Pakistan can control all of the terrorist activity in the country. On April 21, the Pakistan government said it would assign a 12,000-strong security force to protect the Chinese workers that’ll be working in the country.

China’s Big-Picture Thinking

China’s generosity is all part of a plan unveiled in 2013 by President Jinping. Originally called the Silk Road Economic Belt, it was renamed “One Belt, One Road”. The plan is designed to promote regional stability, expand China’s economic footprint, and boost its industrial exports.
The whole idea is to link the 4.4 billion people throughout Asia, and then extend the links even further into places like Russia and Turkey.
The centerpiece of this grand plan involves countries on or near the Indian Ocean. Thus, the $2-billion “Peace Pipeline” and the other infrastructure spending in Pakistan.
China is using part of its massive $3.7-trillion foreign exchange reserve to inject at least $62 billion into state-owned “policy banks” to support this grand scheme. These “banks” include the Export-Import Bank of China, China Development Bank, and the Agricultural Development Bank of China.
Add China’s New Silk Road strategy to the 50 countries supporting the China-led Asia Infrastructure Investment Bank, and you have a lot of major infrastructure projects, many of which involve bringing energy to a part of the world that needs it.
This plan should keep China’s industrial and construction companies strong, as most of the work will be done by Chinese firms. In turn, the construction work will keep the economy rolling and people employed as China’s leaders try to transition the domestic economy to more of a consumer-led economy.
It’s interesting to note that the original Silk Road strategy was an idea brought forward by former Secretary of State Hillary Clinton in 2011 to bring together Central Asian countries through economic and other ties.
That idea died on the vine. But China took it, expanded it, and is pushing ahead with it… as it pushed the United States’ former influence aside in that part of the globe.
Courtesy Tim Maverick, Commodities CorrespondentWall Street Daily (Article Archive Here)  

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