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Iran-Pakistan Border Trade: Flourishing Against the Odds

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Iran-Pakistan Border Trade: Flourishing Against the Odds

Much of the trade, especially of oil and LPG, is illicit but crucial for both the regional economy and the livelihood of families living along the border.

Iran-Pakistan Border Trade: Flourishing Against the Odds

Iranian Foreign Minister Hossein Amirabdollahian {right) shakes hands with his Pakistani counterpart Bilawal Bhutto Zardari while welcoming him to the foreign ministry in Tehran, Iran, Tuesday, June 14, 2022.

Credit: AP Photo/Vahid Salemi

When Pakistan’s Prime Minister Shehbaz Sharif and Iranian President Ebrahim Raisi met in Uzbekistan on September 15, 2022, on the sidelines of the annual summit of the Shanghai Cooperation Organization, things had just begun heating up in Iran. Protests had recently erupted in Tehran over the alleged death of Mahsa Amini in police custody but the unrest was yet to reach Iran’s Sistan and Baluchestan province, which borders Pakistan. Yet, there were apprehensions over the spreading unrest.

As feared, the protests reached Zahedan, the capital of Sistan and Baluchestan, at the end of September, and soon one of the main border crossings between Iran and Pakistan at Taftan was sealed for a couple of days.

The border situation has worsened over the months. Panjgur district in Pakistan’s Balochistan province has witnessed several shutdowns. In January, four Pakistani security personnel were killed in a terrorist attack from the Iranian side, resulting in another border closure.

Both the Pakistani and the Iranian governments have been concerned over the security situation along the border given its impact on bilateral trade, which is worth around $1.5 billion per annum. In January, the two sides signed 39 MOUs, which, if implemented could increase trade value to around $5 billion per year.

In addition to legal border crossings at Taftan-Mirjaveh, Mand-Pishin, and Gabd-Rimdan, there are several illegal trading points via land and sea.

“The border crossing points have become established economic sources for the local populations on both sides and thousands of people rely on the opportunities that the border trade provides,” Bahram Baloch, a journalist from Gwadar, told The Diplomat. “It has become the largest economic source for the bordering districts,” he said.

Therefore, a closure of the border trade even for a few days has a devastating impact on families and regional economies.

Trade via the Mand-Pishin border crossing goes back a long time. But it was only after the two governments signed an MoU in 2021 that the crossing was officially opened for legal trade and is expected to be developed into a border market.

While both governments planned to set up at least six border crossings and markets between the two countries, implementation of these plans is still pending. Meanwhile, trade continues to thrive at various legal and illegal border crossing points.

“Mand [in Balochistan] is where the large storage houses are located. All food and beverage commodities imported from Iran are stored here and then distributed to vendors across Balochistan and other provinces,” said Yaseen Irfan (name changed on request), who imports food commodities from Iran and sells them to vendors in Gwadar. “The condition of the road used to truck in goods at this border crossing is poor,” he said, adding that plans to refurbish them are yet to materialize.

The Mand crossing is in Kech district to the northwest of Gwadar. In addition to providing economic opportunities for people in the Kech district, it is a hub for small-scale border business owners from across Balochistan, especially those connected with the food and beverage businesses in Kech and Gwadar districts.

Although it is further in distance from Gwadar as compared to Gwadar’s own border crossing at Rimdan, people use the Mand crossing, despite the poor road conditions, as the crossing at Gabd is legal, Irfan said.

According to Irfan, crossings at Kuntani Hor and Dobist Panja in Gwadar district are not for the ordinary. “One has to be an established trader to work here. It is where oil, gas, and construction material (cement, tiles, iron rods, etc.) are transported into Pakistan,” he said.

The import of oil, gas, and other petrochemical materials from Iran is considered illicit trade and is therefore smuggled via illegal routes. This is because Iran is under international sanctions.

But Iranian fuel smuggling has been a highly profitable business on both sides of the border for decades, and the business has boomed since the U.S. imposed sanctions on Iran in 2013.

Even with heavy deployment of security forces along the land and marine routes, neither side has shut down the smuggling of fuel. The cash flows from the oil smuggling have helped Iran just as the smuggling has helped Pakistan. While it provides some income for cash-strapped Iran, the latter is able to access fuel at lower prices, without any tariffs.

But this is not the case with all commodities. Under a 2006 Preferential Trade Agreement (PTA), Pakistan and Iran agreed to grant concessions to each other on tariffs for several commodities legally traded with each other. In simple words, under the PTA, both countries give preference to each other to pay reduced taxes to ease the exchange of goods.

However, statistics from the United Nations Comtrade databases show that Pakistan’s exports to Iran have fallen significantly since 2013. At the same time, imports from Iran have notably increased over the years. This means that while Iran relies on exporting its goods to its neighbors via legal or illegal routes, Pakistan benefits through imports at lower prices and with reduced or no taxes.

The southern Balochistan districts of Kech, Panjgur, and Gwadar get their power supply from Iran. Before the construction of the port at Gwadar was announced in the early 2000s, the small fishing village received a few hours of electricity each day from generators provided by the Omani government.

Currently, the three districts together get around 142.5 megawatts of power, of which 104 MW is imported from Iran, while Gwadar port and the city completely rely on the imported power. Only a very small amount of power – around 8.5 MW – is generated at Gwadar Free Zone by electric generators.

With demand for power likely to surge in the coming years, Pakistan signed an agreement with Iran in June 2022 for an additional 100 MW of electricity.

Households in Gwadar also rely on Iranian liquefied petroleum gas (LPG). Although the construction of a 2,775-kilometer-long LPG pipeline between Iran and Pakistan began in 1995, and Iran completed its side of the line in 2011, Pakistan halted construction on its side when sanctions were imposed on Iran.

Consequently, in Pakistani border towns, including the port city of Gwadar, illegally transported oil and LPG are sold in cylinders.

According to unofficial estimates from 2020 relating to Gwadar district, at least 9,074 registered fishing boats, 54 fish factories, 125 local trucks and loaders, 25 buses that travel to Karachi and Quetta, and even a number of vehicles used in Gwadar Port use illicit fuel.

Despite the large use of smuggled Iranian fuel, given that the entire transportation and sale process are illegal, safety regulations are rarely observed and accidents are frequent. When a fire broke out at Kuntani Hor recently, there were no rescue operations or any kind of support for victims, as this trade zone is considered illegal despite the fact that thousands of people are working there, Imdad Baloch, a local writer told The Diplomat.

Shams ul Haq Kalmati, president of the Gwadar Chamber of Commerce and Industry, stresses the need to document not only how “crucial” the Iran-Pakistan border trade is to lives and livelihoods of people but also “the dangers and difficulties” it involves.

“It generates revenues,” he said, “but what exactly happens at the border and how people survive the dangerous terrain is not something that is discussed.”