In 2015, the Chinese and Pakistani governments announced the inauguration of the China-Pakistan Economic Corridor (CPEC), a strategic program that comprises several connection projects starting from the port city of Gwadar to Kashgar in the Xinjiang province.
CPEC has since its inauguration faced tremendous challenges primarily due to the economic reforms (not) taken by Islamabad during its course, resulting in additional mounting debt and leading to the current financial crisis that Pakistan faces.
However, contemplating at the same time, the current shift in the global geopolitical order following the Russian invasion of Ukraine, the timing for the completion of the corridor couldn’t be better for both countries.
Hitherto, it is of utmost importance to point out the myriad opportunities unfolding amidst this geopolitical crisis and the challenges and risks that might stem from the further involvement of China in Pakistani affairs.
A world full of opportunities
Moscow’s aggression towards Kyiv has triggered a chain of actions by the EU that led to sanctions involving several sectors where a partnership with Russia is taking place. The last one is bound to include the energy sector, as Russia is the main energy supplier of the European continent.
Especially in the gas sector, several EU member states so far have been almost exclusively dependent on imports from Moscow. Brussels and Washington have already come to an agreement to increase the LNG transatlantic trade, there is however skepticism that the USA has the capacity to fill the gap that will be created from the absence of Russian gas in the long term.
It is necessary to find other solutions. The TAPI pipeline is perfectly suited to alleviate that pain. Connecting the Galkynysh gas field in Turkmenistan, with abundant resources, the pipeline can convert the Gwadar port into a major LNG hub, with the right investment.
This will be a development of global interest and hence multiple state actors and international institutions should get involved in this process.
Oil is also one of the sectors in which Russia has been a key player and one of the biggest suppliers globally. Despite the climate change pledges, there is still great demand for the so-called “black gold”, predominantly because of the refining process and the oil-derived products that stem from it.
Countries that have not taken part in the sanctions, including South Africa, have much oil refining space untapped and also are planning to substantially increase this capacity.
In addition, even the countries that are part of the sanctions against Moscow, have not taken any similar actions against other oil-producing states, like Kazakhstan, in the post-Soviet space, thus they will be interested in trade with these countries that could circumvent Russia.
Pakistan can serve as a hub for both new or to-be-established trade routes both for South Africa, Egypt, and also Europe, and East Asia.
Finally, one ought not to omit nuclear energy. Russia is the top uranium supplier of the EU and globally provides 35% of the enriched uranium, being a player of great importance in the field of nuclear energy.
Recently there has been speculation even of a uranium ban on Moscow and alternatives are being pursued. Two of the countries with the biggest uranium reserves are Kazakhstan and Mongolia, both of which happen to be located strategically close to Pakistan and China alike.
Mongolia has also pledged to not develop nuclear energy within its jurisdiction, but that does not discourage Ulanbataar from exploring potential gains from exporting the much-needed fuel for nuclear energy production.
Beijing has recently been heavily invested in nuclear technology and, together with the AIIB, would be interested in pursuing the exploitation of the numerous uranium mines that the Eurasian state of Kazakhstan possesses.
In this context, CPEC and the port city of Gwadar are perfectly positioned to transport Pakistan into a new era of much greater importance.
The greatest challenge, as mentioned, is the financing part. Currently, the national bank announced that foreign reserves plunged to a two-year low of $16.4 billion, which puts the Pakistani financial system in a state of emergency.
Another major challenge is the political will and the state of affairs of the involved parties. Political instability is still prevalent in Kabul and the Taliban government has not yet managed to ensure a stable transition and a nationwide acceptance of the current state of affairs.
Moreover, Turkmengas, the majority stakeholder of the project, is finding it considerably challenging to attract the investment needed to finish its part. Both factors hinder substantially the completion of the pipeline that could help Gwadar become the much-dreamt LNG hub of South Asia.
With regards to uranium, the Mongolian government has generally eschewed talks about uranium exploitation and it will be most difficult getting them to the negotiation table.
Finally, the complex field of geopolitics requires again a sound strategy so that it does not bring backlash to any strategy. Not involving e.g Russian oil in the trade routes of CPEC would entail potential conflict with Moscow, which might have far-reaching ramifications for regional stability and especially Afghanistan.
Involving such products, on the other hand, might mean that Pakistan will have to deal with global discontent, and then projected demand for the future commodities traded at Gwadar might see an unexpected nosedive.
Moreover, also an eye should be kept on the imports part of the trade routes, respecting the nature of the whole CPEC project, which was to benefit both China and Pakistan, along with the whole region.
Focusing solely on gains through exports, Islamabad’s relations with Beijing might take a turn for the worse. Moreover, it is paramount that the rights of the Chinese workers and enterprises throughout the corridor should be respected.
Way forward/Policy recommendations
The historical shift in the geopolitical world order might mean devastation for many parts of the world, including Pakistan. Nonetheless, this comes with many opportunities that involve CPEC as well.
Initially, the corridor encompassed all the ambitions of Beijing to jettison the so-called “Malacca dilemma”, but the developments in Ukraine and their impact on the whole Eurasian region open many opportunities for the project to bring financial development and prosperity to the region.
For that to happen, nonetheless, several changes in the current policy scheme of Pakistan need to happen:
- Islamabad has to strike a deal with the IMF or with any other financial institution providing assistance as soon as possible. This might translate to a period of austerity for the local community, but in the long-term, if the right investments and management from the administration take place, the compensation will be much bigger.
- Pakistan needs to reach out to potential diplomatic or security guarantors for the Taliban issue. An ideal candidate would be Ankara, as its pragmatic stance on the Ukraine crisis has unraveled its great potential to mediate at times of distress.
- In addition, there is a great need to attract investments for the TAPI pipeline and potential nuclear projects in Ulaanbaatar. So far, interest was very low in European countries, but now there is great momentum in attempting to find new channels and sources of oil and gas. This is exactly why it is paramount to settle the financial crisis as soon as possible because then the credibility of the Pakistan government will increase and make the reaching out process much smoother.
- Finally, with regard to the potential geopolitical conundrum, Ankara’s aforementioned stance can serve as a great roadmap for Islamabad. Pursuing a similar strategy can bring investments and commodities from any country, be it friendly or unfriendly to Moscow, and increase potential trade volumes.
Most of these recommendations see pretty much ahead, and without solving the foreign reserves crisis nothing can be done. However, they can serve as an incentive and form of the impetus for the Pakistani government to take action quickly and firmly and involve as many actors, both state and institutional ones, in the process.
*The writer Policy entrepreneur in the fields of blue economy/Ocean CDR/Carbon Removal/Sustainability & Resilience. Policy Analyst specialized in energy policy & geopolitical risk in Central Asia and the Caucasus.
*The views expressed in this article are the writer’s own and do not necessarily reflect the position of this magazine and institution.