ISLAMABAD: Matthew Miller, the spokesperson for the US Department of State, said on Tuesday Washington would not advise any country, including Pakistan, of “considering business deals” with Iran, warning of “ramifications” such as sanctions.
The Pakistan-Iran gas pipeline, known as the Peace Pipeline, is a long-term project between Tehran and Islamabad, which has faced delays and funding challenges for over two decades. The pipeline would transport natural gas from Iran to neighboring Pakistan.
Pakistan said in March it would seek a US sanctions waiver for the pipeline, to which the US responded publicly, saying it did not support the project and cautioned about the risk of sanctions in doing business with Tehran.
Widespread media reports this week suggested Iran had slapped Pakistan with a final notice to finish its part of a cross-border gas pipeline or face international arbitration and possibly billions of dollars in fines.
“We will continue to enforce our sanctions against Iran. And as a matter of course, we also advise anyone considering business deals with Iran to be aware of the potential ramifications of those deals,” Matthew told reporters in response to a question about Pakistan’s push to complete the pipeline and seek a US sanctions waiver.
“At the same time, helping Pakistan address its energy shortage is a priority for the United States, and we continue to discuss energy security with the Government of Pakistan.”
The pipeline deal, signed in 2010, envisaged the supply of 750 million to a billion cubic feet per day of natural gas for 25 years from Iran’s South Pars gas field to Pakistan to meet its rising energy needs. The pipeline was to stretch over 1,900 kilometers (1,180 miles) — 1,150 km within Iran and 781 km within Pakistan.
Tehran says it has already invested $2 billion to construct the pipeline on its side of the border, making it ready to export. Pakistan, however, did not begin construction and shortly after the deal said the project was off the table for the time being, citing international sanctions on Iran as the reason.
Iran’s oil minister at the time responded by saying that Iran carried out its commitments and expected Pakistan to honor its own, adding that Pakistan needed to pick up the pace of work.
In 2014, Pakistan asked for a 10-year extension to build the pipeline, which expires in September this year. Iran can take Pakistan to international court and fine the country. Local media has reported Pakistan can be fined up to $18 billion for not holding up its half of the agreement.
Faced with a potential fine, Pakistan’s government earlier this year gave the go ahead in principle to commence plans to build an 80 km segment of the pipeline. In March, Pakistan announced it would seek the sanctions’ waiver.
Washington’s support is crucial for Pakistan as the country seeks approval from the IMF executive board for a 37-month $7 billion bailout program signed in July.
Pakistan, whose domestic and industrial users rely on natural gas for heating and energy needs, is in dire need for cheap gas with its own reserves dwindling fast and LNG deals making supplies expensive amidst already high inflation.
Iran has the world’s second-largest gas reserves after Russia, according to BP’s Statistical Review of World Energy, but sanctions by the West, political turmoil and construction delays have slowed its development as an exporter.
Originally, the Pakistan-Iran deal also involved extending the pipeline to India, but Delhi later dropped out of the project.
“I fully support the efforts by the US government to prevent this pipeline from happening,” US Assistant Secretary of State Donald Lu said as he gave testimony at a Congressional hearing earlier this year. “We are working toward that goal.”
US warns Pakistan of ‘ramifications’ of business deals with Iran amid gas pipeline dispute
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US warns Pakistan of ‘ramifications’ of business deals with Iran amid gas pipeline dispute
- Iran has slapped Pakistan with final notice to finish its part of cross-border gas pipeline or face international arbitration
- Pakistan said in March it would seek US sanctions waiver for the gas pipeline but Washington says it does not support the project
IMF warns against policy slippage amid weak recovery as it clears $1.2 billion for Pakistan
- Pakistan rebuilt reserves, cut its deficit and slowed inflation sharply over the past one year
- Fund says climate shocks, energy debt, stalled reforms threaten stability despite recent gains
ISLAMABAD: Pakistan’s economic recovery remains fragile despite a year of painful stabilization measures that helped pull the country back from the brink of default, the International Monetary Fund (IMF) warned on Thursday, after it approved a fresh $1.2 billion disbursement under its ongoing loan program.
The approval covers the second review of Pakistan’s Extended Fund Facility (EFF) and the first review of its climate-focused Resilience and Sustainability Facility (RSF), bringing total disbursements since last year to about $3.3 billion.
Pakistan entered the IMF program in September 2024 after years of weak revenues, soaring fiscal deficits, import controls, currency depletion and repeated climate shocks left the economy close to external default. A smaller stopgap arrangement earlier that year helped avert immediate default, but the current 37-month program was designed to restore macroeconomic stability through strict monetary tightening, currency adjustments, subsidy rationalization and aggressive revenue measures.
The IMF’s new review shows that Pakistan has delivered significant gains since then. Growth recovered to 3 percent last year after shrinking the year before. Inflation fell from over 23 percent to low single digits before rising again after this year’s floods. The current account posted its first surplus in 14 years, helped by stronger remittances and a sharp reduction in imports. And the government delivered a primary budget surplus of 1.3 percent of GDP, a key program requirement. Foreign exchange reserves, which had dropped dangerously low in 2023, rose from US$9.4 billion to US$14.5 billion by June.
“Pakistan’s reform implementation under the EFF arrangement has helped preserve macroeconomic stability in the face of several recent shocks,” IMF Deputy Managing Director Nigel Clarke said in a statement after the Board meeting.
But he warned that Islamabad must “maintain prudent policies” and accelerate reforms needed for private-sector-led and sustainable growth.
The Fund noted that the 2025 monsoon floods, affecting nearly seven million people, damaging housing, livestock and key crops, and displacing more than four million, have set back the recovery. The IMF now expects GDP growth in FY26 to be slightly lower and forecasts inflation to rise to 8–10 percent in the coming months as food prices adjust.
The review warns Pakistan against relaxing monetary or fiscal discipline prematurely. It urges the State Bank to keep policy “appropriately tight,” allow exchange-rate flexibility and improve communication. Islamabad must also continue raising revenues, broadening the tax base and protecting social spending, the Fund said.
Despite the progress, Pakistan’s structural weaknesses remain severe.
Power-sector circular debt stands at about $5.7 billion, and gas-sector arrears have climbed to $11.3 billion despite tariff adjustments. Reform of state-owned enterprises has slowed, including delays in privatizing loss-making electricity distributors and Pakistan International Airlines. Key governance and anti-corruption reforms have also been pushed back.
The IMF welcomed Pakistan’s expansion of its flagship Benazir Income Support Program, which raises cash transfers for low-income families and expands coverage, saying social protection is essential as climate shocks intensify. But it warned that high public debt, about 72 percent of GDP, thin external buffers and climate exposure leave the country vulnerable if reform momentum weakens.
The Fund said Pakistan’s challenge now is to convert short-term stabilization into sustained recovery after years of economic volatility, with its ability to maintain discipline, rather than the size of external financing alone, determining the durability of its gains.
