Over a decade after it was proposed, a natural gas pipeline linking Iran, Pakistan, and India appears to be in the offing. The Indian petroleum ministry has begun preliminary discussions with representatives from Tehran and Islamabad. The Iranian oil minister will visit Pakistan this month to discuss prices, transit fees, and pipeline security. Next month, Indian and Pakistani ministers are scheduled to meet in Delhi. While the economic benefits seem clear, and diplomatic benefits seem possible, there is cause for concern regarding pipeline security, pricing decisions, and inveterate US opposition. All three countries will hedge their bets, but the potential gains of this "peace pipeline," make the gamble worth taking.

The proposed $4 billion Iran-Pakistan-India pipeline offers major economic benefits to all three countries. For Iran, home to roughly 18 per cent of the world's known gas reserves; the pipeline will provide increased revenue and access to energy markets. For Pakistan, whose reserves will dry up in the next 15 years, the pipeline offers the opportunity to both add to existing gas supplies and collect transit fees. Finally, the continued growth of the Indian economy hinges on the availability of new energy sources.

At a time when states are focusing on "energy security," the pipeline provides a win-win scenario for all concerned. India and Pakistan are facing increasing demands, which Iran is eager to exploit; hence the pipeline will immediately boost all three economies. The short-term impact (optimists envision a late 2009 completion date) on India and Pakistan could be a 1 per cent increase in GDP, derived from lower transportation costs and transit fee revenues, respectively.

The Iran-Pakistan-India pipeline also offers an opportunity to further much-needed regional integration. It would lay the groundwork for a regional energy grid, which could be extended to Turkmenistan and Myanmar, driving down transportation costs on a regional basis - to the benefit of trade all-around. In diplomatic terms, the pipeline would provide a visible confidence building measure to help consolidate the composite dialogue between India and Pakistan. Even the most sceptical hawks concede that a secure pipeline linking the two rivals would be a remarkable development.

The pipeline is not without its detractors. Some within the Indian strategic community question the wisdom of placing India's economic future in the hands of policy-makers in Islamabad. The same logic underscores the importance of the pipeline - economic growth requires new energy sources - and highlights the vulnerability of Indian interests to a "turning off of the tap." There are also legitimate concerns regarding Islamabad's ability to guarantee the security of the pipeline in its restive Baluchistan province. The Baluchi nationalist movement has recently intensified attacks on military convoys and infrastructure in the Sui gas fields, casting doubt on Pakistani claims of stability.

Ultimately, the largest impediment to the project may be US opposition. American policy remains captive to a long-standing, and recently intensified, campaign to isolate Iran. For Washington, increased revenues for Tehran would underwrite proscribed Iranian nuclear activities. In addition to threatening sanctions against third parties working with Iran, the US is also willing to offer blandishments, most notably to India. US Secretary of State Rice's declared interest in an expanded "energy dialogue" with India is vague, but suggests nuclear cooperation to ease Indian energy concerns. In other words, the US may provide nuclear technology to India to prevent nuclear proliferation in Iran.

With a series of negotiations underway, Tehran, New Delhi, and Islamabad seem determined to move forward. Given their economic needs, scuttling the deal would seem to be impolitic. Beyond security considerations, deliberations on price and fee structures have yet to move beyond a general agreement that prices should be "reasonable." Working group meetings next month should provide a clearer indication of the mesh between good intentions and good business.

Policy-makers are also hedging their bets. In response to Rice's remarks, Indian officials quickly avowed their willingness to continue working with Iran (they recently concluded a $20 billion liquefied natural gas agreement), and have also moved forward with a separate Myanmar-Bangladesh pipeline project. Pakistan has dismissed pipeline security concerns, emphasizing that a series of international mechanisms (third-party arrangements and emergency reserves) will guarantee safety of supplies. Islamabad also declared its commitment to the pipeline regardless of Indian involvement, noting that arrangements with Turkmenistan, Qatar, and Iran are critical for domestic Pakistani needs.

Notwithstanding US pressure, policy-makers in New Delhi and Islamabad have taken a pragmatic approach to the proposed pipeline. While holding out hope for regional diplomatic and political benefits related to pipeline cooperation, the larger justification is overwhelmingly economic. The proposed pipeline follows the most cost-effective route from the gas-rich fields at Sars to the gas-starved markets of western India. Overland pipelines are more secure than shipping options and considerably cheaper - nearly one-fourth the cost. While not a panacea for India-Pakistan disputes, scuttling the pipeline project would strain the nascent peace process, and ignore the basic economic and development needs of both states.