Pakistan has notified Iran of its intention to abandon the long-stalled Iran-Pakistan (IP) gas pipeline project through an out-of-court settlement, officials said Monday, citing the persistent threat of U.S. sanctions and a decline in domestic demand.

While the project has been frozen since 2014 due to Washington’s sanctions on Tehran, Iran has completed its portion of the pipeline and granted multiple extensions over the last decade. 

However, Islamabad has yet to begin construction on its side. This delay led Tehran to initiate legal proceedings against Pakistan for breach of contract at the International Arbitration Court. 

Sources indicate that Iran recently offered to extend the gas sale agreement by 10 years to revive the venture. But Pakistani officials proposed that any implementation would be contingent on securing a U.S. sanctions waiver, as well as negotiating lower gas volumes and prices due to the declining domestic demand.

“For now, Pakistan does not need additional gas because of low demand,” one official said, noting that IP gas prices currently exceed prevailing liquefied natural gas (LNG) rates.

The U.S. has remained firm in its opposition to the Iran-Pakistan gas pipeline, with State Department spokesperson Matthew Miller previously warning that sanctions would be strictly enforced.

“We advise anyone considering business deals with Iran to be aware of the potential ramifications,” Miller stated, raising concerns in Islamabad over potential secondary sanctions. 

Pakistan’s energy strategy has shifted toward LNG imports, primarily from Qatar, with 24 cargoes scheduled for delivery in 2026. 

The government recently lifted a decade-long ban on new domestic and commercial gas connections to help absorb a current surplus in the power sector.

While alternative proposals involving Chinese construction firms were once considered, they were ultimately abandoned under diplomatic pressure. 

Unless a U.S. waiver is granted, Islamabad appears set on shelving the multi-billion-dollar project permanently and instead opting for a settlement with Iran.