* Ahmadinejad, Zardari attend ground-breaking ceremony
* U.S. says project could draw U.S. sanctions on Pakistan
* Pipeline could be vulnerable to sabotage -analyst
(Adds U.S. comment, drop in Karachi stock prices, paragraphs
By Marcus George
DUBAI, March 11 The presidents of Iran and
Pakistan marked the start of Pakistani construction on a
much-delayed gas pipeline on Monday, Iranian media reported,
despite U.S. pressure on Islamabad to back out of the project.
Dubbed the "peace pipeline", the $7 billion project has
faced repeated delays since it was conceived in the 1990s to
connect Iran's giant South Pars gas field to India via Pakistan.
The United States has steadfastly opposed Pakistani and
Indian involvement, saying the project could violate sanctions
imposed on Iran over nuclear activities that Washington says are
aimed at developing a weapons capability. Iran denies this.
India quit the project in 2009, citing costs and security
issues, a year after it signed a nuclear deal with Washington.
Iranian state television showed live footage of President
Mahmoud Ahmadinejad and Pakistani President Asif Ali Zardari
shaking hands and offering prayers after unveiling a plaque to
mark Pakistan's involvement.
Alluding to the United States, Ahmadinejad accused "foreign
elements" of seeking to undermine Iran's relations with Pakistan
and to thwart the Islamic Republic's progress by using its
nuclear programme as a pretext.
"I want to tell those individuals that the gas pipeline has
no connection whatsoever with the nuclear case," Ahmadinejad
said in a translated address broadcast live on state television
that followed the ground-breaking ceremony.
"With natural gas you cannot make atomic bombs. That's why
they should have no excuse to oppose this pipeline."
The U.S. State Department repeated U.S. concerns about the
project, saying if completed it could bring on U.S. sanctions
but also questioning whether it will ultimately be built.
PAKISTANI STOCKS DECLINE
Pakistan's stock market closed lower on Monday after the gas
pipeline deal with Iran raised fears the United States would
impose sanctions on Islamabad, dealers said. The Karachi Stock
Exchange's (KSE) benchmark 100-share index ended 2.46
percent, or 441.62 points, lower at 17,522.56 points.
Asked if she wished to calm those worries, U.S. State
Department spokeswoman Victoria Nuland bluntly told reporters in
Washington: "I would not like to allay those fears."
"If this project actually goes forward we have serious
concerns that sanctions would be triggered," she added. "All of
that said, we've heard this pipeline announced about 10 or 15
times before ... so we'll have to see what actually happens."
Pakistan has pursued the pipeline scheme as a way of
alleviating severe energy shortages that have sparked
demonstrations and battered a weak government. At the same time,
it badly needs the billions of dollars it receives in U.S. aid.
"The Pakistani government wants to show it is willing to
take foreign policy decisions that defy the U.S., particularly
when such crucial issues as energy security are at stake," said
Anthony Skinner, a director of British-based Maplecroft risks
"The pipeline not only caters to Pakistan's energy needs,
but also lodges brownie points with the many critics of the U.S.
amongst the electorate," he told Reuters.
Iran has completed 900 km (560 miles) of pipeline on its
side of the border and Iranian contractors will also construct
the pipeline in Pakistan, Iran's national broadcasting network
Tehran has agreed to lend Islamabad $500 million, or a third
of the estimated $1.5 billion cost of the 750-km (470-mile)
Pakistani section of the pipeline, Fars news agency reported.
The two sides hope the pipeline will be complete in time to
start delivery of 21.5 million cubic metres (760,000 million
cubic feet) of gas per day to Pakistan by December 2014.
The project faces security challenges posed by ethnic Baluch
militants who have demanded greater control over Baluchistan's
natural resources, and by Iranian Sunni insurgents also based in
Pakistan who are fighting for greater rights in Iran.
"Having a pipeline running through the region makes it
particularly vulnerable to bombings and disruption," said
Skinner. "Washington could bolster its support for local
elements, causing significant disruption to pipeline
(Additional reporting by Karachi newsroom and by Arshad
Mohammed in Washington; Editing by Alistair Lyon and Mohammad