Pakistan vs. Iran

The Indus Valley civilization, one of the oldest in the world and dating back at least 5,000 years, spread over much of what is presently Pakistan. During the second millennium B.C., remnants of this culture fused with the migrating Indo-Aryan peoples. The area underwent successive invasions in subsequent centuries from the Persians, Greeks, Scythians, Arabs (who brought Islam), Afghans, and Turks. The Mughal Empire flourished in the 16th and 17th centuries; the British came to dominate the region in the 18th century. The separation in 1947 of British India into the Muslim state of Pakistan (with West and East sections) and largely Hindu India was never satisfactorily resolved, and India and Pakistan fought two wars and a limited conflict - in 1947-48, 1965, and 1999 respectively - over the disputed Kashmir territory. A third war between these countries in 1971 - in which India assisted an indigenous movement reacting to the marginalization of Bengalis in Pakistani politics - resulted in East Pakistan becoming the separate nation of Bangladesh.

In response to Indian nuclear weapons testing, Pakistan conducted its own tests in mid-1998. India-Pakistan relations improved in the mid-2000s but have been rocky since the November 2008 Mumbai attacks and have been further strained by attacks in India by militants believed to be based in Pakistan. Imran KHAN took office as prime minister in 2018 after the Pakistan Tehreek-e-Insaaf (PTI) party won a plurality of seats in the July 2018 general elections. Pakistan has been engaged in a decades-long armed conflict with militant groups that target government institutions and civilians, including the Tehreek-e-Taliban Pakistan (TTP) and other militant networks.

Known as Persia until 1935, Iran became an Islamic republic in 1979 after the ruling monarchy was overthrown and Shah Mohammad Reza PAHLAVI was forced into exile. Conservative clerical forces led by Ayatollah Ruhollah KHOMEINI established a theocratic system of government with ultimate political authority vested in a learned religious scholar referred to commonly as the Supreme Leader who, according to the constitution, is accountable only to the Assembly of Experts (AOE) - a popularly elected 88-member body of clerics. US-Iranian relations became strained when a group of Iranian students seized the US Embassy in Tehran in November 1979 and held embassy personnel hostages until mid-January 1981. The US cut off diplomatic relations with Iran in April 1980. During the period 1980-88, Iran fought a bloody, indecisive war with Iraq that eventually expanded into the Persian Gulf and led to clashes between US Navy and Iranian military forces. Iran has been designated a state sponsor of terrorism and was subject to US, UN, and EU economic sanctions and export controls because of its continued involvement in terrorism and concerns over possible military dimensions of its nuclear program until Joint Comprehensive Plan of Action (JCPOA) Implementation Day in 2016. The US began gradually re-imposing sanctions on Iran after the US withdrawal from JCPOA in May 2018.

Following the election of reformer Hojjat ol-Eslam Mohammad KHATAMI as president in 1997 and a reformist Majles (legislature) in 2000, a campaign to foster political reform in response to popular dissatisfaction was initiated. The movement floundered as conservative politicians, supported by the Supreme Leader, unelected institutions of authority like the Council of Guardians, and the security services reversed and blocked reform measures while increasing security repression. Starting with nationwide municipal elections in 2003 and continuing through Majles elections in 2004, conservatives reestablished control over Iran's elected government institutions, which culminated with the August 2005 inauguration of hardliner Mahmud AHMADI-NEJAD as president. His controversial reelection in June 2009 sparked nationwide protests over allegations of electoral fraud, but the protests were quickly suppressed. Deteriorating economic conditions due primarily to government mismanagement and international sanctions prompted at least two major economically based protests in July and October 2012, but Iran's internal security situation remained stable. President AHMADI-NEJAD's independent streak angered regime establishment figures, including the Supreme Leader, leading to conservative opposition to his agenda for the last year of his presidency, and an alienation of his political supporters. In June 2013 Iranians elected a centrist cleric Dr. Hasan Fereidun ROHANI to the presidency. He is a longtime senior member in the regime, but has made promises of reforming society and Iran's foreign policy. The UN Security Council has passed a number of resolutions calling for Iran to suspend its uranium enrichment and reprocessing activities and comply with its IAEA obligations and responsibilities, and in July 2015 Iran and the five permanent members, plus Germany (P5+1) signed the JCPOA under which Iran agreed to restrictions on its nuclear program in exchange for sanctions relief. Iran held elections in 2016 for the AOE and Majles, resulting in a conservative-controlled AOE and a Majles that many Iranians perceive as more supportive of the ROHANI administration than the previous, conservative-dominated body. ROHANI was reelected president in May 2017. Economic concerns once again led to nationwide protests in December 2017 and January 2018 but they were contained by Iran's security services. Additional widespread economic protests broke out in November 2019 in response to the raised price of subsidized gasoline.

Decades of internal political disputes and low levels of foreign investment have led to underdevelopment in Pakistan. Pakistan has a large English-speaking population, with English-language skills less prevalent outside urban centers. Despite some progress in recent years in both security and energy, a challenging security environment, electricity shortages, and a burdensome investment climate have traditionally deterred investors. Agriculture accounts for one-fifth of output and two-fifths of employment. Textiles and apparel account for more than half of Pakistan's export earnings; Pakistan's failure to diversify its exports has left the country vulnerable to shifts in world demand. Pakistan's GDP growth has gradually increased since 2012, and was 5.3% in 2017. Official unemployment was 6% in 2017, but this fails to capture the true picture, because much of the economy is informal and underemployment remains high. Human development continues to lag behind most of the region.

In 2013, Pakistan embarked on a $6.3 billion IMF Extended Fund Facility, which focused on reducing energy shortages, stabilizing public finances, increasing revenue collection, and improving its balance of payments position. The program concluded in September 2016. Although Pakistan missed several structural reform criteria, it restored macroeconomic stability, improved its credit rating, and boosted growth. The Pakistani rupee has remained relatively stable against the US dollar since 2015, though it declined about 10% between November 2017 and March 2018. Balance of payments concerns have reemerged, however, as a result of a significant increase in imports and weak export and remittance growth.

Pakistan must continue to address several longstanding issues, including expanding investment in education, healthcare, and sanitation; adapting to the effects of climate change and natural disasters; improving the country's business environment; and widening the country's tax base. Given demographic challenges, Pakistan's leadership will be pressed to implement economic reforms, promote further development of the energy sector, and attract foreign investment to support sufficient economic growth necessary to employ its growing and rapidly urbanizing population, much of which is under the age of 25.

In an effort to boost development, Pakistan and China are implementing the "China-Pakistan Economic Corridor" (CPEC) with $60 billion in investments targeted towards energy and other infrastructure projects. Pakistan believes CPEC investments will enable growth rates of over 6% of GDP by laying the groundwork for increased exports. CPEC-related obligations, however, have raised IMF concern about Pakistan's capital outflows and external financing needs over the medium term.

Iran's economy is marked by statist policies, inefficiencies, and reliance on oil and gas exports, but Iran also possesses significant agricultural, industrial, and service sectors. The Iranian government directly owns and operates hundreds of state-owned enterprises and indirectly controls many companies affiliated with the country's security forces. Distortions - including corruption, price controls, subsidies, and a banking system holding billions of dollars of non-performing loans - weigh down the economy, undermining the potential for private-sector-led growth.

Private sector activity includes small-scale workshops, farming, some manufacturing, and services, in addition to medium-scale construction, cement production, mining, and metalworking. Significant informal market activity flourishes and corruption is widespread.

The lifting of most nuclear-related sanctions under the Joint Comprehensive Plan of Action (JCPOA) in January 2016 sparked a restoration of Iran's oil production and revenue that drove rapid GDP growth, but economic growth declined in 2017 as oil production plateaued. The economy continues to suffer from low levels of investment and declines in productivity since before the JCPOA, and from high levels of unemployment, especially among women and college-educated Iranian youth.

In May 2017, the re-election of President Hasan RUHANI generated widespread public expectations that the economic benefits of the JCPOA would expand and reach all levels of society. RUHANI will need to implement structural reforms that strengthen the banking sector and improve Iran's business climate to attract foreign investment and encourage the growth of the private sector. Sanctions that are not related to Iran's nuclear program remain in effect, and these-plus fears over the possible re-imposition of nuclear-related sanctions-will continue to deter foreign investors from engaging with Iran.

Pakistan's telecom market recently transitioned from a regulated state-owned monopoly to a deregulated competitive structure, now aided by foreign investment; moderate growth over the last six years, supported by a young population and a rising use of mobile services; telecom infrastructure is improving, with investments in mobile-cellular networks, fixed-line subscriptions declining; system consists of microwave radio relay, coaxial cable, fiber-optic cable, cellular, and satellite networks; 4G mobile services broadly available; 5G tests ongoing; data centers in major cities; mobile and broadband doing well and dominate over fixed-broadband sector; China-Pakistan Fiber Optic Project became operational in 2020; partner to Chinese Economic Corridor project; importer of broadcasting equipment and computers from China (2021)

various talks and confidence-building measures cautiously have begun to defuse tensions over Kashmir, particularly since the October 2005 earthquake in the region; Kashmir nevertheless remains the site of the world's largest and most militarized territorial dispute with portions under the de facto administration of China (Aksai Chin), India (Jammu and Kashmir), and Pakistan (Azad Kashmir and Northern Areas); UN Military Observer Group in India and Pakistan has maintained a small group of peacekeepers since 1949; India does not recognize Pakistan's ceding historic Kashmir lands to China in 1964; India and Pakistan have maintained their 2004 cease-fire in Kashmir and initiated discussions on defusing the armed standoff in the Siachen glacier region; Pakistan protests India's fencing the highly militarized Line of Control and construction of the Baglihar Dam on the Chenab River in Jammu and Kashmir, which is part of the larger dispute on water sharing of the Indus River and its tributaries; to defuse tensions and prepare for discussions on a maritime boundary, India and Pakistan seek technical resolution of the disputed boundary in Sir Creek estuary at the mouth of the Rann of Kutch in the Arabian Sea; Pakistani maps continue to show the Junagadh claim in India's Gujarat State; since 2002, with UN assistance, Pakistan has repatriated 3.8 million Afghan refugees, leaving about 2.6 million; Pakistan has sent troops across and built fences along some remote tribal areas of its treaty-defined Durand Line border with Afghanistan, which serve as bases for foreign terrorists and other illegal activities; Afghan, Coalition, and Pakistan military meet periodically to clarify the alignment of the boundary on the ground and on maps

Iran protests Afghanistan's limiting flow of dammed Helmand River tributaries during drought; Iraq's lack of a maritime boundary with Iran prompts jurisdiction disputes beyond the mouth of the Shatt al Arab in the Persian Gulf; Iran and UAE dispute Tunb Islands and Abu Musa Island, which are occupied by Iran; Azerbaijan, Kazakhstan, and Russia ratified Caspian seabed delimitation treaties based on equidistance, while Iran continues to insist on a one-fifth slice of the sea; Afghan and Iranian commissioners have discussed boundary monument densification and resurvey