Geopolitical Risk Mitigation in South Asia: Emerging Opportunities in Pakistan's Energy and Infrastructure Sectors Amid Taliban Dynamics

Pakistan's energy and infrastructure sectors are at a pivotal crossroads, shaped by a confluence of domestic economic pressures, Chinese investment dynamics, and the evolving geopolitical landscape in post-Taliban Afghanistan. As the country seeks to address chronic energy shortages and reduce reliance on imported fossil fuels, emerging projects under the China-Pakistan Economic Corridor (CPEC) and regional energy partnerships offer both promise and peril. This analysis explores how Pakistan's strategic investments in energy and infrastructure are being recalibrated to mitigate geopolitical risks while capitalizing on new opportunities in a shifting South Asian order.

The Energy Sector: A Tale of Overcapacity and Underperformance

Pakistan's power generation capacity has surged to 42,131 MW as of 2023, nearly double its domestic demand, yet the nation continues to grapple with persistent load-shedding and high electricity costs, as reported in China in Pakistan's power sector. This paradox stems from inefficiencies in the Independent Power Producer (IPP) model, particularly with Chinese-backed projects under CPEC. These contracts, often structured with guaranteed returns and "take or pay" clauses, have exacerbated circular debt in the energy sector, reaching PKR 2.9 trillion in early 2025, according to a South Asian Voices analysis. To address this, the government has terminated several unviable IPP agreements and shifted to "take and pay" models, which tie payments to actual energy production, as the Diplomat article observes.

Simultaneously, Pakistan is pivoting toward renewable energy to meet its 2030 climate goals. The Fast-track Solar Initiative aims to add 6,000 MW of solar capacity, while hydropower projects like Mohmand Dam and Dasu are expected to boost clean energy output to 19,500 MW by 2029, according to Transforming Pakistan's Energy Landscape. However, World Bank concerns over renegotiated wind and solar contracts highlight the fragility of these transitions, as noted in the South Asian Voices analysis.

CPEC 2.0 and the Geopolitical Chessboard

The China-Pakistan Economic Corridor (CPEC), a cornerstone of Beijing's Belt and Road Initiative (BRI), has evolved into CPEC 2.0, emphasizing sustainable development and regional integration. By 2025, 38 CPEC projects worth $25 billion have been completed, including 17 energy projects and infrastructure upgrades like the Gwadar Port and New Gwadar International Airport, the Nation reports. These projects are now aligned with Pakistan's 5Es framework (Energy, Environment, Economy, Education, and Employment), signaling a shift toward balanced growth, the Nation adds.

Yet, CPEC's future is intertwined with Afghanistan's post-Taliban stability. A trilateral meeting in August 2025 between China, Pakistan, and the Taliban-led Afghan government underscored efforts to extend CPEC into Afghanistan, enhancing regional connectivity and counterterrorism cooperation, as covered in China, Afghanistan, and Pakistan's Engagement. This initiative, however, faces challenges such as the Taliban's unilateral hydroelectric projects on the Kunar River, which threaten Pakistan's water security, according to Taliban's energy project. Such tensions highlight the delicate balance between economic integration and transboundary resource management.

TAPI Pipeline: A Test of Regional Trust

The Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline, designed to transport 33 billion cubic meters of natural gas annually, remains a litmus test for South Asian cooperation. While the Taliban has offered security assurances to revive the project, India's participation is contingent on resolving pricing disputes and transit risks, analysts note in a TAPI pipeline piece. India's benchmark price for Turkmen gas-$10.5 per mmBtu-far exceeds domestic rates, raising concerns about economic viability, the Jamestown analysis explains. For Pakistan, the pipeline's success hinges on India's commitment, as transit fees are critical to offsetting project costs, the same analysis adds.

Mitigating Risks in a Volatile Landscape

Pakistan's energy strategy is further complicated by its reliance on imported fossil fuels, which consume 30% of foreign exchange, the Friday Times reports. The government's National Electricity Plan 2023-2027 aims to increase local energy resources to 75% by 2030, but progress is hampered by policy inconsistencies and infrastructure gaps, the Friday Times notes. Meanwhile, the TAPI pipeline's geopolitical risks-such as U.S. sanctions on Iran or India-Pakistan tensions-underscore the need for diversified energy partnerships, as argued in Redefining energy diplomacy.

Conclusion: Balancing Ambition and Pragmatism

Pakistan's energy and infrastructure investments present a dual-edged sword: transformative potential amid significant geopolitical and financial risks. While CPEC 2.0 and renewable energy initiatives offer pathways to energy security, their success depends on resolving contractual inefficiencies, securing regional cooperation, and navigating the complexities of post-Taliban diplomacy. For investors, the key lies in aligning with projects that prioritize sustainability, regional stability, and adaptive governance-ensuring that Pakistan's energy renaissance does not become a casualty of its volatile geopolitical environment.