This week, Iran signed a major long-term gas export contract with Pakistan and portrayed itself as a reliable supplier for its gas-hungry neighbors in an apparent response to Washington’s intense diplomatic efforts to isolate it over its uranium-enrichment program. Despite the boasting though, the Islamic Republic’s ability to become a significant gas exporter will be increasingly constrained by the new set of sanctions.

Under the $7.5 billion contract, Iran, with the world’s second-largest gas reserves (Russia’s reserves are larger), will sell Pakistan 750 million cubic feet per day for 25 years starting in 2014, once the Pakistani portion of the pipeline is completed. The volume can be increased to 1 bcf/d and the contract can be extended for five additional years.

Tehran has been offering its neighbors gas for years, from Turkey, Europe and its Arab neighbors in the Persian Gulf, to China as liquefied natural gas, but differences over pricing, concerns over Iran’s ability to meet demand, as well as Washington’s pressure over the past years, have derailed deals one after another.

The timing of the signing of the long-awaited contract with Pakistan, only weeks after the UN Security Council agreed to a fourth set of sanctions, is significant. Pakistan has brushed away criticism over the deal, while Iranian officials have used it to depict the country as immune to the new measures. Iran will “play a big role in meeting of the energy security” of the region, Oil Minister Masoud >Mirkazemi was quoted

“Pakistan is an old project. One of the reasons to reemphasize now is to create the impression they are not isolated and projects are going ahead as planned,” said Jonathan Stern, director of gas research of the Oxford Institute for Energy Studies. “The crucial thing now is what impact the international sanctions have on Iran’s ability to raise money,” Stern said. “It doesn’t look confidence inspiring.”

Iran current exports gas to Turkey, but it imports more from Turkmenistan and Azerbaijan to supply its disconnect northern region, a trend that will continue at least for this year. Its gas production in 2009 reached 12.7 bcf/d, a 13% increase from the year before. But all of that went to meet local demand, which increased in the same period almost 11%, according to the 2010 BP Statistical Review.

The pipeline to Pakistan, which was originally designed to reach India, was dubbed the Peace Pipeline, and involved building a 1,725-mile duct from Iran’s huge South Pars gas field, across Pakistan and into northern India, with both countries splitting 2.12 bcf/d.

India, which was concerned about the pipeline’s security in the territory of its longtime foe, withdrew after signing a nuclear deal with the US. Right up to the end, the Obama administration also offered Islamabad alternatives to Iranian gas imports, including help in building a regasification terminal to buy liquefied natural gas. But Pakistan’s soaring gas demand and power shortages weighed more. Officials there say the Iranian gas will power up to 5,000 megawatts of electricity generation capacity.

Only about 185 miles of the 745-mile gas pipeline in Iranian territory remain to be built. Additional production from South Pars which is already in advanced stages of development should allow the Iranians to meet the Pakistani demand. But the commitment, along with uncertainty over whether Iran will be able to decrease domestic demand, make any other major export commitments unlikely in the short term, especially as sanctions limit the ability to finance the remaining projects as Western powers target Iranian banks. Iranian banks are resorting to issuing euro bonds worth about $1.2 billion to jumpstart upstream projects.

“In theory, it’s feasible to do. But with politics it’s hard to tell,” said Manouchehr Takin, senior upstream analyst of the Centre for Global Energy Studies. “Iran has had difficulty buying and paying in international markets. The US has gone out of its way to twist the arms of oil companies.”

South Pars has some 450 tcf of gas reserves and currently produces around 7 bcf/d. Iran plans to develop the field in at least 24 phases to eventually reach around 30 bcf/d, or 81 percent of total production by the end of the country’s five-year master plan ending 2015. Meanwhile, officials expect local demand to drop 30% in the same period as a result of a subsidy reform plan already under way. But few analysts believe Iran, which is notorious for making empty promises in its energy sector, will be able to meet the production target, especially as financing becomes increasingly hard. “History is littered with Iranian contracts and deals to supply gas and most has not happened. The ones that have ultimately haven’t been a great success,” Stern said.

Western companies have all but frozen their operations as international pressure has mounted over Iran’s nuclear plans. Asian companies have picked up much of the work, but analysts doubt foreign companies will be willing to sink more money into Iran. “Chinese and Indians are there, but if you look at whole picture has been another reason of development of South Pars especially has been delayed,” Takin said.

Indeed, Iran’s Oil Ministry this week signed the six remaining phases of South Pars with Iranian companies, illustrating the difficulty of attracting more foreign expertise. Additionally, there are technological barriers, especially in regards to building the LNG facilities.

“In terms of gas volume, it’s capable of producing required volume to export. It’s more a case of when these projects are developed. In my view, implementation will not happen in the five years,” said Colin Lothian, Middle East upstream analyst with Wood Mackenzie, an energy consultancy.