The author analyses in depth the long-lasting territorial dispute between India and Pakistan over Sir Creek situated in the Indus Delta and the neighboring area. This area is of great importance for the economy and security of the two nations. The article encompasses an overview of the historic background of the dispute and highlights both Indian and Pakistani positions during the negotiation process. The author looks at the legal aspects of the territorial dispute, including an overview of international rules relevant to regulating the dispute. The paper highlights the economic significance of the area from different perspectives including the importance of fishing for local populations as well as energy security, crucial for such emerging economies as India and Pakistan. The significance of the area in terms of defense and security, especially in the context of combating terrorism is also considered. The author argues that the territorial dispute is not likely to be resolved in the short or medium term. Both India and Pakistan will continue to refer to the international rules that are consistent with their stances in the dispute, and the situation in the region is likely to become more and more explosive. The author uses historical methods to compare the positions of India and Pakistan over time and to scrutinize the role of the territorial dispute in the Indo-Pakistani relation, analyses and interprets official statements concerning the territorial dispute and applies statistical methods to assess the economic potential of the disputed area.