Risk Analysis 2.0

Greetings, fellow risk enthusiasts!

Welcome to the weekend!

Let us see what has happened at the regional and global international political and strategic system and what lies ahead for all of us!

Pakistan:   IMF has reached a staff-level agreement with Pakistan regarding a $3 billion stand-by arrangement. Pakistan has eagerly anticipated this decision as the country was battling with the concerns of default are now diminished. As a result of this agreement, there has been a rapid rally of Pakistan's dollar bonds following the initial approval of the agreement on June 29.

The approved funding of $3 billion over nine months exceeds the initial expectations for Pakistan. The country had been awaiting the disbursement of the remaining $2.5 billion from a $6.5 billion bailout package that was agreed upon in 2019.

Furthermore, the promised deposits of $2 billion from Saudi Arabia and $1 billion from the United Arab Emirates have been made to bolster the State Bank of Pakistan's foreign exchange reserves.  The government views these developments as positive indicators of economic recovery, suggesting that the difficult times are over.

While it may be true that we have temporarily overcome the immediate challenges, it is essential to recognize that this bailout does not mark the end of our problems. After the initial euphoria, the dollar is still unstable as the government still lacks the trust that requires economic stability.

Against the backdrop of the IMF deal and the end of the incumbent government's term speculatively on 14 August, Pakistan finds itself on the cusp of a crucial electoral phase. However, the political landscape is fraught with internal divisions within the PDM government, leading to a struggle in formulating power-sharing arrangements and determining the approach towards the PTI led by populist leader Imran Khan.

The PDM, an opposition alliance comprising major parties such as the PML-N and the PPP, including JUI, faces internal rifts and disagreements over future power roles and strategies. The unity required for PDM to effectively challenge the PTI in the upcoming elections seems lacking and is absent. 

Amidst this power struggle, Imran Khan and his PTI party face growing criticism from the establishment while they are struggling to save themselves in the aftermath of the May 9 events. Imran Khan was recently blurred when he appeared on one a private TV channel creating shockwaves and questioning the state and government's approach toward free speech. Such actions further complicate the political landscape, casting doubts on the durability and essence of free and fair elections in the coming future.

These actions also might lead to Pakistan's global credibility as a thriving democracy, including that it may further impact its ongoing conversations on GSP plus status. The outcome of the elections will determine the country's future leadership and shape the relationship between political forces and the establishment. The coming months will be crucial in defining Pakistan's political trajectory and the balance of power in the nation.

Terrorism: Pakistan is confronted with a complex and multifaceted militancy challenge that is growing with each passing day. Recent events in Balochistan have highlighted the evolving nature of this threat, emphasizing the need for a comprehensive analysis. Two separate attacks occurred in Sui and Zhob areas, resulting in the tragic loss of 12 soldiers and a civilian and the elimination of seven militants.

The Baloch insurgent outfit claimed responsibility for the Sui attack, while the Tehreek-i-Jihad Pakistan claimed the assault on the military installation in Zhob Cantt. Speculation surrounding the latter suggests its affiliation with the TTP, although the group denies it.

new group is an independent faction inspired by the Islamic State's Khorasan chapter. This shape-shifting nature of the militant landscape further complicates the existing circumstances. Targeted killings are another form of terrorism that is attributed to the IS-K, and it asserts that approximately 60 IS-K members escaped from prison after the rise of the Taliban in Kabul and are active these days in the region.

Similarly, recently another breach of prisoners there from Chaman, Balochistan, triggered the speculation that these criminals are primarily supported by the terrorists to join their ranks, especially when they need new and fresh recruitments. The local authorities have said that these inmates might have escaped to Afghanistan.

Recently IS-K leader Sanaullah Ghafari was killed by Afghan Taliban, and the Kabul regime is still reluctant to take any decisive action again the other terrorist organizations in Afghanistan. TTP has taken a new dimension and has announced its new province with broader operations and fierce attacks on the state institutions.

TTP is using tactical and operational ways to engage and attack targets with renewed vigor and operational insight. It has recently increased its reach in Balochistan and the region where Afghanistan, Pakistan, and Iran are connecting.

The recent high-level visit of COAS of Pakistan to Iran is an important step in finding cooperation ways with the authorities in Tehran to build consensus in curbing the menace. Pakistan and regional countries must impress upon the Afghan Taliban the critical importance of dismantling militants of all affiliations. Failing to do so will result in an arduous and perpetual task.

The Afghan Taliban must recognize that eradicating terrorism requires a united front and concerted efforts from all stakeholders. Only through collaborative action can lasting peace and stability be achieved in the region.

NATO Summit

The recent NATO summit concluded after two days of meetings, gathering leaders from 37 countries and the EU in Latvia. Important attendance was from Sweden, as it is on the verge of becoming a member, as well as non-members such as Australia, Japan, New Zealand, Georgia, South Korea, and Ukraine.

The summit, although brief, was eventful and yielded significant outcomes.  Turkey has finally granted Sweden membership, but President Erdoğan stated that formal approval from Turkey's lawmakers would have to wait until their return from a break in October.

Ukraine expressed frustration over NATO's reluctance to provide a clear timeline for its accession, leading President Zelensky to vent his frustration through a strongly worded tweet that reportedly angered the US delegation.   However, it is important to note that despite Ukraine not becoming a NATO member, the country has managed to secure security guarantees from Western nations. Ukraine has received substantial military and humanitarian aid amounting to approximately $184 billion from January 2022 to May 2023.

This support underscores the international community's recognition of Ukraine's challenges and the importance of bolstering its defense capabilities. The summit's joint statement, an extensive document of 11,000 words, dedicated substantial attention to Russia as the region's "most significant and direct threat," as well as to China due to its "stated ambitions and coercive policies."

NATO has increasingly been vocal in directly addressing its adversaries in recent years. While NATO maintains an "open door" policy, it is important to understand that membership is not granted without careful consideration. Ukraine faces significant obstacles, primarily because it is currently at war with nuclear power.

NATO member states are hesitant to assume a treaty obligation that could potentially involve them directly in this conflict. Despite this, NATO continues to support Ukraine through other means. Although there were some contentious moments during the summit, the commitment to assist Ukraine remains strong and unwavering.

China has voiced its opposition to any NATO expansion into the Asia-Pacific region, warning of a resolute response. This highlights potential tensions between NATO and China, as the alliance's influence extends beyond the Euro-Atlantic region.

Indo-Pacific Warming Up 

The winds of change are blowing across Europe as the EU, its member states, and other NATO allies are shifting their foreign policy focus to the Indo-Pacific region. Germany, in particular, is making significant strides in this direction. With plans to send 240 armed troops to Australia for joint military exercises and the deployment of two warships to the region in 2024, Berlin is clearly signaling its intentions. 

Chief of the German Army, Alfons Mais, highlighted the importance of participating in the exercises, citing the economic interdependencies between Germany and the Indo-Pacific region. While Germany's involvement in the biannual joint drills is noteworthy, it is important to note that over 30,000 troops from 12 countries will be participating, making it a collective effort.  Germany is not alone in this shift of focus. 

The United Kingdom is on the verge of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a significant free trade agreement.  Italy has pledged to send a patrol vessel to Southeast Asia to engage in exercises with friendly navies. Lithuania, the Czech Republic, and Poland have recently published new Indo-Pacific strategies, underscoring their growing interest in the region.

After establishing Tripartite Security Pact between the US, UK, and Australia (AUKUS),  NATO took its initial steps toward realizing the concept of an "Indo-Pacific NATO." In 2022, NATO invited South Korean President Yoon Suk-yeol and Japanese Prime Minister Fumio Kishida as observers at the NATO Summit, marking the first-ever attendance of Asian leaders at such an event.

Subsequently, NATO Secretary General Jens Stoltenberg visited South Korea and Japan from January 29th to February 1st, 2023, engaging with these key US allies in the Indo-Pacific. During the visit, Stoltenberg emphasized the interconnectedness of security in the Indo-Pacific and Europe, affirming that NATO would continue prioritizing the defense of Europe and North America.

Japan and South Korea welcomed NATO's increasing interest in the region and expressed their commitment to strengthening cooperation through regular participation in NATO summits.

Furthermore, Japan wished to establish a permanent mission at NATO headquarters in 2023 to facilitate specific cooperation initiatives. However, that proposal was blocked by France.  

At a press conference, French President Emmanuel Macron stated that NATO should maintain its focus on the North Atlantic region. However, NATO Secretary General Jens Stoltenberg indicated that the idea of a liaison office in Tokyo was still under discussion. China previously expressed its opposition to a NATO office in Japan, stating that it would not be welcomed in the Asia-Pacific region.

At the summit, Stoltenberg and Japan's Prime Minister Fumio Kishida established a new partnership program, while NATO has also concluded similar arrangements with South Korea, Australia, and New Zealand.

The potential risks associated with NATO opening an office in Japan, from the perspective of China, include increased regional tensions, heightened military buildup, and deterioration of US-China relations.

China could perceive the presence of NATO in Japan as a direct challenge to its regional influence and security interests, leading to a further escalation of tensions in the Indo-Pacific.

This perception may prompt China to respond by intensifying its military activities and capabilities, potentially fueling an arms race in the region. Moreover, China may interpret NATO's move as a form of military encirclement or containment strategy, leading to a deterioration of relations between the United States and China.

These risks highlight the delicate balance that needs to be maintained in the region to avoid exacerbating conflicts and ensure stability in the evolving geopolitical landscape.

Grain Deal and Global Food Security

Concerns are emerging regarding the potential refusal of Russia to extend its participation in the Black Sea Grain Initiative, which is set to expire soon. This initiative has been crucial in allowing the smooth flow of grain from Ukraine's port of Odessa since last July, effectively mitigating the global food crisis that arose as a consequence of the Russia-Ukraine war.  Russia has presented two demands to extend the agreement: the reopening of the ammonia pipeline, which serves as a vital component in fertilizer production, and the reconnection of the Russian Agriculture Bank to the global payments network, SWIFT.  Regrettably, meeting these specific demands by the deadline seems unlikely. The provision of guaranteed ammonia shipments to the port was a prerequisite for Russia's agreement to the deal.

However, the ammonia pipeline suffered severe damage in an explosion, resulting in a blame game between Moscow and Kyiv, with neither party taking responsibility for repairs. Additionally, granting the Russian entity access to SWIFT lies within the jurisdiction of the European Union, and there is a lack of consensus among EU nations regarding this matter.  The potential repercussions of failing to renew the agreement are significant. Grain prices would escalate, exacerbating food price inflation and further worsening the global hunger crisis.  However, it is important to maintain a sense of optimism. The agreement has already been extended three times, even in the face of Russian threats to withdraw.

Furthermore, Russian President Vladimir Putin is well aware that the collapse of the deal would harm countries across the global south, some of which have close ties to Moscow. China, the world's largest wheat importer, has expressed support for extending the grain deal, emphasizing its importance. While concerns persist, there is still hope for a resolution. The international community must engage in diplomatic efforts to find a mutually beneficial solution that ensures the continuation of the Black Sea Grain Initiative. The implications of failing to do so could have severe consequences for global grain prices, food security, and the well-being of vulnerable populations worldwide.

US-China Engagement

US Treasury Secretary Janet Yellen recently concluded her visit to Beijing after engaging in several days of direct and productive talks with Chinese officials. The visit comes at a time when the Biden Administration grapples with finding the right balance in its economic policy towards China. Despite the challenges, Yellen's visit provided an opportunity for a fruitful engagement. Spending over 10 hours in meetings, she familiarized herself with China's new economic leadership.

The positive impression she left was evident in Chinese Premier Li Qiang's statement, where he expressed optimism that China-US ties can overcome challenges and see "rainbows" after enduring a period of "wind and rain."Yesterday, another high-level meeting took place between US Secretary of State Antony Blinken and top Chinese diplomat Wang Yi in Jakarta, reflecting ongoing efforts to stabilize the relationship between the two countries.

The discussions, described as candid and constructive, aimed to address bilateral, regional, and global issues. This meeting followed a previous round of talks in Beijing, indicating a commitment to sustained engagement. Despite the absence of breakthroughs, the meeting served as a follow-up, allowing the diplomats to delve deeper into areas of difference and potential cooperation.

The discussions emphasized the importance of taking concrete actions and advancing the vision of a free, open, and rules-based international order. Blinken underscored the significance of maintaining peace and stability across the Taiwan Strait.

At the same time, Wang urged the US to adopt a rational and pragmatic approach, expand diplomatic and security communications, and promote people-to-people exchanges.

Various issues were discussed related to Fentanyl and its global flow, challenges of cybersecurity, and military-to-military communications as they are frozen till the writing of this analysis. It was urged to maintain communication channels among the militaries and diplomats. 

In the coming days, US climate envoy John Kerry is scheduled to visit China to restart climate negotiations, which were suspended last year. This indicates a willingness to address global challenges collaboratively, even amidst other contentious issues. 

These meetings reflect a resumption of diplomatic engagement between the US and China, with discussions set to continue on various fronts. The Biden administration acknowledges the complexity of the relationship and the need for sustained efforts to stabilize it.

As officials from both countries travel and engage in dialogue, there is hope for progress in managing key challenges and fostering a more stable bilateral relationship.

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Dr. Farhat Asif

*The views and analysis presented in this document are solely my own and should not be attributed to the organizations that I am associated with or hold leadership positions in.