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    China’s Scary Challenges to India P. Stobdan November 18, 2008

    External Affairs Minister Pranab Mukherjee's recent outburst that China poses a security challenge indicates a dangerous ambiguity in India’s China policy. The fact that Mukherjee has aired such a view after his intense and long diplomatic rapport with the leadership of that country needs to be noted seriously. It is not that China has not been a puzzle to Indian strategic thinkers. Even former Defence Minister George Fernandes considered China as India’s number one enemy, but his views were transformed after he paid an official visit to Beijing.

    External Affairs Minister Pranab Mukherjee's recent outburst that China poses a security challenge indicates a dangerous ambiguity in India’s China policy. The fact that Mukherjee has aired such a view after his intense and long diplomatic rapport with the leadership of that country needs to be noted seriously. It is not that China has not been a puzzle to Indian strategic thinkers. Even former Defence Minister George Fernandes considered China as India’s number one enemy, but his views were transformed after he paid an official visit to Beijing.

    Earlier this year, even the most credible Indian newspaper editorials praised the UPA government for its supple and imaginative China policy. The Indian leadership was enthused by the growing bonhomie with China, stimulated by Congress President Sonia Gandhi’s 2007 trip to China. Until January 2008, the rhetoric was “we are partners not rivals. We each have our own strengths. We must learn to respect each other, trust, and understand each other without asking ‘who would outdo whom’.” Among other things, the Chinese were indicating their willingness to support New Delhi's aspirations for membership in the UN Security Council, pledged to support India’s desire to engage in nuclear commerce, expressed the desire to deepen economic and military ties, and even showed commitment for resolving the vexed boundary problem.

    The atmospherics however changed after leaders on both sides described the talks as "constructive" and "forward looking”. As bilateral trade was swelling up to $40 billion, Prime Minister Manmohan Singh called Indian businessmen to warm up to China and took up the case for allowing Chinese companies to develop a stake in India. There was optimism, going by the Chinese expression of interest in civil nuclear commerce with India, that Beijing would not stall India’s case at the Nuclear Suppliers Group (NSG). Besides, there was a renewed Chinese commitment to abide by the 2005 agreement not to include populated areas within the gambit of any settlement of the boundary dispute. The dramatic turn in relations was construed as a mark of recognition of India's rise as a political and economic power and Beijing's resultant desire for engagement.

    Why is there a dramatic shift in South Block’s threat perception on China? Those tracking India-China relations have noticed that the cracks began to form in the summer when the PLA laid claims to a small tract (2.1 square kilometres) called “Finger Area” in Sikkim. This was at a time when India was busy protecting China’s face, which came under intense international focus in the wake of protests by Tibetans, and was ensuring that the Olympic torch relay went off peacefully in New Delhi. But China surprisingly brought Sikkim on to the table during Pranab Mukherjee’s visit to Beijing in July 2008, in contrast to India’s belief that China had implicitly recognised Indian sovereignty over Sikkim in 2003. Mukherjee’s visit was a disappointment as China showed no signs of constructively moving ahead to settle substantive issues. Mukherjee may have got a taste of things when Beijing snubbed him by cancelling his well-in-advance planned meeting with Premier Wen Jiabao.

    China’s last minute effort to introduce a red herring at the NSG in Vienna may have struck deep at Mukherjee’s heart. Beijing’s role, despite assurances from the highest leadership, left bitterness in Indian minds. While the Congress Party may have forgiven the Chinese over the incident, South Block Mandarins have not.

    South Block has been occasionally airing the view that New Delhi and Beijing were “comfortable in their ties with each other”, that they are broad-basing their association through intensive trade and that they are maintaining peace and tranquillity along the border. When Indian Army Chief General Deepak Kapoor raised an alarm about the rising number of Chinese "incursions" across the Line of Actual Control (LAC), the Government told him that it was not his job to speak on geopolitics. But the seriousness of the situation did make the Prime Minister and the External affairs Minister to accept that incursions have been taking place. Amidst a hardening of China’s posture, the PLA stepped up incursions across the LAC. China’s rigid stance on the long-festering boundary problem may have forced Mukherjee to reassess his perception on China. Reports about China building up pressure on India in the Northeast by supplying arms and explosives to insurgent groups could have acted as a threat multiplier.

    What may have irked Mukherjee the most is China’s renewed bid to thwart India’s chance to find a permanent seat in the UNSC. In fact, soon after the NSG episode, China attended a closed door meeting on September 26 of the ‘Coffee Club’ countries chaired by Italian Foreign Minister Franco Frattini that opposed the UNGA’s efforts to forge a consensus on UNSC expansion. As the UNGA sets February 29, 2009 as the deadline for the negotiations, China is expected to lobby openly against the G4’s (Germany, Brazil, India, and Japan) formula for a consensus on the expansion model. This is yet another proof of China backtracking from its earlier stated position to support India’s aspirations to enter the UNSC.

    Interestingly, Pranab Mukherjee also referred to the Prime Minister’s growing concerns on the future of trans-border rivers during his visit to China last month. In the coming years, China’s surprise actions in the Himalayas could bring fresh shivers in New Delhi. Despite Beijing’s denial, China is likely to go ahead with the project to divert the Brahmaputra as early as next year or by 2010. The Indian media recently missed the news that PLA engineers on October 14 have resumed a major strategic road construction programme to link Tibet’s last road-less Medog County from where the Brahmaputra takes a U-turn at the Great Bend and enters Arunachal Pradesh. The road project is linked to a dam construction plan at the Yalung Tsangpo River, aimed at diverting a major portion of its waters (200 billion cubic metres) to Northern China.

    China’s propensity for big hydro projects to support its hyper economic growth could portend real time and unthinkable catastrophe of water stress for downstream countries. Building the railway to Tibet was clearly meant to resolve China’s water dilemma. Many environmentalists and security experts feel that China is circumspect about Tibet’s hydro resources. The issue is politically sensitive and therefore does not get enough attention, but it is fraught with critical strategic importance. India’s traditional response to trans-border issues has been meek so far, perhaps daunted by the fear of China’s quick mobilization in Tibet. Beijing has been avoiding an agreement on the protection of the trans-Himalayan Rivers and has limited its cooperation with India to sharing of hydrological data. Any intention to extend the velvet glove to Beijing would amount to chopping off the tree branch India is sitting on. The Economist Prime Minister surely understands the implications. As we move ahead into 2009, there would be several such incidents cropping up, which would strike at the core of mutual trust that was supposed to have been built painstakingly over the years between India and China.

    India, Tibet, India-China Relations, Arunachal Pradesh, China East Asia IDSA COMMENT
    Talking Peace Across the Taiwan Straits Raviprasad Narayanan November 14, 2008

    If current developments are any indicator, the long road to economic integration on either side of the Taiwan Straits has commenced. In a first of its kind, a sixty member delegation led by Chen Yunlin, Chairman of the Association for Relations Across the Taiwan Straits (ARATS) visited Taiwan from November 3-7, 2008 to hold talks with his counterpart Chiang Pin-kung, Chairman of the Straits Exchange Foundation (SEF). ARATS and SEF are two non-governmental organisations authorised by China and Taiwan in the early 1990s to examine the entire gamut of cross-Strait relations.

    If current developments are any indicator, the long road to economic integration on either side of the Taiwan Straits has commenced. In a first of its kind, a sixty member delegation led by Chen Yunlin, Chairman of the Association for Relations Across the Taiwan Straits (ARATS) visited Taiwan from November 3-7, 2008 to hold talks with his counterpart Chiang Pin-kung, Chairman of the Straits Exchange Foundation (SEF). ARATS and SEF are two non-governmental organisations authorised by China and Taiwan in the early 1990s to examine the entire gamut of cross-Strait relations. ARATS takes its brief from the Taiwan Office of the State Council in Beijing, while the SEF is guided by the Mainland Affairs Council, a cabinet level agency that deliberates policies towards the mainland in Taipei. Before his current designation as Chairman of ARATS, Chen Yunlin was heading the powerful Taiwan Office at the State Council.

    Four agreements were signed during the course of the contentious visit – on direct flights, direct sea transport, the postal services and food safety. With June 22, 2009 set as a date for starting direct passenger flights between the two sides, the air transport agreement, while falling short of an ‘open skies policy’, increases the number of chartered direct flights from 38 to 108 each week. Hong Kong and Macau will continue as transit points for passenger flights. By this agreement Taiwan hopes to attract tourists from the mainland on a regular basis. The agreement on food safety was necessitated by the ‘melamine incident’ in China that has led to a worldwide recall of dairy products and pet food produced on the mainland. The ‘melamine incident’ has made distributors and bakeries suffer huge losses in lost sales in Taiwan and there are proposals calling for the mainland to compensate for the losses incurred.

    According to the China Post published from Taipei, the Chairman of the SEF, Chiang pin-Kung portrayed the agreements as “getting the distance between the two sides of the Taiwan Strait ever closer not only substantially but also in form.” ARATS and SEF also agreed to have a systematic dialogue process every six months. Three agreements – on direct flights to the mainland, direct sea transport and direct mail, are expected to go into effect within six weeks after they are ratified by the Legislative Yuan in Taipei.

    During the course of a choreographed seven minute meeting at the Taipei Guest House, the President of Taiwan, Ma Ying-jeou told the Chairman of ARATS that “Beijing should give Taipei more Lebensraum (perhaps Ma Ying-jeou needs to find another expression, as this term did lead to grave historical crises seven decades ago in Europe) to manoeuvre in international relations.” The reasoning behind this statement is that Beijing should not place obstacles in Taiwan’s path as it seeks membership of international organisations such as the World Health Organisation (WHO). To deflect criticism that he is genuflecting towards Beijing, Ma Ying-jeou reiterated his “three no’s” policy towards China premised upon – “no independence”, “no unification” and “no war” and that “the people of Taiwan were alone to decide their future.” Speaking the language of peace and accommodation – in striking contrast to that of his predecessor – Ma Ying-jeou raised five points of a possible convergence of political vision. Quoted in the China Post, he said, the “the two sides of the strait should face the reality, shouldn't negate each other, should promote the well-being of the people, should proactively deal with disputes by peaceful means, and should expand bilateral cooperation.”

    The signing of the four agreements seemed to be the easier task as the ARATS Chairman and his entourage had to face the ire of opposition parties and organisations opposed to their five day visit. At a reception hosted at the Grand Formosa Regent Hotel by Wu Po-hsiung, Chairman of the ruling Kuomintang (KMT) party, the ARATS delegation was “sieged-in” by demonstrators opposed to their presence in Taipei as also those who feel that Ma Ying-jeou is taking Taiwan into politically indefensible territory by encouraging ties with Beijing which has deeply divided the polity and society in Taiwan. For the DPP, much demoralised after the drubbing in the polls which brought the KMT to power, the contentious issue of closer economic relations with China is politically loaded. The DPP’s charge of ‘concessions’ by the Ma Ying-jeou administration towards China has enthused its rank and file, which until recently was dejected by the corruption charges levelled against former President Chen Shui-bian and his immediate family. DPP lawmakers have even gone to the extent of asking Ma Ying-jeou to “end his life” and accuse him of having brought “shame” upon Taiwan by meeting Chen Yunlin. The chairwoman of the DPP, Tsai Ing-wen, accused Ma of “denigrating the dignity and downgrading the sovereignty of the Republic of China.” In his defence, Ma Ying-jeou justifies his policy of engaging Beijing as flowing from the 1992 consensus, which favoured dialogue between Taipei and Beijing and which was scripted by none other than former President Lee Teng-hui, an icon to many in Taiwan and much reviled in Beijing.

    With the ball rolling, the next meeting of ARATS and SEF in Beijing has drawn up a list of issues to focus upon – fighting organised crime, improving quarantine, investment protection, fisheries, educational exchanges and financial co-operation. The importance of financial co-operation has been necessitated by the global financial crisis, which has left in its wake the need for countries and entities of the region to work out mechanisms to protect themselves from its fallout. To conclude, while the pro-active policy of Ma Ying-jeou is yielding dividends to some segments of Taiwan’s polity and economy, the deep divisions resulting from his approach make it necessary for the current leadership to engage the legislature and wider civil society in a comprehensive manner to garner wider support for an ‘economic embrace’ with Beijing.

    Taiwan, China East Asia IDSA COMMENT
    The October 30 Terrorist Attacks in Assam Namrata Goswami, Dilip Gogoi November 14, 2008

    The year 2008 has seen terrorist attacks in Jaipur, Bangalore, Ahmedabad, New Delhi, Agartala, Imphal, and now Assam. The month of October alone witnessed terrorist attacks in Tripura and Manipur, before the October 30 serial bomb blasts in Assam. On October 1, four explosions in Agartala left two civilians dead and nearly 100 injured, while the blasts in Imphal on October 21 killed 18 civilians. The 9 serial blasts in Assam on October 30 killed 83 civilians and injured more than 300.

    The year 2008 has seen terrorist attacks in Jaipur, Bangalore, Ahmedabad, New Delhi, Agartala, Imphal, and now Assam. The month of October alone witnessed terrorist attacks in Tripura and Manipur, before the October 30 serial bomb blasts in Assam. On October 1, four explosions in Agartala left two civilians dead and nearly 100 injured, while the blasts in Imphal on October 21 killed 18 civilians. The 9 serial blasts in Assam on October 30 killed 83 civilians and injured more than 300. The pattern of these terrorist attacks seems to indicate a seamless web of connection among terrorist outfits across the length and breadth of the country. Similarities between the bomb blasts are striking: public places especially market areas have been targeted aimed at causing civilian deaths. The Assam blasts had an added brutality: the use of car bombs packed with RDX and ammonium nitrate. The blasts in other cities like Jaipur, Ahmedabad or New Delhi earlier were of a lower intensity.

    In the immediate aftermath of the blasts, a hitherto unknown outfit calling itself Islamic Security Force (Indian Mujahideen) or ISF (IM) was held responsible for the blasts by the Assam Police based on an SMS it supposedly sent to a Guwahati based television news channel News Live, claiming responsibility for this dastardly act. Incidentally, the Islamic Security Force, without any link to the Indian Mujahideen, was formed in 2000 during the Bodo separatist movement with the aim of protecting the interests of Muslim migrant settlers in the Bodo dominated district of Kokrajhar. However, no evidence of terror activities by the ISF had come to light before October 30. It may be possible that the ISF has begun to collaborate with the Indian Mujahideen – responsible for the terrorist attacks in Jaipur, Ahmedabad and New Delhi. It must be noted that the authenticity of the SMS has since been questioned and the Assam Police has subsequently stated that it could be a “hoax” aimed at misleading investigations.

    The Security Forces have also asserted that the United Liberation Front of Asom (ULFA) and the Harkat-ul-Jehadi-e-Islami (HuJI) joined forces to carry out the Assam blasts. But ULFA has denied any involvement in the blasts. The HuJI’s involvement has been inferred from the use of RDX. Security Forces also argue that since ULFA is a discredited force in Assam the outfit might want to terrorize people into supporting its so-called cause of Independent Sovereign Asom. This is, however, a highly unlikely proposition. ULFA had learnt its lessons after its 2004 indiscriminate bomb blasts at Dhemaji district which killed 10 school children and seven others. The public outcry against the outfit at that time resulted in diminished ULFA influence. Hence, ULFA would avoid targeting the ethnic group it claims to represent for fear of a fresh public outcry against the outfit. Also, ULFA has no base in Kokrajhar, and thus it is not easy for it to carry out blasts there. Logically too, the outfit would avoid from being openly seen as collaborating with HuJI in carrying out deadly terrorist attacks in ethnic Assamese inhabited areas, for this would further alienate the outfit from its already limited support base.

    Fresh evidence put forth by the Assam Police now suggests that the National Democratic Front of Bodoland (NDFB) engineered the attacks based on orders issued by its founder and chief, Rajan Daimary, in September 2008. The attacks are seen as a kind of “signalling” to communicate the NDFB’s growing frustration of at the lack of progress in its talks with the Union government. The police further assert that ULFA provided the infrastructural backup to the NDFB to carry out the attacks, and that ULFA military chief Paresh Barua, who is based in Bangladesh, was desperate to showcase his outfit’s lethality against the backdrop of its sagging reputation in Assam.

    It is too early to pass a conclusive verdict on the identity of the perpetrators of October 30 terrorist attacks given the multiple theories being floated by the security agencies. However, each of the three outfits mentioned so far have motives to carry out these attacks. A major aim could be to terrorize a particular population base – ethnic Assamese or Bodo in the case of ISF (IM), Assamese in the case of ULFA, and Assamese as well as Bodos in the case of the NDFB. The blasts could also have been an act of coercive intimidation and response by either the ISF (IM) or the NDFB to the recent ethnic violence between ethnic Bodos and immigrant Muslim settlers in Darrang and Uddalguri, which led to the death of 60 people and the displacement of more than 100,000 people. Another motive could be to destabilise Assam at the behest of external intelligence agencies like Pakistan’s Inter-Service Intelligence (ISI) and the Directorate of Field Intelligence (DGFI) of Bangladesh.

    As usual, various arms of the government have begun to blame each other for failure to prevent the terrorist attacks. The Army claims that it had warned the Assam government on several occasions of impending terrorist attacks being planned by the ULFA and HuJI. The Union Home Ministry had also warned the Assam government of an impending terror attack. But the state government blames the lack of actionable intelligence from the Army. Significantly, the claim of responsibility by the ISF (IM) or the recent police claims about the involvement of the NDFB further complicates the situation as the needle of suspicion is shifted from the ULFA and HuJI to two other outfits about whose activities the Army’s warnings had been silent about. This also absolves the Assam government from charges of complacency. Nonetheless, what is disturbing is the unpreparedness of the state machinery to handle the situation. The security forces are not equipped to handle the immediate post-blasts phase. Personnel of both security forces and the fire brigade failed to reach the affected locales in time.

    One commonly held point in Assam and elsewhere is that Bangladesh-based anti-India forces are actively indulging in terrorist activities from across the international border. This has also been highlighted by high level police and paramilitary officials. A porous border, continued illegal immigration, nexus between Bangladesh-based terror outfits and extra regional forces with local militant groups, and arms trafficking across the border, all make terrorist attacks like the October 30 serial blasts possible. But policy makers often tend to ignore the harsh realities of an ethnically volatile region and adopt an ad hoc strategy without a deeper understanding of the social and political contradictions existing on the ground. Even after 23 years of the signing of the Assam Accord, the fence along the India-Bangladesh border has not been completed. Both the Central and state governments have failed to check the flow of illegal migrants, upgrade the National Registrar of Citizens (NRC), arrest arms traffickers, and deal with armed movements. Instead, security forces have engaged in counter-insurgency operations without addressing the root causes of armed conflicts and countering external linkages.

    India has also been unable to sustain a dialogue mechanism with Bangladesh for resolution of the issue of illegal migrants. Till date, about 12 lakh Bangladeshi nationals have entered India legally with visa but have subsequently vanished without trace. This reflects the inability on the part of law enforcing agencies to perform the tasks of detecting and deporting these Bangladeshi citizens. If this is the state of affairs with regard to legal migrants, how can these agencies handle the flow of illegal migrants? The more worrying implication of this illegal flow of migrants in Assam is that local Muslims are being looked upon with suspicion by the other indigenous communities. Unless the core issues are settled and the root causes addressed through a well formulated strategy and with political conviction, bringing stability to this part of India is not going to be easy.

    Assam, Harkat-ul-Jehad-e-Islami (HuJI), National Democratic Front of Bodoland (NDFB), United Liberation Front of Asom (ULFA), Indian Mujahideen (IM) Terrorism & Internal Security IDSA COMMENT
    Kerala’s Emergence as a Terror Hub: Repeated Warnings Ignored A. Vinod Kumar November 11, 2008

    In August 2006, IDSA published a web commentary titled “Is Kerala emerging as India’s new terror hub?” The events of the past few months, especially the shocking revelation of militants from Kerala operating in Kashmir, have validated the concerns raised by this report.

    In August 2006, IDSA published a web commentary titled “Is Kerala emerging as India’s new terror hub?” The events of the past few months, especially the shocking revelation of militants from Kerala operating in Kashmir, have validated the concerns raised by this report.

    The August 2006 commentary was prompted by two extraordinary events in Kerala which were in fact indicative of a larger phenomenon of the state turning into a hub of extremist indoctrination and logistical transit point for transnational fundamentalist groups. The first was the arrest of Students Islamic Movement of India (SIMI) activists for illegal gatherings in Binanipuram near Kochi in August 2006 and the second was the burning of a Tamil Nadu government bus near Kochi in 2005 by members of the Peoples Democratic Party (PDP), protesting against the prolonged incarceration of their leader Abdul Nasser Madhani in Coimbatore.

    Investigators pursuing the terror attacks in Jaipur and Ahmedabad earlier this year had stumbled upon SIMI links originating from South India and had reportedly found out that some people involved in these two terror plots were part of the Binanipuram grouping, and later also were leading the training camps in Vagamon, a hilly tract in the Kerala-Tamil Nadu border. The SIMI activists who were arrested by the Kerala Police from Binanipuram in August 2006, were later let off without a proper perusal of the case.

    The second is the case of the bus burning by PDP activists. Around eight activists were arrested by the Kerala Police after the incident and then released on bail. Currently, news reports have highlighted the fears raised by the intelligence agencies that a handful of these youths could have made their way to Kashmir.

    With the gunning down of at least four militants from Kerala in the last few weeks in Kashmir, the Kerala Police is now trying to unravel a bigger network that is recruiting youths from Kerala for the Kashmir militancy. What they have stumbled upon in the past few weeks has shocked the security establishment and woken them from their slumber for ignoring repeated warnings of Kerala turning into terror hub and a launching pad for pan-Islamic fundamentalist groups operating in the rest of the country.

    During the last one month, the Kerala Police has nabbed some recruitment agents from Kochi and Kannur who had facilitated the recruitment of misguided youths from Kerala to join the ranks of jihadi groups in Kashmir. Investigators now suspect that at least 60-70 youths have mysteriously disappeared from the Kochi and Malabar belt and have could have landed up in Kashmir. The shocking revelation of Keralite youths becoming foot soldiers in the Kashmir militancy was first revealed in early October after the Jammu and Kashmir (J&K) Police gunned down a militant hailing from Kovalam in Thiruvananthapuram. Some documents written in Malayalam were found on his body which brought to light the first case of a Kerala link to Kashmir militancy.

    On October 7, two militants identified as Abdul Rehman and Muhammad Fayaz belonging to Kannur and Malappuram districts of Kerala were killed in a shootout with security forces in Lolab area of Kupwara district. Similarly on October 10, three more militants, which included two Keralites and one Pakistani national, were killed in another encounter in Kupwara district. The two from Kerala were identified as Muhammad Yasin and Faizu belonging to Ernakulam and Kannur districts respectively.

    Though the Kerala Police initially refused to accept this, they had to retract after the J&K Police reported gunning down more militants hailing from Kerala, which forced the Kerala Police to undertake raids in Kannur and Kochi. The arrest of two recruitment agents – Faisal and Jaleel - in Kochi and Kannur led to the revelation that over 60-70 youths could have gone to training camps in Kashmir and Pakistan-occupied Kashmir (PoK). Jaleel was under watch for some time for receiving telephone calls from one of the militants killed in Kashmir. In fact, the local media reported Jaleel confessing to sending over 300 youths from Kerala to Kashmir, though the Kerala Police denied such claims. Mohammed Yasin, who is originally a Christian hailing from Ernakulam, was a recent convert to Islam and was a history sheeter who made it to Kashmir in early October. The Kerala Police is now questioning an underworld gang leader in Kochi with whom Yasin was earlier involved in criminal activities.

    If the Kerala link to the Kashmir militancy was a new phenomenon which has rattled the security establishment, the alleged involvement of Keralite youths in the Jaipur and Ahmedabad bomb blasts revealed thepremeative radicalization of Muslim youths in Kerala duringin the the past few years linked to movements like the SIMI. While some SIMI activists and leaders from Kerala were already under the scanner for their involvement in the July 2006 serial bomb blasts in Mumbai, the arrest of a Bangalore-based software professional hailing from Kerala for the bomb blasts in Bangalore and Jaipur illustrated the level of indoctrination among Muslim youth as a key character of the new wave of home grown fundamentalism in the country.

    Though these revelations have caught the security establishment off guard it should be treated more as a case of repeated warnings being ignored about Kerala transforming into a haven for fundamentalist forces and logistics hub for pan-Islamic terrorist groups. The spurt in fundamentalist violence including intermittent small-scale explosions has been a regular phenomenon in the state during the last few years. Though radical groups first emerged after the Babri Masjid demolition, the first indication of such groups acquiring teeth was the abduction and suspected murder of reformist scholar Maulavi Abul Hassan Chekannur in July 1993. The seizure of pipe bombs (nitroglycerine charges in iron tubes) concealed in plastic bags under the Kadalundi Bridge in Malappuram in 1996 gave credence to fears of terror groups gaining roots and possible infiltration by Pakistan’s ISI among extremist groups in this region. Also, two Tamil Nadu bomb blast suspects had reportedly revealed during interrogation about their visits to Malappuram and training people in handling explosives during this period.

    Though many isolated events linked with fundamentalist groups continued at regular intervals, since 2005 a series of low-intensity explosions, like the ones in Kozhikode bus station and a fishing boat in a local harbour, and periodic arms seizures across the state were all ominous trends pointing to Kerala turning into an extremist flash point. Adding to this was Kerala’s strategic position as a transit point for hawala rackets. Two years back, the Kerala Police had netted an NRI from the Middle East with access to over Rs 10,000 crores of hawala money. It was believed that a chunk of this money could have been channeled by Pakistan-based groups to other parts of the country.

    Complementing such fears were the sporadic rise of newer groups with fundamentalist incarnations, which also highlighted the increasing radicalization of Muslim youth, especially in the Malabar belt, where organizations like the National Democratic Front (NDF) were blamed for orchestrating many instances of communal violence. The NDF have in recent years emerged as a strong alternative to groups like the Islamic Sevak Sangh (ISS) – which was formed by Abdul Nasser Madhani and later reincarnated as the Peoples Democratic Party (PDP). Madhani himself was incarcerated in Salem jail for a long time as an accused in the Coimbatore bomb blasts case.

    After the decline of the ISS and the ban on SIMI, the Kerala Police believes that the NDF, which masquerades as a human rights organization with a pseudo-political character, has been a favourite destination for former cadre of ISS and SIMI. Though the NDF leadership denies any extremist links, its cadre is suspected to be involved in many cases of extremist violence. In fact, Jaleel, who is arrested for recruiting youths for Kashmiri groups, was reportedly an NDF member. The NDF, while not denying Jaleel’s association with the NDF, had announced Jaleel’s expulsion from the group on October 29 well after the Kerala Police arrested him on October 18. A blame game is now on in Kerala with major political parties attacking one another for cultivating groups like the NDF.

    If NDF is one organization which has survived without risking a ban despite evidence of its extremist leanings, the same is not the case with SIMI, whose activities are now being monitored, though the damage has already been done. Being an organization with a strong base in Kerala, the SIMI has been functioning clandestinely in the sidelines after the ban. A splinter group led by C. A. M. Basheer, who hails from Ernakulam, is suspected to be involved in the July 2006 Mumbai blasts. Basheer, a trained aeronautical engineer, is known to have received training in Pakistan, and was already booked for his alleged role in the 2003 Mumbai blasts. With the police now suspecting that the Binanipuram and Vagamon meetings could have been launch pads for the Ahmedabad and Jaipur attacks strengthens the suspicion that home-grown terror modules with external assistance have been planning attacks for the past few years before unleashing themselves across the country this year.

    While central intelligence agencies have been actively pursuing these groups, especially after the Kadalundi episode, the same level of enthusiasm is not seen as far the efforts of the Kerala Police is concerned. The sheer incredulity with which the Kerala Police initially refused to accept the Kerala link to Kashmir militancy is typical of a demoralized police force unable to cope with the unprecedented security challenges faced by the state, known for its harmonious but sensitive communal mélange. For a mediocre police force acquainted with only petty crimes and political violence, the kind of extremist tendencies cropping up in the state is a professional challenge it is totally unprepared to tackle. Overand above such worries is the high level of politicisation of the Kerala Police, which has eroded its professional capabilities. Various judicial commissions have constantly referred to this aspect.

    Though the Kerala Police had acted quickly to round up SIMI activists in Binanipuram, the act of releasing them without proper follow-up, despite impounding seditious literature showing linkages with Pakistan-based terrorist groups, shows the lack of awareness and preparedness to meet such eventualities. Compounding such deficiencies is the failure of the state’s intelligence mechanism which could not track the activities in Vagamon, where some activists involved in recent terror attacks were allegedly trained. While lack of resources and manpower is an usual excuse, a media report recently pointed out that the Kerala Police was among the few state police wings which has not participated in the specialized anti-terror training for state forces conducted by the National Security Guards (NSG) in the past few years.

    With such tardy professionalism and politicisation curbing the effectiveness of the police force, it would be totally unprepared to tackle the contingencies that are expected to arise in the coming days from extremist elements in the state. Though Kerala itself has not witnessed any major terror attack, the mere fact that Kerala youths have traveled all the way to join the ranks of Kashmiri militants shows what is in store for the state. A nation-wide crackdown on extremists operating from the state would force them to implode within the peripheries of the state, thus disturbing its tender communal harmony.

    Students Islamic Movement of India (SIMI), Kerala, Terrorism Terrorism & Internal Security IDSA COMMENT
    Former Maoists In Ecological Task Force Units In Nepal P. K. Gautam November 11, 2008

    In the just concluded two-day conference at the IDSA on “Changing Political Context in India’s Neighbourhood: Prospects of Regional Cooperation”, Dr Hari P. Bhattaria from Tribhuvan University, Nepal alluded to the problem of integration of over 19,000 former Maoists in the Nepal Army or para-military forces in Security Sector Reforms.

    In the just concluded two-day conference at the IDSA on “Changing Political Context in India’s Neighbourhood: Prospects of Regional Cooperation”, Dr Hari P. Bhattaria from Tribhuvan University, Nepal alluded to the problem of integration of over 19,000 former Maoists in the Nepal Army or para-military forces in Security Sector Reforms.

    One suggestion that can be offered is that like the Indian Army, the Nepal Army can raise an Ecological Task Force (ETF) based on former combatants with adaptations and modifications to suit their needs. In terrain that is similar to the terrain and climate of Nepal, India’s Pithoragarh and Garhwal Himalayas region of Uttarakhand have raised two such units which are already performing tasks such as afforestation, watershed protection, control of desertification and soil stability with great success since the 1980s.

    Conceptually, the credit of the idea needs to be given to Dr Ernest Borlaug, the father of the green revolution, who in the early 1980s suggested the need for a disciplined force to undertake such tasks. The then Prime Minister, Shrimati Indira Gandhi, on observing the ecological degradation in the Himalayas, and displaying rare ecological insight, operationalised the idea by issuing an executive order to form an ETF of the Territorial Army. New age soldier scholars and the renowned United Nationpeace keeper, the late Brigadier Michael Harbottle of the United Kingdom,was inspired by the ETF. He recorded the unique work of the Indian Army’s ETF in his path-breaking work titled, “What is Proper Soldiering”. The monograph was a visionary work. This is borne out by the manner in which armed forces personnel all over the world are being employed. They are not only tasked with fighting wars, but are being used in disaster relief, ecological restoration and in UN peace keeping missions which demands deep understanding of ecological links to intra-state wars and maintaining peace. The linkage between ecological restoration and peace received proper recognition when in 2004 Ms. Wangari Maathai, Assistant Minister of Environment, Natural Resources and Wildlife, Kenya, was awarded the Nobel Peace Prize for planting trees.

    Where the Indian experience can be related to Nepal is the ETF’s work in Pithoragarh in regenerating abandoned agricultural land. A common notion is that such abandoned plots would regenerate by themselves. But this is not so. Similar problems exist in Nepal. Research also shows that Nepal needs to regenerate abandoned or former terraced field due to out-migration of village labour force to get jobs and earn income in the plains – a trend which is common to any mountain economy across the Himalayas. Careful land management is necessary even after such abandonment to minimize adverse geomorphic and ecological consequences.

    The Nepal Himalayas also suffer similar problems of fragmentation of land holdings as in India. Careful land management is necessary with new opportunities to develop commercial dairy.

    Another activity can be afforestation, as is being done in the Garhwal Himalayas. Degraded plots of forest land can be identified and an ETF raised for the same. It has been an Indian experience that one plot, after afforestation, can be handed over to the forest department after three to five years. The ETF then moves on to another plot. One lesson is that it is easy to plant trees and get media coverage; but survival of trees is like bring up a baby - it needs tender and full-time care and this is never followed through by the media. Plants have to be watered, provided manure, protected from grazing animals, wind and other threats. Nurseries have to be raised and pits dug for the future. While planting trees in urban areas is easy, protection of watershed and higher reaches cannot be done until a disciplined and dedicated force such as the military, is available throughout the year. The local soldiers also have traditional ecological knowledge and can easily connect with nature -- a gift which no forester can imbibe in the best universities in the world or in management schools with PhDs.

    Yet another area in which the ETF in Nepal can now be employed is in wild life protection as a special ETF. In the case of India , the proposal is gaining ground. Selected parks, wild life sanctuaries and other areas can be given to the ETF to check poaching and allow the endangered wildlife to survive.

    The days of the threat of an armed invasion of a neighbouring country are now over. Yet, due to forces of realism, armed forces are maintained as a dissuasive force. We should have no quarrel over this as all countries have militaries. But today, the new challenge is from non–military threats or non- traditional security issues. Degradation of Himalayan ecology, abnormal and accelerated melting of Himalayan glaciers leading to glacial lake outburst floods, floods in the plains, followed by drought and conversion of perennial rivers to seasonal, are the new challenges. Nepal’s Initial National Communication to the Conference of the Parties of the United Nations Framework Convention on Climate Change of July 2004 (Natcom) has acknowledged the increased deterioration of natural resources and environment. The UN Millennium Ecosystem Assessment Report, 2005, has concluded that the challenge of reversing the degradation of eco-systems while meeting increasing demands for their services can be partially met under some scenarios, but these involve significant changes in policies, institutions, and practices that are not currently under way. Many options exist to conserve or enhance specific eco-system services in ways that reduce negative trade-offs or which provide positive synergies with other eco-system services. Surely, an ETF is an option which has pure South Asian roots.

    Claiming funds from Clean Development Mechanism (CDM) of the Kyoto Protocol can also be attempted by Nepal through the performance of the ETF. Though adaptive measures on a massive scale have been alluded to in the Natcom, what is needed are funds. Trees planted for afforestation are carbon sinks and thus form mitigation measures to protect against climate change. In the second phase of the Kyoto Protocol (starting 2013), the negotiations for which began in full swing at Bali in December 2007, it had been proposed that Reducing Emissions from Deforestation and Degradation (REDD) should also be included in the Kyoto Protocol. Forests account for nearly 20 percent of carbon sinks. If Nepal can put forward a case for funds under a new CDM, based on REDD and link it to providing jobs for its former Maoists combatants, then two things will be achieved. First, a selective ETF can be raised in Nepal with the support of UN agencies for peace, including funding. The second is that a new ecological vision will get transmitted to the great nation of Nepal. It will then motivate the society to check deforestation and go back to traditional ecological knowledge. Thus ecological restoration will be a no regret option and will also lead to protection and preservation of the Himalayan watershed, soil, water and biological resources. Surely, the people of Nepal and the military can make a paradigm shift by protecting the ecology of the nation. This, of course, is a long- term strategy. Visionary policymakers in Nepal can now also explore this issue.

    India, Ecological Task Force (ETF), Green Revolution, Nepal Non-Traditional Security IDSA COMMENT
    The Need For Clarity In India’s Nuclear Doctrine Ali Ahmed November 11, 2008

    While the Draft Nuclear Doctrine of August 1999 was an elaborate document, the press release of the Cabinet Committee on Security on India’s operationalisation of its nuclear doctrine of January 4, 2003 was, on the other hand, very succinct.

    While the Draft Nuclear Doctrine of August 1999 was an elaborate document, the press release of the Cabinet Committee on Security on India’s operationalisation of its nuclear doctrine of January 4, 2003 was, on the other hand, very succinct. While reflexively it may be said that India’s doctrine is predicated on a nuclear retaliation of sufficient magnitude to inflict ‘unacceptable damage’ against nuclear use by an adversary against India or its forces anywhere, it is contended here that there has been a shift in the doctrine as explicated in the press release to potentially countenance ‘flexible response’. Since transparency in the nuclear doctrine is important for communication of nuclear intent to potential adversaries, there is a requirement of spelling out the nuclear doctrine in greater measure. This article brings to the fore the need for clarity by challenging the commonly held position that India’s doctrine is one of ‘assured destruction’ by making the case that it can equally be interpreted as ‘graduated deterrence’. In doing so, it highlights an area of potential confusion and recommends that this be addressed.

    The understanding widely held is that India’s nuclear doctrine is one of assured retaliation of a massive order or ‘assured destruction’ – defined as a strategy based on a high order counter value threat. This is explicable as it is in keeping with India’s philosophy regarding nuclear weapons as being ‘political weapons’ not meant for nuclear use. Their only utility is to deter the threat or use of nuclear weapons by adversaries against India. Since these are not meant for war fighting, they have a role in operationalising India’s philosophy of ‘deterrence by punishment’. This is in keeping with the other pillars of India’s nuclear doctrine, namely, No First Use, minimum credible deterrent, unilateral moratorium on testing and amenability to universal nuclear disarmament.

    The National Security Advisory Board came up with a Draft Nuclear Doctrine (Draft) positing ‘massive retaliation’ for consideration by the government in August 1999 after the Kargil conflict of that summer. In the Draft, the relevant portion has been articulated thus: “Any nuclear attack on India and its forces shall result in punitive retaliation with nuclear weapons to inflict damage unacceptable to the aggressor” {Para 2.3 (b)}.1In the wake of Operation Parakram of 2001-02, the government, through a press release from the Cabinet Committee on Security on January 4, 2003, confirmed the adoption of the nuclear doctrine that was explicated in a press release. The appropriate portion is extracted below:

    “(ii) A posture of “No First Use”: Nuclear weapons will only be used in retaliation against a nuclear attack on Indian territory or on Indian forces anywhere;

    (iii) Nuclear retaliation to a first strike will be massive and designed to inflict unacceptable damage.”2(Italics added)

    The doctrine is now one of ‘assured retaliation’ to nuclear use by an adversary with the proviso that this would be massive in the case of first strike. In other words, retaliation in face of sub ‘first strike’ levels or usage could be of a lower order. In effect, India’s nuclear doctrine has moved away from one of assuredly inflicting ‘unacceptable damage’ posited in the Draft to one that potentially includes ‘flexible’ or ‘graduated’ response. This shift from ‘assured destruction’ to ‘graduated deterrence’ has not been adequately registered in strategic commentaries, with most commentators continuing to believe that India’s nuclear doctrine continues to be one of retaliation of a massive order.

    In case the sub para (ii) of the press release (reproduced above) is being over-interpreted and meanings not meant to be derived are being arrived at here, then it points to the element of confusion induced by the press release - referred to in the introductory paragraph of this article. There is, therefore, a need to clarify to the strategic community, the interested public and indeed, more importantly, to potential adversaries, exactly what is intended. In case India’s nuclear deterrence is in accord with the popularly subscribed view in the strategic community, then the words ‘first strike’ would require to be substituted by ‘first use’ in a review of the doctrine. In such a case, the official doctrine requires to reiterate the Draft’s wordings that “India can and will retaliate with sufficient nuclear weapons to inflict destruction and punishment that the aggressor will find unacceptable” (Para 4.1) for any form of nuclear ‘first use’.

    Such a critique is not mere hair-splitting for these terms have specific definitions and are not inter-changeable. For the distinction, a resort to noted nuclear pundit Lawrence Freedman’s Evolution of Nuclear Strategy is in order. ‘First strike’ is the opening volley directed against largely counter-force targets with the intent of crippling the adversary’s means of nuclear retaliation.3 This would amount to nuclear first use of a high order against which massive retaliation would be rational, politically acceptable and legitimate.

    First strike is, however, not necessarily the only manner of nuclear first use. A sub-first strike level of nuclear first use is feasible and may even be rational and legally and politically sustainable in the circumstance of the conflict. Against such a form of nuclear first use, such as against military forces that threaten the nuclear threshold of a belligerent, ‘assured retaliation’, may not be the best response option and most certainly should not be the sole response option. On receipt of a nuclear first use by the enemy not amounting to ‘first strike’, several factors would impact nuclear decision making. These include the aspect of self-deterrence; the need for proportionality and discrimination in keeping with the laws of armed conflict; escalatory potential of response options; international pressures; economy of force considerations; need for equivalence between the crime and punishment; and the need to win subsequent peace. Therefore, ‘flexible response’ has much to recommend it. If this is the nuclear doctrine India has apparently moved to, it requires acknowledging this explicitly.

    It needs to be highlighted that the possibility of a shift away from ‘assured destruction’ through ‘massive retaliation’ was already thoughtfully worked into the Draft (Para 2.4) in the following manner:

    “India's peace time (Italics added) posture aims at convincing any potential aggressor that:

    (a) any threat of use of nuclear weapons against India shall invoke measures to counter the threat; and

    (b) any nuclear attack on India and its forces shall result in punitive retaliation with nuclear weapons to inflict damage unacceptable to the aggressor.”

    Interestingly, the term ‘massive’ has not been used in the Draft but finds mention in the press release. That it has not been used in the Draft indicates that retaliation need not have ‘massive’ connotations, so long as its quantum would make it ‘unacceptable’ to the aggressor. ‘Punitive retaliation’ to inflict ‘unacceptable’ damage does not necessarily require massive retaliation. Therefore, the quantum of retaliation was left as a matter of political and operational choice to be dictated by the circumstance. The decision maker is thus not constrained in the options available for nuclear retaliation, which could be massive while not being necessarily so.

    This is evident from the fact that the Draft does not mention the nature of the retaliation during war time, restricted as it is to the projection of the posture in peace time. For in-conflict deterrence posture to be different from a peace time posture is sensible and has been catered for in the Draft accordingly. Thus, the Draft has been a precursor for the officially adopted doctrine and there is an element of continuity between the two. The nature of the deterrent posture in war time not having been reflected on indicates that other options have not been ruled out. The Draft, in not overly restricting the government’s nuclear options, had potentially ruled in ‘flexible response’, which the official nuclear doctrine has virtually accepted. In case this is an incorrect impression, then there is no reason for the word ‘peace time’ to have figured in the Draft. It has evidently been used advisedly and calls for an interpretation along the line contended here.

    Such options could include a quid pro quo, quid pro quo plus or a spasmic strike, as posited by General Sundarji.4 While the peace time posture would appear to rule these out, the nature of the in-conflict deterrent posture – not having been explicated – cannot be said, ipso facto, to have ruled these out. India’s response is to be dictated by the guiding philosophy given in the Draft as: “India will not be the first to initiate a nuclear strike, but will respond with punitive retaliation should deterrence fail.” Action, informed by such intent, while ruling out quid pro quo, could still countenance a quid pro quo plus response. Since the press release explicitly mentions ‘massive’ retaliation only in case of first strike, it rules in the quid pro quo option also. In effect, India has now a nuclear deterrent posture that potentially rules in ‘flexible response’. This marked shift has not drawn any strategic comment and, on that account, requires deliberation by the strategic community and even perhaps, an elaboration by the National Security Coulcil.

    The Draft puts its function to serve only as a guide thus: “Details of policy and strategy concerning force structures, deployment and employment (Italics added) of nuclear forces will flow from this framework and will be laid down separately and kept under constant review (Para 1.6).” That this has been done has been communicated through the press release and, therefore, the same can be taken as authoritative. Since this is the critical source document informing thinking on India’s nuclear deterrence posture, there is a need to clarify exactly what is India’s nuclear posture. Is it ‘assured destruction’? Or, does it rule in ‘flexible response’?

    Here it must be acknowledged that the Draft was not to be taken as the government’s position, even though it was released for discussion by the then National Security Advisor and Principal Secretary to the Prime Minister, Shri B Mishra. That it was not the official position was clarified after its release by a senior minister in the NDA government, Shri Jaswant Singh. The Draft can, however, be taken as informing the doctrine officially adopted and explicated in the press release. There are elements of continuities and discontinuities between the two. However, the press release is the authoritative statement and is very clear. That it has, however, given rise to an interpretation at variance with the commonly held notion of Indian deterrence, there is a case for clarifying the issue. To this author, the official doctrine is indeed one positing ‘flexible response’ as evident from its use of ‘first strike’ as against ‘first use’ in the relevant sentence. That this fact has not been registered by the wider strategic community is why the point being raised here for wider debate.

    The only fallout from acknowledging the shift would be on India’s position that nuclear weapons are only for deterring. This is not affected in a major way by the shift to ‘flexible response’ since having a menu of options does not degrade deterrence. Instead, an ‘assured destruction’ posture is not credible against enemy nuclear first use of a lower order, such as a counter force attack on invading forces on his own territory. Therefore, there is a case for the shift and acknowledging the shift openly. The strategic commentaries that have largely missed the shift should also reflect on its implications. In this manner the public - that has a right to know in a democratic system - and the enemy - that needs to know as per deterrence theory – would be in a better position to appreciate the nuclear doctrine in the correct perspective.

    • 1. The Draft Report of the National Security Advisory Board on India’s Nuclear Doctrine is available at:
    • 2. Press release on India’s nuclear doctrine is available at:
    • 3. Freedman, L., Evolution of Nuclear Strategy; London, MacMillan Press, 1989 (2nd Edition), p. 135.
    • 4. Sundarji, K., Vision 2100: A Strategy for the Twenty First Century; New Delhi, Konark Publishers, 2003, pp. 146-153.
    India, Nuclear Doctrine Nuclear and Arms Control IDSA COMMENT
    Global Financial Crisis: Is there a Way Out? Arvind Gupta November 05, 2008

    President Bush will host the first ever financial summit of the G-20 on November 15, 2008 in Washington to discuss the current global financial crisis which threatens the economic and political stability through out the world. The crisis comes on the heels of an economic crisis in the global economy in the first half of 2008 which was characterised by a record level of oil prices, global food shortages, high inflation and rising inflation in most countries.

    President Bush will host the first ever financial summit of the G-20 on November 15, 2008 in Washington to discuss the current global financial crisis which threatens the economic and political stability through out the world. The crisis comes on the heels of an economic crisis in the global economy in the first half of 2008 which was characterised by a record level of oil prices, global food shortages, high inflation and rising inflation in most countries.

    The summit is likely to be attended by the top leaders of G-20 countries who account for over 80 percent of the world’s economy. The Summit will provide an opportunity to the world leaders to exchange views on the current crisis and also to explore the way out.

    The global financial meltdown, which began in the US with the sub-prime crisis in 2007 in the housing mortgage sector, has expanded to include financial, credit and currency markets. The unprecedented crisis in the global financial sector has led to the drying up of liquidity, which is the life line of the global economy. Stock markets have crashed all across the world by 40 to 80 percent of their peaks a few months ago. The world economy is teetering on the brink of recession. The oil prices have fallen to less than half of their all-time high just a few months ago.

    Unlike the 1997 economic crash which began in South East Asia but spared most of the world, the present crisis began in the developed countries and has spread to the rest of the world, touching the emerging economies like Russia, China, India and Brazil and East Europe. What is interesting to note is that the emerging economies are being hurt for no fault of theirs. The fault lies with the utterly irresponsible behaviour of the US financial system which has been characterised by doubtful innovation at the expense of common sense prudence. The emerging economies are affected because they are closely linked with the US and other developed countries through a myriad of pathways.

    The global response has been unprecedented too. The countries which have lectured the rest of the world on the benefits of deregulation and capitalism have rushed to save their banks and other flagship companies from collapsing by buying their tainted, toxic assets and by even taking them over through nationalisation. Major countries have come out with huge financial bailouts to save their banks and other financial institutions from collapsing. According to the Bank of England, global bailouts will amount to about 12 percent of global GDP of $60 trillion, i.e. about $7.2 trillion of taxpayers’ money. This will be spent on recapitalisation of banks, buying out their toxic assets, state guarantees and nationalisation.

    The US has worked out a $700 billion bailout package. Other countries are not far behind. The combined EU bailout packages are estimated to be about $2.3 trillion. UK’s bailout package amounts to about $692 billion; Germany has offered about $670 billion; France $490 billion; Ireland $545 billion and Spain $140 billion. Japan has announced $275 billion worth of bailout package. Several countries have coordinated their interest rate cuts to overcome liquidity problems. Despite these massive, unprecedented bailouts, the financial system remains risk prone and volatile. In a twist of irony, socialism, the dreaded word in the citadels of capitalist finance, is being bandied about freely. Karl Marx is once again in flavour.

    Despite these measures, the crisis continues unabated as reflected in the collapse of stock markets everywhere. The world is heading towards a recession. No one yet knows the depth of the crisis – how long will it continue and where is the world headed? About a dozen countries are in acute financial distress and require emergency aid.

    It is not the first time that the global financial system has suffered a crisis. The 1997 crash caused devastation in countries like Indonesia and Thailand. The bursting of the IT bubble in 2000 led to a recession in the US in 2001. The lowering of interest rates in the US to overcome the recession led to liberal lending through mortgages and the consequent building of the housing bubble which finally burst in 2007 in the shape of the sub-prime crisis. The innovative financial engineering concealed and dispersed the risk attached to bad lending practices of the lending institutions. Thus the roots of the present crisis lay in the previous crises.

    The current crisis will have unforeseen geopolitical consequences. The crisis may lead to the weakening of the US and the rewriting of new power equations in which the emerging economies will have a greater say, provided they weather the storm better than the developed countries.

    The crisis comes at a time when the US is bogged down in war in Iraq and Afghanistan without clear exit strategies. Winning these wars is important for the US and NATO. If the US goes into recession, will it be able to sustain the two ongoing wars simultaneously? Probably not. That will have a major follow-on effect on regional security. If the US withdraws from these wars prematurely without lasting settlements, it will be seen by its adversaries to have been defeated. That will raise serious doubts among allies about the US’ ability to fulfil its security commitments.

    Is this the moment China has been waiting for? China’s astronauts concluded a space walk mission in September 2008. Following the successful conclusion of the Olympics, China’s confidence is at an all-time high while there is doom and gloom in the US. China would be watching the US’ moves carefully.

    China may be able to weather the current financial crisis better than most countries because of its huge foreign currency reserves and healthy current account and budget surpluses. During the current crisis, its economy may slow down but still grow at 9 percent, an impressive growth by any standards. The Chinese economy may provide the anchor that the world needs badly in the time of current turbulence. If that happens, China’s prestige in the world will increase tremendously. The US may have to rely upon China to ride out the current storm. President Bush called President Hu Jintao at the height of the crisis and requested him not to withdraw Chinese investments from the US treasury bonds. China cooperated. China’s say in the management of the global financial institutions, dominated hitherto by the US, Europe and Japan, may grow.

    With some luck, India might be able to weather the storm and may also see its influence grow in the world. India’s economic growth is expected to slow down to 7 percent. India also has decent foreign exchange reserves. It has somewhat uncomfortable current account and budget deficits. It is heading towards general elections which might increase political stability. The Reserve Bank of India has taken some swift action to introduce liquidity in the system. The Indian banks have not been affected much by the subprime crisis as they had limited exposure to mortgage-backed securities in the US.

    Russia has been affected severely by the financial crisis. Its stock markets have crashed by over 80 percent in a few months and there has been flight of capital from the country. The steep fall in the price of oil will reduce government’s income. But the government has over $550 billion in reserves. This has helped the government to come out with a substantial bailout package for its own companies. The government has managed to stop the fall in the value of the rouble. The Russian leaders are confident that Russia will survive the storm. They have been at the forefront of demanding a total overhaul of the global financial system, multiple reserve currencies and the emergence of new global financial centres. Russia will see in the current crisis an opportunity for bolstering its international position which suffered following the war with Georgia in August.

    Europe is in bad shape. The European banks have been battered by the subprime crisis. The governments across Europe have come out with huge bail out packages to save their financial systems. Iceland, closely linked with Europe, is in dire need of money to save its economy. Poland and Hungary are also in serous trouble. The current financial crisis is going to increase the EU’s internal troubles which have divided it along many axes. The EU may have to patch up with Russia, which remains its most important supplier of energy and where a large amount of the EU’s investment is held up.

    Japan has also come up with a large bailout package. The rise in Yen carry-trade has adversely affected its exports. The rise in the prestige and status of China in the region will adversely impact Japan’s own standing.

    There will be other geopolitical consequences whose contours are not clear as yet. For instance, faced with global recession, the nations’ commitment to fight climate change may weaken as the priority would shift to economic recovery. It will be interesting to see whether there would be a reduction in global military expenditure as the governments’ revenues decline during the slowdown. An increase in unemployment due to world recession may increase youth violence and even terrorism. The achievement of the Millennium Development Goals may fall behind schedule. The FDI inflows may reduce, thereby hurting the developing economies. The fall in economic growth will reduce the capacity of various countries to undertake developmental measures. This will make the fight against poverty difficult. The response in each country will be different depending upon the depth and extent of recession.

    The G-20 summit is being held in the backdrop of above changes. What can it hope to achieve?

    1. The summit could take up the need for reform in the current global financial architecture. The innovative but highly risky financial engineering which profited from the risk associated with mortgage-backed securities through speculations has to be blamed for much of the present crisis. The summit may discuss ways and means of strengthening the oversight of financial institutions. Early warning systems and more regulation of the financial sector may be on the cards.
    2. The role of IMF and the World Bank may also come up for discussion. Many countries, particularly the emerging economies, may get more say in the running of these institutions. In the past, the IMF lending has been associated with strict conditionalities which have brought hardships to the recipient countries. The terms and conditions under which IMF should lend to the countries need to be discussed.
    3. International cooperation is needed to handle global instabilities which spread so fast. The present crisis has shown that countries can respond quickly in a coordinated fashion. This was evident when several countries cut their interest rates at the same time. This helped provide the liquidity to global markets. But this was a one-off action. What should be the nature of cooperation amongst the various countries and what should be the institutional mechanism to achieve this may be discussed at the Summit.
    4. Emerging economies, particularly those with cash rich sovereign funds, may be called upon to extend help to the developed countries

    .
    Russia has proposed a radical reform of the financial system. Russian President Medvedev has called for several reserve currencies and multiple financial centres. Russia is pushing for Moscow to become a financial centre. Thus, Moscow’s solution is to push for multipolarity in the international financial system. Putin said at the SCO meeting of Prime Ministers in October 2008: “The present turmoil in the global economy and on the world financial markets points to tectonic shifts in the structure of international relations; the flawed nature of monopolism has been manifested clearly in world finances and in the policy of economic egoism….In these conditions the collective structures of global management will have to act as arbiters, ensuring compatibility of their economic strategies,” he stressed. China has called for international cooperation to tackle the crisis.

    The summit will need to come to grips with the root of the present financial crisis which lay essentially in excessive greed and irresponsible behaviour of the financial institutions. Greater prudence and better supervision, coupled with an effective early warning system may be required to ensure that such a crisis does not recur in future. Greater participation of the emerging economies in the management of global financial institutions should also be ensured. However, care must be taken that greater controls do not stifle the markets altogether.

    India, Japan, Russia, Europe, G20, Financial Crisis, China IDSA COMMENT
    Violence in Pakistan: Trend Analysis September 2008 T. Khurshchev Singh, Alok Bansal November 03, 2008

    Although September coincides with the holy month of Ramzan in the Islamic calendar, the violence in Pakistan during the month surpassed that in August, which itself was the most violent month. Despite the fasting and sanctity accorded to Ramzan in Islam, it is also associated with Shahadat (martyrdom) and people laying down their life during this holy month are often considered Shaheeds (martyrs). This probably explains to some extent the extremely enhanced level of violence in Pakistan during September 2008 and why various Ramzan ceasefires negotiated in August and September floundered.

    Although September coincides with the holy month of Ramzan in the Islamic calendar, the violence in Pakistan during the month surpassed that in August, which itself was the most violent month. Despite the fasting and sanctity accorded to Ramzan in Islam, it is also associated with Shahadat (martyrdom) and people laying down their life during this holy month are often considered Shaheeds (martyrs). This probably explains to some extent the extremely enhanced level of violence in Pakistan during September 2008 and why various Ramzan ceasefires negotiated in August and September floundered. This article attempts to analyse the violence in Pakistan during September 2008 based on media reports.

    Like August, September has also surpassed all previous records of violence during a month. During the month, 1,342 lives were lost as against 1,303 during the previous month. However, what was significant was the increased number of civilian collateral casualties. Whilst the number of alleged militants killed declined from 818 to 727, and the number of security personnel from 131 to 59, the number of civilians killed rose significantly from 354 to 556. What is even more significant is that over 550 civilians were injured in collateral fire. High civilian casualties do not augur well for the region as it removes the middle ground and collateral damage sustained due to operations by security forces always leads to increased support levels for the militants.

    As in the past few months, out of the three main regions affected by terrorism related violence, namely, FATA, NWFP and Balochistan, the maximum casualties were recorded in FATA, followed by NWFP and Balochistan. In FATA, in 103 (62 in August) incidents during the month, 892 (838 in August) people including militants, civilian and security forces were killed and 240 others were injured. Out of 892 killed, 539 were alleged militants, 336 civilians and 17 security personnel. At the same time 82 alleged militants were injured and over 150 civilians were injured in the attacks in the region.

    Most of the casualties were in Bajaur Agency where the security forces, supported by artillery, armour, helicopter gunships and air force jets launched a massive operation to avenge the set back suffered by them in Lowi Sam in early August. The operation had been going on for over a month as September drew to an end and despite usage of heavy weaponry the security forces were finding the going tough against the Tehrik-e-Taliban Pakistan (TTP) militants. The security forces have also propped up a number of anti Taliban tribal armed militia to take on the Taliban. Over 250,000 people from the region, which includes part of the adjoining Mohmand agency, were internally displaced and were forced to seek shelter in NWFP and Afghanistan. The US forces operating from Afghanistan continued targeting militant positions in FATA by using missiles, drones and aircraft operating from across the border. Most of these attacks were carried out in North and South Waziristan agencies. In view of the liberal usage of aerial platforms both by the US forces as well as the Pakistani forces, it would be prudent to take the figures of militant casualties with a pinch of salt as many of those killed in aerial attacks and branded militants could have been innocent civilians.

    The sectarian violence in Kurram Agency between predominantly Shia Turi tribe and Sunni Bangash tribe supported by Tehrik-e-Taliban Pakistan (TTP) continued unabated throughout the month. The state was conspicuous by its absence in the region whilst the tribes armed with heavy and automatic weapons continued to clash through out the month.

    The month clearly brought out that the political boundaries between NWFP and FATA had blurred completely and the violence was endemic throughout the entire Pakhtoon belt. There was a proliferation of violence in NWFP and in terms of incidents of violence, NWFP even surpassed FATA, even though the casualties were much lower. As against 52 incidents in August there were 126 incidents during the month, which resulted in 292 killings as against 363 in August and more than 182 being injured. 161 of those killed were alleged militants and 102 civilians. 29 security personnel were killed and 38 were injured in various incidents. 45 militants and 99 civilians were also injured. Within the province, Swat valley remained the epicentre of violence in the region and was the venue of fierce fights between security forces and militants. Air force jets and helicopter gunships regularly pounded militant strongholds. On September 26, police in Swat issued shoot-at-sight orders against any masked individual in the district. Militants on their part continued to target political leaders and continued destroying the schools in the region and in a first incident of its kind in the region, on September 22, militants blew up a gas pipeline in Blogram area near Mingora city. Also, on September 2, two Chinese telecommunications engineers along with two Pakistanis were kidnapped in Dir and subsequently shifted them to Swat.

    The other major arena of conflict was Kohat District where the road between Kohat and Darra Adamkhel and the Kohat tunnel were occupied by the militants. The security forces entered Darra Adamkhel on September 22, after 25 days of fierce fighting, in which they were supported by air force jets and helicopter gunships. The other areas affected by violence were Peshawar, Lakki Marwat, Dera Ismail Khan, Hangu, Kohat and Lower Dir. In a significant incident on September 12, about 100 heavily armed terrorists occupied a municipal building in the Regi Lalma area on the outskirts of Peshawar, the provincial capital, but fled after the arrival of paramilitary troops without any skirmish. It appeared to be a case of testing the will of the government, and a signal that they had arrived right at the doorstep of Peshawar.

    In Balochistan, there was reduction in violence and the number of incidents declined from 50 in August to 32 in September. However, despite fewer incidents, 59 people were killed as against 51 in August, and 69 others were wounded. Of those killed, 25 were alleged militants whilst 8 security personnel were killed. In addition, 26 civilian were killed and around 60 were wounded. Despite a ceasefire that had been declared by the Baloch armed groups (Baloch Liberation Army, Baloch Liberation Front and Baloch Republican Army) on September 1, the clashes erupted between BLA and security forces on September 27 in Dera Bugti district and 25 Baloch nationalists and 3 FC personnel, were killed in two days of clashes. The violence in Balochistan was mostly concentrated in Dera Bugti and Quetta districts. The railway tracks and gas pipelines were the favourite targets of the Baloch groups.

    There was also an increase in incidents of violence in other parts of Pakistan namely Punjab, Sindh and Islamabad. In 48 incidents, two militants and five security personnel were injured, 92 civilians were killed and 265 injured. Most of the casualties occurred in the attack on Marriot Hotel within the high security zone in Islamabad, where an explosive laden truck exploded on September 20, killing 60 people, and injuring another 250. With the Taliban making its presence felt in Punjab in August, the violence in Punjab has increased considerably. On September 26, a powerful bomb exploded on the railway track near Bahawalpur, resulting in derailment of a passenger train, killing six people and injuring 15 others. Large quantities of arms and ammunition were recovered from the Punjab University Campus in a raid on September 21 and 22. Tribal clashes as well as ethnic and sectarian clashes were reported in Sindh during the month.

    During the month, there were about five suicide attacks, of these two were in FATA and one each in NWFP, Islamabad and Balochistan. These attacks resulted in loss of 73 lives and injuries to 268. Attacks in NWFP and FATA were targeted against military targets, whilst those in Balochistan and Islamabad were against taregeting civilians. The maximum devastation was caused by the suicide attack on Marriot Hotel on September 20.

    For a number of months, the violence levels in Pakistan have been rising month after month. The rising crescendo of violence does not portend well for the region, especially as it appears to be moving out of its traditional areas in Pakhtoon and the Baloch heartland. Both the Pakistani government and the international community needs to take efforts to initially localise the violence to Pakhtoon regions and then to control and eliminate it.

    Table of Casualty Figures in Pakistan - September 2008

    1. Based on Pakistani media reports.

    Balochistan, Federally Administered Tribal Areas (FATA), North West Frontier Province (NWFP), Tehrik-e-Taliban Pakistan (TTP), Trend Analysis, Pakistan South Asia IDSA COMMENT
    Can India ever Trust China? P. Stobdan October 27, 2008

    The two recent glorious achievements - the Olympics and spacewalk mission – seem to have transcended China to a new global height with wide implications for the world’s strategic balance. From all accounts, analysts suggest that China will not only survive but has also gained from the recent global financial meltdown.

    The two recent glorious achievements - the Olympics and spacewalk mission – seem to have transcended China to a new global height with wide implications for the world’s strategic balance. From all accounts, analysts suggest that China will not only survive but has also gained from the recent global financial meltdown.

    The shift in the global balance of power is visibly getting starker. Only in July this year, President Bush was seen lecturing China against its human rights abuses and even carried the US House of Representatives’ “message of freedom” to Beijing when he attended the Olympics ceremony. But, in a golden rule of irony, President Bush had to call up President Hu Jintao two months later to help rescue US from the raging financial crisis. The Chinese viewed the event as a momentous turn in their history. However, unlike the Russians, Iranians or even Venezuelans, the Chinese seem loath to take pleasure in the American financial crisis.

    Most Chinese experts seem quick to explain the fundamentals of the country’s financial system having a Chinese characteristic and even suggesting a new and durable financial regime to arrest the global crunch. Firstly, to take advantage of the meltdown, China would seek opportunities to creep into strategically critical foreign firms earlier unavailable due to political and financial reasons. Secondly, with high saving rates and domestic strengths, China would be able to make Shanghai Asia’s biggest financial hub much earlier than the targeted 2012.

    On the geopolitical front, a contrast was seen when China successfully showcased a magnificent display of its soft power through the Beijing Olympics on the very day when its giant northern neighbour Russia moved its militarily to seize the separatist enclave of South Ossetia from Georgia. Russia’s actions jolted the West calling it a ‘brazen invasion’ while also raising a host of chilling questions about Moscow’s inclination to return to Cold War tactics. In contrast, China proved itself as a benign, rising and responsible world power and gained wide international admiration. World geopolitics may be complex but Beijing knows how to play it. Through the Shanghai Cooperation Organization (SCO) meet held in Dushanbe on August 29, the adroit Chinese subtly conveyed its disapproval of the Kremlin’s actions – a position not only heartening for the Western powers but also a solace for the former Soviet republics feeling jittery about Russia’s renewed assertion. The sub-text message was that while Putin was impatient to see the end of the Washington-led uni-polar world, Hu Jintao was willing to cooperate with the US and make China a responsible stakeholder in the world affairs.

    The financial crisis and the Georgian conflict portend substantial rethinking in China, especially the need to cooperate with the US, so as to gain from the American loss of economic pre-eminence in the world. In the recently held India-China dialogue led by IDSA in Beijing, there was no doubting the prospect of a strategic convergence between China and the US. At least Beijing seemed to have prepositioned itself well to deal with the next American President. Only a symbolic protest was made by Beijing over the US sale of $6.43 billion weapons package to Taiwan.

    How do these strategic realignments impact India–China equations is an important issue. A clear sign from this unfolding change is that China would be successful in manipulating the much touted US containment of China policy through India. But most importantly, the Chinese seemed confident that despite the occasional China bashing from certain quarters, a significant number of Indians will continue to opt for an independent foreign policy pursuit.

    The dialogue, held against the backdrop of introducing a red herring at the Nuclear Suppliers’ Group (NSG) meeting in Vienna, gave vent to China’s inveterate resistance to a waiver for India, for they strongly believed the special waiver for India could pose a danger to the NPT regime, especially the possible risk of others following the Indian path. Unmistakably, a Chinese case for a similar deal for Pakistan, necessitated by its energy demands, appeared simply to be a cover for tried and tested forms of China’s India containment strategy. But having failed to foil it and perhaps stung by India’s near hysterical media reaction, the impression one carried home from China was that it did not play a spoiler role; instead, it supported India’s case, but look how are these Indians are still ungrateful towards China!

    In the changing equations, the Chinese love for their “time-tested and all-weather friend” Pakistan would not be lost, no matter who controls Islamabad, not even if Baitullah Masood takes over the reins. Islamabad’s frequent reliance on the jihadis finds legitimacy among the Chinese since such a phenomenon, from a Chinese perspective, forms a vital component of Pakistan’s survival policy. In their belief, Pakistan, abandoned by America again and again and squeezed by other forces from all sides, needs to be rescued at all cost. An obvious call to India, therefore, was to stop cornering Islamabad at this hour. However, quite unable to comprehend the tribal dynamics in FATA and NWFP, the Chinese would not oppose an international action against bad elements in those regions without tampering with South Asia’s political geography. China’s new approach is that Pakistan must be dealt multilaterally rather than bilaterally. A clear acknowledgement is that an increasing number of Uighur elements are finding sanctuaries there while also creating drug routes across Xinjiang to Central Asia threatening Chinese interests.

    On the key issues of India-China relations, the overwhelming thought was to learn from the decades-long China’s strategic partnership or dialogue approach with the US. Washington has softened its attitude and stopped demonising China. The US no longer fears uncertainty and instead views China as a rising and not a collapsing power. A strategic adjustment, therefore, is in place and, as such, expelling the US from Asia is no longer an issue.

    What they meant was that India must not pursue a containment policy but learn to manage the competition as a key to move forward. The new emphasis, therefore, entails a point that the two sides should not get bogged down on the boundary issue, ignore recurring irritants like the NSG episode and others if a strategic partnership is to be carried forward. But the question is: can China be trusted again? What is China’s strategic goal in lingering over the boundary settlement? The status of the boundary talks – even to evolve a framework – is marked as a ritual performance or is often shrouded in secrecy. By doing so, China seems to treating the talks as a veneer for diluting the Indian demands further. China is all set to gain in strategic terms and is hence hoping for a final settlement in its favour.

    While there is no so eloquent acknowledgment for what India has done for ensuring a safe passage for the Olympics torch through New Delhi, for China a peaceful conduct of the Beijing Olympics seemed possible only after it had independently managed a full assurance from none other than the Dalai Lama himself. In fact, a fresh nuanced thinking, if not a realisation, among Chinese experts give an indication that the road to peace in Tibet could be only through the Dalai Lama, who they considered,until July, to be a “snake-head” or “a devil with human face”. But for now, how to decouple the Dalai Lama from his clique would remain a major policy challenge for China. If successful, China would like to have India-based Tibetan outfits like the Tibetan Youth Congress (TYC) to be placed in the category of terrorist groups like the ETIM or newly born Turkestan Islamic Party (TIP).

    What appears most startling is not about the Chinese perception on Sikkim or Arunachal Pradesh but their continuing open-ended position on Jammu & Kashmir. Possibly, a potential diplomatic sore point in future would hinge around China’s position on J&K’s accession with India. Restoring cross-border linkages between J&K, Xinjiang and Tibet is unacceptable, for they do not view J&K as a settled issue.

    The Chinese perception that bianjie zhengduan (unresolved border dispute) could lead to war with India is well known. India is often referred to as hegemony in most Chinese media op-eds, yet they tend to be surprised by anti-Chinese coverage in India. Indian media reported a higher number of Chinese transgressions - so far over 100 each in Ladakh and Sikkim sectors during this year. With such acrimonious apprehensions and misperceptions growing on both sides and no sign of mistrust disappearing any time soon, there is little to suggest that the relations with China can be more than cosmetic. And now that the Indo-US nuclear deal is through, China is expected to further curtail India’s advancement through its backstage diplomacy.

    China’s next target would be to thwart India’s chance to find a permanent seat in the UNSC. In fact, soon after the NSG episode, China attended a closed door meeting on September 26 of the ‘Coffee Club’ countries chaired by Italian foreign minister Franco Frattini that opposed the UNGA’s efforts to forge a consensus on UNSC expansion. As the UNGA sets February 29, 2009 as the deadline for the negotiations, China is expected to lobby openly against the G4’s (Germany, Brazil, India and Japan) formula for a consensus on the expansion model. This is yet again proof of China backtracking from its earlier stated position to support India’s aspirations to enter the UNSC.

    As we move ahead into 2009, there would be several such incidents cropping up which would strike at the core of mutrual trust that was supposed to have been built painstakingly over the years between India and China. While Beijing has given no indication of signing a nuclear deal with Pakistan similar to the one signed between India and the US, China’s role in an international bail-out programme for Islamabad would be a calibrated one that would demand closer scrutiny. While the economic ties between the two countries are growing at a fast pace, there is no sign yet of China changing its determination to box India within the confines of South Asia. Many gullible Indians seem to have accepted this fact instead of thinking about a correct response to it.

    India, Tibet, Shanghai Cooperation Organization (SCO), India-China Relations, SCO summit, United States of America (USA), China East Asia IDSA COMMENT
    The oil price Conundrum Shebonti Ray Dadwal October 24, 2008

    As the saying goes, everything that goes up had to come down. The same holds true for the price of oil, which has seen a slide of around 55% in just three months. At one point of time there were even predictions that prices would reach $200 a barrel. However, currently, the price of oil has dropped to $68 a barrel, from a high of over $147 in July this year. But the question is how and more importantly, why did this happen, and in such a short time.

    As the saying goes, everything that goes up had to come down. The same holds true for the price of oil, which has seen a slide of around 55% in just three months. At one point of time there were even predictions that prices would reach $200 a barrel. However, currently, the price of oil has dropped to $68 a barrel, from a high of over $147 in July this year. But the question is how and more importantly, why did this happen, and in such a short time.

    First, oil is perhaps one of, if not the most, politically sensitive commodity, with almost any political issue immediately impacting on its price. However, apart from geopolitical issues, several other factors influence oil prices as well, which could include issues as diverse as weather conditions, the state of US inventories, demand-supply imbalances, both in terms of crude as well as refined products, value of the US dollar, etc. Nonetheless, the current freefall has taken everyone by surprise given that with winter in the western hemisphere round the corner, creating an annual increase in demand, oil prices have continued to fall.

    What are the reasons? But before analysing the current oil price behaviour, let us first see why there was such an unprecedented rise in oil prices in the first place before the fall, as it were.

    Simply put, it was a combination of factors, including, commodity market speculation, the fall in value of dollar, increasing demand and lack of spare capacity. However, it was speculation that was mainly responsible for the unprecedented highs that were observed three months ago. A US Senate Permanent Subcommittee on Investigations report noted, “there is substantial evidence that the large amount of speculation in the current market has significantly increased prices.”1

    But how was this rampant speculation allowed to go on without being regulated? As the US Subcommittee on Investigations reported, till recently, US energy futures were traded exclusively on regulated exchanges, which are subject to extensive oversight by the CFTC. But with the recent growth in trading of contracts on over the counter (OTC) electronic markets (as against regular futures contracts), which are exempted from US Commodity Futures Trading Commission (CFTC) oversight (thanks to a provision inserted at the behest of Enron and other large energy traders in the Commodity Futures Modernisation Act of 2000), large financial institutions, hedge funds, pension funds and other investors began pouring in billions of dollars into the energy commodities markets, mainly to hedge against a weak dollar. This in turn created a huge demand for oil (and gold), not by producers or consumers of oil but from speculators, thereby driving up the price for future delivery of oil.2

    Part of the reason for this diversion by speculators to energy commodities was due to the expectation that the growing imbalance in demand and supply would increase further oil prices, due to a combination of growing demand, lack of timely investment in producing or discovering new oil, depletion in spare capacity in producing states and fall in the value of the US dollar. Between January 2002 and the first half of July 2008, the USD lost nearly 45% of its value. According to some analysts, over the same period, the dollar-denominated price for the OPEC reference basket (WTI was $10 more expensive, and Brent $8) rose from $18.42/barrel to $137.57/barrel, that is, an increase of almost 650%.3

    However, following the downturn in the US economy due to the sub-prime crisis, which gradually spread to the rest of the world, setting off alarm bells in the global financial markets, the demand for oil started coming down. In fact, in its monthly report in October, the International Energy Agency (IEA) cut its global oil demand forecast for 2008 by 240,000 barrels per day on the basis of worsening economic conditions in the developed nations and said that demand would drop further in 2009 by 440,000 b/d. The IEA now expects global oil demand to total 86.5 mbd in 2008 and 87.2 mbd in 2009.

    Around this time, the US Federal Reserve’s anti-inflation policy which was initiated over a year ago, started paying off and from May on wards, the dollar began rallying. Also, the huge purchases of futures contracts which pushed up oil prices, provided an incentive for oil companies to buy and store oil, on the expectation that prices would continue its upward spiral. This, in turn, saw a substantial growth in oil inventories, particularly in the US. At the same time, with higher oil prices, investment in oil exploration and development also saw renewed vigour, with an expected increase in surplus capacity.

    Hence, a combination of these factors set off a rollback in prices, with speculators now scrambling to liquidate their positions due to the declining value of the securities they held. The more they sold their contracts, the more prices spiralled downwards. Moreover, banks were coming under increasing pressure to reduce their lending due to their low reserve margins, as well as concerns that hedge funds were not good risks.

    So how low are oil prices expected to fall? Those that are expecting prices to go back to the pre-2002 $20s, they are likely to be in for a disappointment. An alarmed OPEC has already begun preparing to cut production -- the first time in almost two years -- to stem a price collapse. Ministers of the 13 member nations gathered in Vienna, to decide on how deep the cuts should be, with predictions that a 1 to 2 mbd of cuts could be agreed upon. Though in the past, OPEC production cuts have not succeeded in stemming the price from falling, this time round it may succeed as Russia has agreed to cooperate with the cartel to stablise prices. Moreover, as the global economy weakens, and the price of oil begins falling, international oil companies will once again reduce investments in E&P, leading to the earlier situation which saw supplies and spare capacity dwindling again. Hence, though as of now, it seems unlikely that oil will reach the heights witnessed earlier in the year, it is equally unlikely that oil prices will go below $60 a barrel. Only time will tell.

    Non-Traditional Security IDSA COMMENT

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