Since our last post covering global hot spots, the protest movements throughout the Middle East have only continued and picked up in intensity. Oman, Saudi Arabia (BTW for how long will it be known as Saudi Arabia and not just Arabia?), Iran (theocracy is dead, and the mullahs seem to be trembling), Iraq, and Bahrain have all experienced domestic discontent, though with varying levels of inflammation. But the most striking of news has come from Libya and the tumultuous series of events in the North African country. Col. Gaddafi’s ruthlessness, arrogance, and murderous temper has resulted in the death of thousands, the bifurcation of the country, the decay of the country’s civil and governmental institutions, and the rattling of oil markets. Yet for this commentary we will return to Asia and focus on developments in Pakistan due to the confluence of factors that have been boiling there recently and are currently raising anxiety.

The most recent news surrounds the case of Raymond Davis, a contractor under the employment of the U.S. State Department at the embassy in Islamabad. Davis was involved in a shootout in Lahore on January 27th that would have appealed to the creative faculties of Ian Fleming. On that Thursday Davis wound up shooting and killing two Pakistani men in the street with a third dying minutes later. The U.S. government has insisted that Davis’ diplomatic status entitles him to immunity, as codified in the Vienna Convention. While the Pakistani government (made up of the Pakistan People’s Party) maintains close diplomatic and financial ties to the U.S. (due to terrorist camps in Pakistan and the war next door in Afghanistan), Pakistan’s largest and most influential opposition party controls Lahore. Moreover, the PPP fears being painted as an American lapdog in this case and has outraged the Pakistani public. Why the outrage? Well it turns out, as the Guardian reported, Davis is an employee of the CIA and the two victims he shot were members of Pakistan’s intelligence service directed to track Davis, reports the Washington Post.

The case of Raymond Davis has become a diplomatic firestorm for the United States and the Pakistani government. The media in Pakistan has run with the story of Davis and published numerous stories of other CIA operations in the country. The public has demonstrated against the case of Davis and asked the government not to release the CIA agent, despite his pleas of self-defense. But in the grander scheme of things, this episode is just the latest of rifts regarding Pakistan. Since President Obama’s inauguration the United States has greatly increased its drone presence into Pakistan, although, as the Washington Post reported, limited gains seem to have come from this activity. The attacks have angered Pakistan’s government so much in the past that they moved to shut down the Northwest Corridor, a transport route vital to the U.S.’s wear effort in neighboring Afghanistan. A drug raid with Russian support in the latter part of 2010 further inflamed the cries of sovereignty violations by many Pakistanis, in and out of the government. At the highest levels of government, tensions have been stretched over the subject that Pakistan is not playing her part in eliminating Taliban strongholds in the western part of the country, while at the same time is the open secret of the double games being played by Pakistan’s intelligence service (known as the ISI) of funneling support to U.S. opponents in Afghanistan. Let’s not forget that the Pakistani government did not take kindly to the now published concerns of U.S. diplomats regarding the security of fissile material, as Wikileaks informed us. And those are just instances regarding direct Pakistani-U.S. connections.

Pakistan has had additional moments of despair with other agents in the region as well as its own domestic troubles. Regarding the former, Pakistan has still not repaired relations with neighboring India over the 2008 Mumbai bombings by Laskhar-e Taiba, a terrorist group based out of Pakistan which operated with ISI support. The relationship of the two nuclear powers will be a fundamental factor in how the region shapes up for years to come given India’s growing stature, dynamic economy, the population size of both countries, as well as the role of China in the region (China has been supporting various Pakistanis positions). The Middle Kingdom has sealed many deals in Pakistan, most crucially one regarding the Gwadar port on the southern tip of the country. The tactic is one part of a greater Chinese role in the region to develop a land-based alternative for obtaining energy from the Gulf, as Robert Kaplan argued in Foreign Affairs. While such a deal could save the Chinese money and enrich Pakistan, India is not too kind to such arrangements given its own energy needs and also a feeling that China is encroaching on India’s sphere of influence.

Domestically, Pakistan has been further burdened with difficulties. The horrific flooding during the summer killed thousands, left more homeless, and wiped out the harvest of one of the globe’s largest grain producers. The flooding also demonstrated the ineptitude of the Pakistani government as millions were left without relief and turned to the services of Pakistan’s extremists for assistance. The Pakistani Army, itself a very influential institution, started calling for changes to the government as a result of repeated blunders by civilian leaders. In early January of this year the government appeared to have collapsed with the resignation of the MQM coalition party over fuel prices and tax policy until Prime Minister Gilani was able to avoid catastrophe and persuade the MQM to rejoin. Revelations of splits among the Pakistani population were further revealed a week later with the assassination of Salman Taseer, a provincial governor, who was killed due to his opposition over strict blasphemy laws being applied to Christians.     

It very well could be that the most unstable country in the world currently is Pakistan. It has various domestic factions wrangling for national influence while holding the desperate needs of millions hostage. These factions range from bureaucrats, the military, intelligence services, secularists, Islamists, and more. It has a war on one side of its border, a historic enemy on the other, and a rising giant neighboring it as well (and that doesn’t include Russia’s proximity). Pakistan has a booming and young population that can’t find jobs no thanks to an incompetent and corrupt government. To top it off, some security analysts believe Osama bin Laden (if he is still around) resides in Northwest Pakistan in addition to other, already present extremist groups.

With this plethora of destabilizing factors the last thing Pakistan needs is to turn off relations with the United States, a significant source of aid and support (though a meeting among officials in Oman is attempting to clarify issues, specifically over Davis). While it’s doubtful connections between the two countries would ever freeze for a long period of time due to the extensive stakes each one has involved in the region, events in Tunisia showed us what the consequences of any one spark can be. In Pakistan, that spark could come from anywhere and could go anywhere. The possibilities are endless. Unpredictable is a hard thing to plan for, especially when lives are at stake.

For the moment, we repeat our position that geopolitical changes create asset and capital opportunities that allow credit mechanisms to be created which in turn balance out dangerous financial developments which otherwise could have destabilized the global markets.

Ode, then to bloodless changes that enable capital to be extracted out of dormant resources.