Biden not likely to take any bold action against Iran or Saudi Arabia

Within a very short span of time, it has become evident that President of United States, Joe Biden is not likely to take any bold actions, especially with regard to the Middle East. 

Khashoggi killing was a test case for Biden, who had promised to penalize the Saudi crown prince, but his administration exempted him. This raises serious questions about his proclamation of upholding human rights.

In his election campaign, Biden pledged to reverse Trump's policies and make fundamental changes in US foreign policy. Some observers doubt he can make any significant difference. There is hardly any difference between Democrats and Republicans when it comes to foreign policy of the United States. The conservative-liberal divide appears more significant when it comes to domestic policies.

Biden administration has imposed a ban on some Saudi officials for the Khashoggi killing. But it was not extended to bin Salman. Many believe Biden is not serious when he is talking about human rights, especially with reference to Saudi Arabia.

It may not be wrong to say human rights issues never determine the US foreign policy, it is just a propaganda tools. The mantra is used against hostile states and not the friendly ones. Saudi Arabia is still a US ally and the US does not want to undermine its relations with Riyadh.

It was the United States that pulled out of JCPOA unilaterally in 2018, but Biden administration is not taking concrete steps to rejoin and lifting the sanctions imposed on Iran unilaterally. Biden wants to use the existing sanctions to force Iran to agree to talks on other issues.

Biden policies towards Iran seem even more confusing because he is trying to keep Trump's sanctions in place as well as talking about diplomacy. He wants to force Iran to make some basic concessions, such as reducing its missile program and changing its regional strategy. Biden wants to achieve these goals through diplomacy. Trump, too, wanted to talk to Iran, provided Tehran agreed to his conditions.

Presidents of United States are generally more receptive to Israeli Mantra. Israel has been advising the US not to return to the JCPOA without significant concessions from Tehran. Some hardliners in Israel still hope to trigger a military confrontation between Iran and the United States.

Israel’s military chief has warned of a new plan to strike Iran's nuclear facilities. Some Iraqi groups have claimed that Israel is behind some provocative attacks on US military bases in the Iraqi territory. All this is aimed at derailing the process of revival of JCPOA.

Implications of Trump victory for Pakistan

In an utmost surprise Donald Trump has been elected President of the only surviving super power, United States (US). Not only residents of many other countries find it a bitter pill to swallow, demonstrations are also being staged in the US, one of the rare happenings in the country enjoying democratic rule of more than two centuries.

I have posted a blog some time back exploring the possible impact of 2016 elections. My bottom line was that the love/hate relationship will be driven by the foreign policy agenda of the super power. Over the last 48 hours I have been going through the global news networks as well as Pakistan to have a better understanding of the likely outcome of shift in foreign policy agenda. This brief is based on the writing of one of Pakistan’s leading brokerage house, AKD Securities.

The brokerage house believes that the US foreign policy under Trump may remain highly volatile, there is also a possibility of an overhaul in US-Pak relations. The republican's campaign rhetoric leads force Pakistanis to believe that micromanagement and unilateral actions along Pakistan's borders may ease out under Trump Rule. In this backdrop, Pakistan has done well by diversifying its foreign relations towards Russia and China's ongoing ambitions in investing heavily into Pakistan.

In line with global markets, near term volatility at the Pakistan Stock Exchange (PSX) cannot be ruled out. However, Pakistan market's correlation with regional markets has decoupled on the former's possible inclusion in the MSCI EM Index and momentum for infrastructure and economic development together driving 21%CYTD returns for the benchmark index which can be expected to continue in the medium to long term. 

Pakistan has suffered the most during the incumbent government of PML-N due to the absence of full-time foreign ministers. Worst of all the two foreign policy advisors are not on the same page. Admitting that these are unchartered waters and while analysts believe that the US foreign policy under a Trump may remain volatile, there is also a possibility of an overhaul in the bilateral relationship as Pakistan has largely remained at the periphery of US interests in this region.

The republican's campaign rhetoric compels Pakistanis to believe that micromanagement and unilateral actions along Pakistan's borders may ease out under Trump. The onus would be on Pakistan to keep its western borders safe as the US pulls out of Afghanistan. As far as the current hostile situation between India and Pakistan is concerned, the US as always will likely encourage both countries to come to the negotiation table. In this backdrop, Pakistan has done well by diversifying its foreign relations towards Russia and China's ongoing ambitions in investing heavily into Pakistan.

Historically, aid flows from the US have fluctuated due to ever changing US geo-political objectives in the region. After nearly a decade of withholding assistance, inflows recommenced in 2002 and scaled up considerably in lieu of Pakistan's alliance with US on counterterrorism efforts post-9/11.

The aid appropriations have accumulated to US$19.07 billion under economic (US$11.1 billion) and military (US$7.9 billion) assistance. Additionally, Pakistan received reimbursements under CSF, forming the largest chunk of inflows with US$14 billion received since 2002. However, actual disbursements - particularly economic aid - have reportedly remained much lower, where EAD data reflects economic grants disbursed to Pakistan since FY07 at US$2.1 billion.

As per a USAID report, disbursements under the Kerry-Lugar-Berman Act (promising US$1.5 billion annual economic support over FY10-14) as of September'15 add up to US$1.8 billion. Following developments in 2011, aid from US has tapered off where economic/security related aid appropriation to the country declined to US$423 million/ US$320 million in FY17. Post-elections, economic assistance is likely to stagnate at current levels while military aid can be considerably scaled back with CSF flows remaining absent (US$300 million yet to be paid) if recent disagreements on action against the Haqani network continue along with withdrawal of troops from Afghanistan.

In this backdrop, Pakistan's macroeconomic focus has been shifting towards the East as the country embraces Chinese investments and positions itself as a beneficiary of foreign direct investment under China Pakistan Economic Corridor (CPEC) from the world's second largest economy.

While US remains one of major destinations for Pakistani exports, the quantum has in fact declined remained to16% in FY16 as compared to 19% in FY09. To recall, Pakistan's recent request for preferential access for textile exports to US was rejected. US is likely to revisit its trade and investment ties under the new leadership, however any trade facilitation to Pakistan remains unlikely going forward.

Similarly, outlook on investment from the US remains bleak (FDI share from the US down to 2% from 23% during FY09-16), where any recovery in the same will largely remain a function of Pakistan's intrinsic business climate. Longer term risks remain in the form of stricter immigration rules that can affect remittance flows from the US that make up 13% of total inflows (already declining due to anti-money laundering laws in US).

Trump's victory can fuel expectations for rate hikes quicker-than-projected currently in the backdrop of Trump's criticism earlier of Fed's policy to hold-off rate increase this year. This entails direct implications for foreign flows to regional markets including Pakistan as was the case in CY15. In this regard, upcoming FOMC meeting in December'16 will be crucial to track changes in the Fed's outlook. On the other hand, greater volatility in global financial markets due to an uncertain US policy outlook can propel the Fed to delay a hike to next year.

In line with global markets, near term volatility at the PSX also cannot be ruled out. However, Pakistan market's correlation with regional markets has decoupled on the former's possible inclusion in the MSCI EM Index and momentum for infrastructure and economic development together driving 28%CYTD returns for the benchmark index.

Pak-US relation after the election

Elites as well as commoners of Pakistan while passing time in their drawing room talks often indulge in discussions on a variety of topics. These range from civil-army relations to Pak-India border situation to proxy wars going on in the neighborhood. However, lately the talks also drift to the outcome of US elections and US-Pakistan relations in the aftermath. The diversity of discussion depends on the knowledge of the participants about the facets of the US foreign policy.

The commoners often have the consensus that historically the successive governments in Pakistan have been towing the US foreign policy agenda since independence. They also say that Pakistan’s foreign policy has mostly remained under the shadow of US foreign policy. However, there have been good and bad patches, good during the time US needs Pakistan and bad when the US focus shifts away from the region where Pakistan is located.

During cold-war era as well as Afghan war, Pakistan was often termed key partner in war against terror, but mantra of many US senators and congressmen remains ‘do more’. Pakistan has played a contradictory role in Afghanistan, a friend as well as a foe. Pakistan with the help of Taliban fought against Russian troops but post 9/11 it was asked to fight the same Taliban.

The US is often termed the biggest democracy of the world, which also take active part in ‘regime change’ programs around the world to dislodge ‘dictators’. However, it is worth noting that the US has supported three dictatorial regimes in Pakistan, spread over nearly thirty years. Supporting these regimes was need of the super power, as it believes that negotiating with a dictator is easier as compared to an elected/democratic government, which is accountable to the masses.

This is not unique, the US has been installing, supporting and even prolonging and dislodging dictators’ rule in many countries in the name of ‘regime change’. Surprisingly, the biggest democracy of the world does all this but its citizens and/or elected representative, in one way or the other, endorse acts of ruling junta. One may say that the deception prevails over only because of the much talked about liberal media that is not free in real sense.