The lesson for investors from the Afghanistan debacle

12 mins. to read
The lesson for investors from the Afghanistan debacle

Thus far, the markets have shrugged off the most significant American foreign-policy disaster since the fall of Saigon in 1975. The Dow Jones is in record territory at above 35,000, just as a flock of ‘black swans’ takes flight from central Asia, writes Victor Hill.

An unnecessary calamity

The disaster that President Biden has unleashed was entirely avoidable.

His standpoint is that he wanted to end the longest lasting of America’s ‘forever wars’ once and for all: US and other NATO forces have been in Afghanistan for almost 20 years. More than two thousand US and 459 British military personnel have died there − not to mention 4,000 contractors, 400 aid workers and 72 journalists, as well as about 150,000 Afghan civilians and combatants.

When America was attacked by Al-Qaeda terrorists on 11 September 2001, it invoked Article 5 of the North Atlantic Treaty (1949) – the only country ever to have done so. This protocol asserts that an attack on any one NATO member should be regarded as an attack on all of them. That obliged the UK and other NATO members to assist America in its response.

When the US military first entered Afghan territory in October that year to destroy Al-Qaeda terrorist training bases, it was followed by British forces at scale and by other NATO armies in smaller numbers. The then Taliban government which had harboured Osama bin Laden and his followers collapsed almost immediately. The first year or more was dedicated to the extirpation of Al-Qaeda and related groups, and the removal of anthrax factories.

It was only later that the programme of nation-building held sway – and that would involve the pursuit of loose Taliban militia groups, most notably in Helmand Province where the British Army was deployed for more than a decade. Many of us thought that this mission creep was unwise; but over the last 20 years of allied intervention, many girls have been educated who otherwise would have been confined to their homes. And many women have qualified as doctors.

Mr Biden’s retreat was actually facilitated by his predecessor, Donald Trump, who furtively cut a deal with the Taliban in April last year in Doha, Qatar. Abdul Ghani Baradar, who has a track record of terrorism and violence, is expected to be declared president or emir of Afghanistan shortly. He and many of his acolytes have been living in Qatar for years. He insisted that Afghanistan’s established government be excluded from the negotiations and the Trump administration complied. The result was to legitimise the Taliban internationally as the key player in Afghan affairs and to undermine the government of the now exiled president, Ashraf Ghani. The agreement secured the release of 5,000 Taliban prisoners – all of whom immediately returned to arms. In return, the Americans extracted a vague promise that the Taliban would not dally with Al-Qaeda.

After Doha, according to Afghanistan expert Kate Clarki, the US pressured the Afghan National Security Forces (ANSF) to only open fire on Taliban militias in self-defence. US air support was withdrawn. Assassinations of off-duty ANSF personnel and government officials rocketed. The Taliban’s morale soared.

By the time President Biden announced his country’s intention to quit Afghanistan on 14 April, the number of US military personnel in the country was down to about 3,500. No allied soldier had been killed for 18 months. The marginal cost of such a garrison to the Pentagon was trivial – all those service personnel will have to be redeployed anyway. But US air support was critical in maintaining the operational effectiveness of the Afghan forces.

If America is unable to sustain forever wars, should we expect American forces to vacate Europe, where they have had a presence for the last 75 years? And if Bagram air base is not worth saving, why are there still USAF planes and personnel in Mildenhall and Lakenheath? The US still maintains more than 50,000 troops in South Korea to protect the country against the North, which has never signed a peace treaty since the end of the Korean War in July 1953. Is that a forever war too which will now be terminated?

As I write, Britain’s elite 16 Air Assault Brigade, working with the US 82nd Airborne, is still at Kabul airport (though flights only leave with the acquiescence of the Taliban). By the time you read this it will probably have left. The Taliban controls the capital city and the commanding mountain heights overlooking the airfield where they may have artillery. And yesterday IS-related bombers attacked the airport, killing an estimated 90 people of which 13 were US servicemen …

Eight reasons why this is a disaster

Mr Biden’s determination to exit Afghanistan resonated with many Americans – even if many now admit that the way in which it was achieved was chaotic, and that the US has lost prestige. Mr Biden and his close advisors probably imagine that once the dust has settled, the fall of Kabul will recede in the public mind and that he will be able to concentrate fully on his domestic agenda. Well, good luck with that. Here are eight reasons why the Biden administration, and the West as a whole, will have to suffer the consequences of this folly.

For a start, without recourse to IMF loans, external credit lines and to much of its existing international aid, which amounts to three quarters of the national budget, not to mention the steady flow of remittances from Afghans working overseas, the country will become an economic ‘basket case’ within a matter of months. The US has frozen about $9.5bn in assets held in the US by the Afghan central bank and has ceased shipments of dollar cash (which was how the forever war was financed). There will be hyperinflation. There are already food shortages. The electricity supply will go down shortly; fresh water will run out. A humanitarian disaster is now inevitable.

Even though nations like the UK are offering asylum, our TV screens will soon be full of images of destitution in Afghanistan. There will be pleas for Biden, Johnson and the rest to do something.

Second, the NATO alliance has been severely damaged – perhaps irreparably so. Afghanistan was a NATO mission, yet the US did not consult its allies who had troops on the ground. It acted unilaterally. Neither did it cooperate fully in the dysfunctional endgame. This week Mr Biden refused to extend the 31 August deadline.

The so-called ‘special relationship’ between the US and the UK looks threadbare. The Biden administration has not even appointed an ambassador to London. The prospect of a US-UK trade deal has sunk without trace while the president lectures the UK on the Northern Ireland Protocol (which he evidently does not understand). Boris Johnson, who has been prime minister for more than two years, has never visited the White House. The personal chemistry between the prime minister and the president is thought to be tepid – but America’s contemptuous treatment of its allies goes far beyond that.

France and Germany have often voiced reservations about American interventions in the past; they will certainly think twice in future about providing military support for any other American adventures.

Third, these events point to a catastrophic failure in western intelligence which did not anticipate that the Taliban would rapidly seize Kabul and that the western-backed government of President Ghani would flee before they arrived. Not even Lyse Ducet, the BBC’s chief international correspondent, who has been reporting from Afghanistan for more than three decades, saw it coming. If US and UK intelligence services were so remiss in Afghanistan, how can we be confident that they understand what is really going on in China and elsewhere?

Fourth, Afghanistan is about to be engulfed by a new civil war which Mr Biden will find it impossible to ignore. There are still forces holding out against the Taliban in the Panjshir Valley. Bano district in Baghlan Province is also under the control of local militias. Ahmad Massoud, the Sandhurst-educated son of Mujaheddin leader, ‘Lion of the Panjshir’, Ahmad Shah Massoudii who fought against the 10-year Soviet occupation, has vowed to resist Taliban rule. Massoud appears to control some remnants of the now disbanded Afghan Special Forces who still control helicopters and armoured vehicles. The Taliban will not have things entirely their own way.

Fifth, the Taliban takeover of Afghanistan and the craven withdrawal of western forces has already emboldened Islamicist terror networks worldwide. In Kenya and Somalia, Al-Shabaab (the local branch of Al-Qaeda) has cited the fall of Kabul as a portent of their own inevitable victory over infidels. In Nigeria and Mali, insurgents such as Boko Haram (which literally means no to western education) have gained succour. Even Tony Blair – nominally a Biden enthusiast – wrote that “every jihadist group around the world was cheering”.

Sixth, the fall of Kabul has triggered a migrant crisis which threatens to become a tsunami. The dictator of Belarus, Alexander Lukashenko, is already weaponising the issue by threatening neighbouring Poland and Lithuania with a wave of Afghan migrants. Just as migrants pour across the US border with Mexico (one million so far this year and counting) and dinghy-loads of desperate folk come ashore in Kent, so a fresh diaspora begins in central Asia. The Turks are already making unfriendly noises in this regard. If you think mass illegal migration is a problem this year – just wait until next. And the year after.

Seventh, the population of rural Afghanistan will now be more dependent than ever on the meagre income people can secure from growing opium – which is then exported in refined form by Taliban-backed gangsters to the west. The drug dealers must be rubbing their hands.

Eighth, the strategic options of our adversaries – Russia, China and Iran – have now widened. Foreign secretary, Dominic Raab, has even suggested that Russia and China could act as “a moderating influence”. We are all weaker now.

Taliban ‘lite’?

The natural tendency of western policy elites is to indulge those who most fervently wish to do us harm. Thus, western mainstream media have been falling over themselves to emphasise that this Taliban is not the same as the Taliban who ruled Afghanistan from 1996 to 2001 with such ferocity.

The fact is that the Taliban is a highly diverse band of mobsters, and each local branch has its own axe to grind. While there may be some in the official government in Kabul who are media-savvy and are prepared to be interviewed by women journalists, there will always be hotheads in the provinces who make up Muslim law (derived, I understand, from non-Koranic sources) and apply it as they go along.

Already, the stance of local militias regarding the education of girls is highly inconsistent. There have been numerous reports of extra-judicial killings and fortuitous violence, some of it misogynistic. The Taliban will never settle down and become a ’normal’ politically inspired regime with which the West can do business. Our interests in Afghanistan have not ended, and we and the Americans are likely to conduct covert operations in Afghanistan for years to come.

Mr Biden’s forever war has only just begun.

Lessons China will learn

China now has a pressing interest in Afghanistan, a country with which it has a short border (between Xinxiang province – the home of the repressed Uighur people − and the tip of the Wakan Corridor). There are currently no crossing points or at least no roads across this wilderness border. So, even if they were minded to, the Chinese could not get troops into Afghanistan without taking control of a major air base.

But Afghanistan is sitting on deposits of rare earth minerals which could be worth US$1 trillion. As we know, China has set out to control supplies of these strategic metals which are essential to the production of hi-tech components for everything from smartphones to electric cars. Supposedly, Afghanistan has the potential to become the ‘Saudi Arabia of lithium’. China is the world’s largest consumer of lithium, accounting for 39 percent of global demand in 2019.

The day after the Taliban entered Kabul, Beijing announced that it was ready for “friendly and cooperative relations” with a presumed Taliban government. A Chinese consortium, which includes the state-owned China Metallurgical Group Corporation already has a 30-year contract to extract, smelt and process material at Mes Aynak, the world’s second-largest copper mine.

The Global Times, the English language mouthpiece of the Communist Party of China, has already asked ominously whether America’s cut-and-run strategy in Afghanistan has been noted by the people of Taiwan.

China will want to ensure that Afghanistan does not become a refuge for Uighur dissidents. But Nature abhors a vacuum, so NATO’s departure from this poverty-stricken but strategically vital country (the crossroads of Asia) will be filled in time by another power – almost inevitably China.

A nest of serpents

It turns out that the Islamic State (IS) terror network loathes the Taliban for not being Islamicist enough. In a rambling piece published in its Al-Naba newsletter, it describes the Taliban as fake jihadists who are in cahoots with Washington. IS is present in Afghanistan in the form of IS-KP, based in Khorasan Province.

Iran’s Shia theocracy also hates the Taliban which in the past has persecuted Afghanistan’s majority-Shia Hazara people. Moreover, Afghanistan has never accepted the Durand Line which demarcates the border between Pakistan and Afghanistan. This border divides people who identify as Pashtuns. All this amounts to a recipe for future instability.

Jonathan Evans, the former head of MI5, has warned that the Taliban takeover could once more permit the country to become an operating space for extremist groups. It is not yet clear how the US and UK governments are going to stop this from happening. We are entering a phase of acute risk.

Looking ahead

The sky-high levels of the US equity markets are partly driven by the $6 trillion or so that Congress has allowed the president to spend. How wisely that money will be spent is an open question, as is how inflationary it will be. But could Biden’s incompetent Afghan retreat be the harbinger of an end to the long bull market? The US markets took a beating after the fall of Saigon – but then the mid-70s was a time of great economic perturbation.

As with Jimmy Carter and the botched Iranian hostage crisis, the Biden presidency will most likely never recover from this humiliation. And if Biden’s people can’t run America, they can’t run the world either. In years to come we shall look back and see this as the moment that China stepped up to the podium.

i Trump’s Doha agreement was a retreat dressed as Peace deal, by Kate Clark, Daily Telegraph 22 August 2021, available at: Ms Clark is co-director of the Afghanistan Analysts Network.

ii A biography of Massoud, Afghan Napoleon, by veteran war correspondent Sandy Gall, is due out next month.

Comments (5)

  • roger bennett says:

    In times of war sending foreign aid to your enemies and permitting your enemies free access to your country and all it’s establishments is suicidal, we will soon realise the folly of our decades old international agenda. The fall of the Roman Empire must have been an experience similar in nature for it’s people but the fall of the West will be on a much larger scale if as looks likely it will happen over the next 20 or more years.

  • Angus Macphee says:

    Thanks. Great read and a good summary of a very complex situation. No doubt our erstwhile Minister of State for Investment, Lord Grimstone would summarise in fewer words viz: “ short term perturbations capable of self correction”. The new mantra!

  • philip jones says:

    Following on from the final sentence of this article, the author should write an article about why China is going to rule the world. He’s been listening to too much of Martin “the Marxist” Jacques.

  • Lawman says:

    We have our views on the political implications (which affect investability) but how does this directly affect investors today?

    Be more wary of investing in Chinese stocks, perhaps selling some. The CCP will be emboldened to interfere in quoted companies. The USA may respond with sanctions or boycotts.

    Generally could this be an extraneous event which ‘spooks’ investors and the indexes fall with acceleration.

    In short, I am turning the dial further in favour of defensive assets.

  • TonyA says:

    I feel Victor Hill is wildly over-reading the Afghanistan situation and needs to cut down his coffee intake and stick to investment issues. How can Afghanistan be a catastrophic defeat, when “victory” was couched in such vague Kumbaya terms and barely anyone ever believed that Afghans’ warring tribal and multiethnic society, surrounded by dictatorships and one party states, could ever be made into a western-style democracy? It’s a defeat only for those who believed in military occupations and nation-building; Western countries and societies as a whole will continue on their path with barely a ripple. Some further points of argument:

    1. Biden is right. We should have exited a least a decade ago. The democracy project via occupation and throwing money in and lives away was as much as fantasy as in Iraq. The Chinese approach of building infrastructure in exchange for natural resources and absorption into the Chinese trading system is far, far more effective than imposing political systems. We need to re-learn that.

    2. The Taliban will posture and the NGOs will wring their hands, and Afghanistan will probably now become just another mining and drug satrap of China. The country will become their problem, and Russia, Iran and Pakistan’s, not ours. Those countries may rub their hands now: they have misread the situation and will come to regret it.

    3. The US is not going to leave Europe, Japan and South Korea just because of a minor withdrawal from a benighted and beleaguered country like Afghanistan. Why should one lead to the others? Did it happen when the US left Iraq? The old alliances will reassert themselves by their own internal logic of mutual self-interest and shared cultural and political values and practices.

    4. There was never a good or easy time to leave Afghanistan. Better done now than never. And if the Afghan army collapsed in two weeks, this just proves the waste of all those years of “training” a bunch of often doped-up peasants who couldn’t wait to switch sides and get back home. They weren’t willing to fight and die for the fantasies of a bunch of US nation builders and their NATO
    and NGO hangers-on. More fool our political leaders for believing they would.

    5. The Afghan withdrawal wasn’t incompetent: it was a triumph of adjusting to changed circumstances when the Afghan army swapped sides and melted away because their bosses did some deals with the Taliban. And if some Afghans got left behind, I’m sorry but that’s life. Our political masters should never have promised them salvation in the West, because it’s utterly obvious that we could never 100% guarantee such an outcome. To believe otherwise is just another example of the post-1989 “we can do anything” guilt-ridden Last Superpower Global Community fantasy that got us into nation-building in the first place

    6 Terrorism, migration? These are happening anyway. We will deal with them as we are and as best we can on a rolling basis. And why tie up resources in basket cases like Afghanistan or Iraq, when the real battles are closer to home and China’s miners and civil engineers are locking up the world’s resources and ports year by year?

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