The Longest Week
A Presidency in Peril
As the headlines have it, the US is scrambling to evacuate its citizens and Afghan allies before Aug 31st. This deadline was self-imposed by President Biden but has now become a Taliban red-line with “consequences” in case the US military runs over.
There remain thousands of Americans and other western nationals in Afghanistan, as well as vast numbers of Afghans eligible for special immigrant visas. If Biden is lucky, these populations can be evacuated in the week that remains. That would allow America to once again put Afghanistan in the rear-view mirror.
Such an exit would significantly improve America’s geopolitical situation. Military and intelligence resources, as well as leadership bandwidth, will be freed to focus on areas of more strategic importance such as East Asia. An added dividend could be that the Taliban will henceforth become a Russo-Chinese problem, albeit with “help” from Pakistan.
This is what Trump and Biden wanted all along.
But they botched the exit and so here we are.
As the Taliban have steamrolled through Afghanistan, Biden’s approval rating has cratered from a comfortable +8 point cushion to a -2 point deficit. That amounts to a 10 point loss in less than a month:
Readers may wish to note that this is a huge loss. A 10-point change in such a short time is a rare occurrence.
This raises many questions such as why Americans care about this, does it matter to investors and what else could go wrong.
Loss of confidence
The American public has a well-earned reputation for being oblivious to the rest of the world. It is also no secret that Afghanistan had become the forgotten war. Over the last year, operations had wound down to a large extent and American soldiers were no longer dying. It was done.
Partially due to this forgetfulness, the exit crisis has come as a shock. Also, America’s recent pandemic problems vs Delta make this new debacle even harder to swallow.
There is also the matter of expectations from Biden.
Whatever else Americans (on both sides) might have thought of him, he was widely expected to provide a contrast to former President Trump’s blundering style. Given Biden’s foreign policy expertise and establishment credentials, a withdrawal fiasco was not expected.
A similar fiasco during Trump’s reign would hardly have been news.
But the bar is higher for Biden and in fairness, he set it there.
Biden has made the counter-argument that he was misled by intelligence agencies that predicted 18 months to collapse. This is being disputed by unofficial CIA sources. Either way, the specter of infighting between the President and the CIA is unlikely to help Biden. But it may further reduce confidence in the CIA as an institution if Biden continues to project that the agency was clueless after 20 years in Afghanistan.
There is much chest-beating about America’s loss of credibility abroad, but Biden’s approval ratings show that what is more serious is the loss of credibility within. To recent failures of the CDC, FDA and Trump, the American public can now add Biden, CIA and the military top brass.
Americans are seeing their government as incompetent and Biden, as an establishment figure, pays the price.
Should investors care?
Afghanistan by itself is not an economic issue for global markets, obviously. But Biden’s reduced political clout can be.
The President aims to pass a gigantic $3.5 trillion stimulus plan this fall, through a divided Senate. There is no room for error here: the Democrat majority remains at 50-50 (+ VP Kamala Harris) and the GOP is implacably opposed. The Democrat progressive wing is on board, but moderates and red-state Democrats may have second thoughts in supporting a damaged President on a bill this large. A $3.5 trillion social spending bill would be an uphill climb even in the best of circumstances.
We could see massive cuts if the President’s standing is further damaged. That could have consequences for markets. Current valuations are predicated on two legs: continuing fiscal stimulus and a gentle Fed taper, if and when it comes. If the stimulus ends up being cut down a lot, that puts further pressure on the Fed and the markets.
And pressure there will be. Even if the remaining evacuation is less embarrassing, the GOP has now smelled blood in the water. Let us recall that Biden’s stimulus has enormous political significance. Both parties see it as crucial to next year’s mid-terms. Democrats know that the ruling party typically loses mid-terms and so they are betting it all on a huge injection of money to turn out their voters and carry them through. Thus, it is imperative for the GOP to do the opposite: damage Biden and whittle down this package.
Biden’s loss of political capital at this juncture is therefore a significant setback for Democrats.
Looking another year out, the President’s ratings may be even more consequential. If they are a drag and Democrats lose the House, we no longer has a unified government. That would place the brakes on further fiscal measures as legislative activity grinds to a halt given hyper-partisanship. It is almost forbidding to imagine what a debt ceiling debate will look like in 2023 if the GOP controls the House.
Thus Biden must rescue his approvals, for the sake of Democrats as well as the equity markets. Readers may want to take a moment to savor the irony of how often quasi-socialist administrations find themselves in the same boat as stock markets.
An immediate upshot is that the administration has only kind words for the Taliban. They know their position is extremely delicate.
State of chaos
There are still over a thousand Americans stuck in Afghanistan and many more Afghan allies. It is not clear that all of them can reach Kabul airport by Aug 31st, which is now Taliban’s official deadline. Many of the potential evacuees are not even in Kabul and there are reports of CIA and special forces teams going around the country, trying to find them. Also, the Taliban are not happy with the optics of Afghans fleeing their envisaged rule. Yesterday, they declared that Afghan nationals will no longer be let through to the airport. If that is a serious statement, then it may just be a matter of time before we see images of the Taliban ill-treating a universe of Afghans who worked with the US Army: translators, cooks, female professionals, NGO workers etc.
A (good) counter-argument would be that stranded Afghan allies do not command as much oxygen in D.C. as American citizens. That is true, but the plight of Afghan allies has struck at least half a chord among Americans. Even the Democrat-leaning media is so far unable to turn a blind eye.
For example, the NYT editorial board recently gave op-ed space to General Sadat, formerly commander of Afghan special forces. Sadat happens to be a highly respected military figure, an oddity in the Afghan army. His op-ed appears to be a damning indictment of Biden’s main talking point: that Afghans did not have the will to fight the Taliban. In his words:
The Afghan forces were trained by the Americans using the U.S. military model based on highly technical special reconnaissance units, helicopters and airstrikes. We lost our superiority to the Taliban when our air support dried up and our ammunition ran out. Contractors maintained our bombers and our attack and transport aircraft throughout the war. By July, most of the 17,000 support contractors had left.
A technical issue now meant that aircraft — a Black Hawk helicopter, a C-130 transport, a surveillance drone — would be grounded. The contractors also took proprietary software and weapons systems with them. They physically removed our helicopter missile-defense system. Access to the software that we relied on to track our vehicles, weapons and personnel also disappeared. Real-time intelligence on targets went out the window, too.
The Taliban fought with snipers and improvised explosive devices while we lost aerial and laser-guided weapon capacity. And since we could not resupply bases without helicopter support, soldiers often lacked the necessary tools to fight. The Taliban overran many bases; in other places, entire units surrendered.
Going forward, the liberal media may also find it hard to ignore the ill-treatment of women such as beatings and forced marriages. Especially if the affected people had been eligible to immigrate to the US but could not get out due to poor planning.
Connecting the dots one arrives at the height of irony: a GOP suddenly concerned about brown Muslim refugees and woke Democrats trying to change the subject.
Meanwhile, Afghanistan may not be done with the pain it can inflict on Biden.
Afghanistan’s billions
The sane elements of the Taliban would like to be recognized as a legitimate government and have access to international aid as well as Afghanistan’s forex reserves. Almost all of these reserves, to the tune of $9 billion or so, are currently frozen at the New York Fed and other western financial institutions.
This frozen money is Biden’s only leverage in Kabul at this point. The original plan was that funds and recognition would be an incentive to get the Taliban to share power inclusively and overall behave better.
But what if Biden cannot get everyone out in time before Aug 31st? What carrot does he dangle if a mix of Americans, other western nationals and Afghan allies are left stranded?
Unless he wants to re-declare war on the Taliban, Biden may be in the unenviable position of having to negotiate with them. That would basically look like this: people in exchange for money. Very hostage-like and really bad optics for a US commander-in-chief. The mere notion of giving up the pot of gold, just to get people out, would be seen as abhorrent given that the Taliban could just go right back to murdering women in soccer stadiums. The original plan was that Afghanistan reserves would be an incentive for good governance, not ransom for trapped people.
Again, it has been argued that the American public may not care. I disagree however. Biden’s domestic opponents will ensure that any uncomfortable news gets all the airtime needed at least until the stimulus bill is disposed of.
Is this scenario likely? I don’t know. But the risk is non-trivial. I definitely hesitate to say that it is unlikely. Much depends on the evacuation process which seems to have have sped up.
There are prominent people on both sides of the “hostage” scenario. The other day I had the opportunity to put a few questions to Mr. Ajmal Ahmady, former governor of the Afghan central bank. He told me that the Taliban wouldn’t do this because “then they would lose any chance of getting the money”. But in response to another question, Mr. Ahmady also said that he does not believe that the Taliban are going to behave better this time around.
So, that doesn’t add up for me. Why? Because if the Taliban intend to return to their former ways then they already know they will not get the money as per America’s original plan. Recall that plan was predicated on good behavior. In that case, blocking access to the airport after 31st Aug and letting Biden stew (politically) over whoever is left-behind may be the only way for the Taliban to get some of the money. Not a great way, but surely a Hail Mary pass.
Regardless of whether they get the money or not, a prolonged drama of this sort is the very last thing Biden needs.
If that was not concerning enough, there is also the “less sophisticated” part of the Taliban to contend with. Taliban are not monolithic. Some warlords under their umbrella may feel the leadership is a bit too enthusiastic about a seat in the UN general assembly. They could snap up some hostages and seek ransom, because that’s just what they have been doing for the previous forty odd years.
If that was not enough, there are other trans-national groups in Afghanistan, like ISIS, whose intentions and sanity are both uncertain. They are opposed to the Taliban as well as the US and have little strategy other than general terrorism, hostage-taking etc.
Today’s suicide bombing at Kabul airport may be an example of that. The consequences could be quite severe given that the loss of life includes US soldiers.
Then there is the Pakistani Taliban (TTP) which I haven’t seen talked about enough. The TTP wishes to install a Taliban-like government in Pakistan. They have so far been allied with the Afghan Taliban but now may fear that the Afghans will no longer support their ambition. Why? Because nobody wants a Talibanized nuclear-armed Pakistan of 200 million souls. Not the US, Russia or China. The Afghan Taliban will have to cold shoulder the TTP if they have any intention of being recognized. No doubt their Pakistani colleagues are aware of that. The TTP could well see a hostage drama with the US as a good way to attract a following of zealots, independent of the Taliban.
Paradoxically, the Afghan Taliban may even be secretly supportive of such a drama so they can later “negotiate” a safe release of hostages on America’s behalf - and come out smelling of roses.
Afghanistan, unfortunately, is a place where shit happens on a regular basis. Pardon the French.
It will be a long week for Biden.