Article

Will a changed Middle East affect markets?

The world waits to see if a Taliban government will keep its new promises, but either way, it adds a further disruptive force to the region.

| 6 min read

The rapid capitulation of the Afghan government to the Taliban so soon after President Biden announced an abrupt final withdrawal of US troops has scarred his reputation for diplomacy and statecraft. It has raised new worries about the security of US allies in the region and the longer-term impact on terrorism and oil. President Biden claims that he was merely implementing a policy of final withdrawal outlined by his predecessor, and was building on the talks President Trump had held with the Taliban over their possible future role in a peaceful Afghanistan. The truth is he decided upon a final rapid pull out without proper consultation with the Afghan government over their needs or with NATO allies whose smaller troop deployments immediately became unsustainable without US leadership. The idea of talking to the Taliban pursued without success by President Obama and with limited progress by President Trump was never designed to allow them to oust the democratic government in place.

President Biden is on sounder ground when he argues the US wants an end to its military actions in Afghanistan. Led by the USA, NATO had spent many billions of dollars and much time and talent on training, equipping and supporting Afghan government forces with a view to their taking over all the duties necessary to keep the peace and ensure the writ of legitimate government throughout the country. US technology, airpower and general firepower was still an important backstop or potential threat to assist the Afghan forces. In scenes widely compared to the US exit from Saigon when they lost the Vietnam war, the US exit precipitated the collapse of the Afghan forces in the face of a determined and aggressive Taliban insurgency. Many Afghans decided to submit to the ferocity of the Taliban presence and threats rather than compound their problems by trying to fight them and seeing their towns and villages destroyed and many more people murdered.

We now have to face a new reality. Democratic government, imperfect though it was, has gone from Afghanistan. The world waits to see if a Taliban government will keep its new promises and not pursue vendettas against women and girls. They have implied they will not reverse human rights gained under the outgoing government, nor allow Afghanistan to be a training base again for terrorists wishing to attack beyond their country borders. The Taliban are not trusted by anyone given their past violent anti-state stance. The nearest they have to a state ally is Pakistan, with a history of offering places for Afghan Taliban personnel to live, train and plan between incursions into Afghanistan.

Pakistan will not want a big upsurge in refugees and will wish to ensure the anti-Pakistani state tendencies of some Taliban groups are redirected. Yet it probably welcomes the overthrow of a US government that is too aligned to the USA and India for its liking. It wanted the security apparatus of that state wrestled out of the custodianship of the outgoing Afghan President. Iran is also sometimes seen as a natural Taliban ally. They have a common cause against America and may well be early public supporters of the new Afghan government. Iran is likely, however, to remain cautious in case Taliban authority in Afghanistan starts to subvert their interests closer to home.

China may well see this as a further opportunity to extend its interests in the Middle East and may well offer investment and support in return for gaining access to Afghan natural resources. Russia too is being courted by the Taliban as they seek international endorsement for their legitimacy as a new government after the illegal overthrow of the old one. Neither China nor Russia will want the idea of a state overturning its government catching on in regions within their own territory.

The USA under President Biden has also pledged to end the US combat mission in Iraq this year. Troop numbers have been run down in recent years under a policy of transferring security responsibility progressively to local forces. Some remain at the request of the Iraqi government. The President will need to learn from the Afghan experience and make better judgements about any further reductions in Iraq.

The USA still has substantial troop deployments around the world, with representations in around 150 countries. After the exit from Afghanistan and the run down in Iraq, the main ground force left in the Middle East is in Bahrain. The US has fallen back on substantial troop numbers only in territories of long-standing allies. The largest are Japan, Hawaii, Germany, South Korea, followed by smaller numbers in Italy and the UK. US power these days is more likely to take the form of carrier groups or air strike from friendly locations. US prestige and authority has taken a bad knock from defeat at the hands of the Taliban who they ejected from Afghanistan 20 years ago.

All this means a less stable Middle East. It means a Middle East where Chinese and Russian influence will be greater and the US lesser as a result of policy shifts. President Trump’s strategy of defining a series of allies against Iran, and encouraging the principal allies Israel and Saudi Arabia to sign a peace treaty along with others has been dented by all this. We await a replacement.

The US may be unconcerned about the way this could loosen what western influence there is on the oil market as the President inherits US self-sufficiency in oil and gas and is pledged to phase it out anyway. The oil market has probably got a bit more volatile, as anti-US forces come to control more of the Middle East and as a realigned Afghanistan adds it weight to forces disruptive of western trade and influence. These changes will take time to work through and are modestly negative for markets, introducing new dangers into the global order, world trade and the alliances of states.

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Will a changed Middle East affect markets?

Read this next

A marathon, not a sprint

See more Insights

More insights

Article
Omicron and hawkish Fed concern markets
By Garry White
03 Dec 2021 | 6 min read
Article
Do countries have too much debt?
By Charles Stanley
03 Dec 2021 | 6 min read
Article
Why markets have fallen
By Charles Stanley
01 Dec 2021 | 4 min read
Article
New Covid-19 variant hits travel and markets
By Garry White
26 Nov 2021 | 7 min read