Most people we have met in Delhi and in America over the past fortnight agree that it was Pakistan’s playing of the nuclear card that triggered America’s abrupt intervention in the recent Indo-Pak conflict. This piece in Bloomberg explains how Pakistan played the nuclear card in a way that hadn’t been done before by any other country and why that represents in a new level of threat in international relations. To understand these two conclusions, Daniel Ten Kate gives us a bit of background in how nuclear weapons have underpinned global relationships since WW2.

Firstly, we learn about the ‘Stability-Instability Paradox’ which suggests that while nuclear weapons deter full-scale wars, they may increase the likelihood of smaller conflicts. ​ This dynamic is evident in various geopolitical tensions, particularly between nuclear powers. The theory was introduced by Glenn Snyder in 1965. It posits that the threat of mutually assured destruction reduces direct conflict but encourages peripheral wars. Historical examples include the Korean War and the Taiwan Strait crises. The paradox has led to proxy wars in regions like Vietnam, Afghanistan, and Ukraine.

Daniel Ten Kate explains that “In Asia, the increasing heft of India and China in particular makes it more likely they will seek push their conventional military might over weakened nations if threatened….These probabilities will in turn spur the likes of Pakistan, North Korea and even US allies in the region to ensure that they have a credible nuclear deterrence threat.”

The second mental model to build is JFK’s ‘Flexible Response’. The U.S. has maintained a policy of deterrence since the Cold War. President Kennedy’s “Flexible Response” aimed to mitigate risks associated with the Stability-Instability Paradox. “It involved using a range of proportional responses below the nuclear threshold, including diplomatic pressure, economic sanctions and conventional war.”

Daniel Ten Kate explains how China, rather than America, is today the foremost exponent of the Flexible Response: “China has spent much of the past decade conducting jet drills and military exercises, demonstrating an ability to encircle Taiwan either for an invasion or for an extended blockade.”

What Pakistan (and in all likelihood China) seem to have figured out is that Trump’s America is less skilled than most in coming up with Flexible Responses. This gives them extra leverage when it comes to make nuclear threats knowing that America is unlikely to be in a position to call their bluff which in turn allows them to get their way.

What Daniel Ten Kate says that India has figured this out and has now come up with its new, more aggressive posture to counter the new Pakistani strategy: “After the ceasefire, Modi said that India’s operation marked a “new normal” in how it would respond to Pakistan….Any terrorist attack from now on would be considered an act of war.

“India will not tolerate nuclear blackmail,” Modi said. “India will strike precisely and directly at the terrorist hideouts developing under the cover of nuclear blackmail.”….”For every terrorist attack Pakistan will have to pay a high cost…and this cost will have to paid by the country’s army and their economy.””

Pakistan’s new strategy and India’s response to it now makes south Asia a more dangerous place than it was a couple of months ago. In Daniel Ten Kate’s words:

“This new stance is testing the limits of the Stability-Instability Paradox. Modi is essentially calling Pakistan’s bluff, betting that it won’t actually use atomic weapons. That in turn will incentivize Pakistan to show that its nuclear threats are serious.
Trump’s intervention, ironically, may make this worse next time. After feeling that the US president handed Pakistan a win with far-fetched claims of averting nuclear war, India may be less likely to accept future American efforts to find an off-ramp.”

You might want to read Thomas Schelling’s Nobel prize speech from 2005 on the subject, we featured a couple of weeks ago, here.

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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.



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