August 17, 2009 Pakistan and the Death of Baitullah Mehsud Reports indicated that on Aug. 5, Baitullah Mehsud, the notorious leader of the Taliban in Pakistan, died from a U.S. missile strike. In this report, we will recount the life of Baitullah Mehsud and his role in the Taliban movement, the effect of this death on the geopolitics of Pakistan and the likely impact on NATO operations in Afghanistan. As always, we will discuss the potential ramifications for the financial markets. Who was Baitullah Mehsud? Baitullah Mehsud was a member of the Mehsud tribe (hence the last name) that lives in the South Waziristan (northwest Pakistan). These regions have been, at best, loosely ruled by the British during the colonial period and by various Pakistani governments. For the most part, these regions are governed by local tribal leaders living a traditional lifestyle. Baitullah Mehsud worked strenuously to avoid being identified. Even his age could not be accurately confirmed. However, it does appear he fought against the Soviets in Afghanistan, suggesting he was in his mid- 40s. He received little formal education. Reports indicate he was trained by Jalaluddin Haqqani, a famous Taliban Pashtun leader who fought against the Soviets in Afghanistan. It was Haqqani who purportedly rescued Osama bin Laden from Tora Bora in 2002. Despite this tie to al Qaeda, Mehsud was formally aligned with Mullah Mohammad Omar, the leader of the Afghan Taliban. In 2004, Baitullah Mehsud was a low-level Taliban commander. He rose to power in the Taliban movement after a key leader of the Islamist insurgency in Pakistan, Nek Mohammad Wazir, was killed by a Hellfire missile fired from an American drone. Baitullah Mehsud was appointed by various tribal groups to the role of overall commander of the insurgency in Pakistan, passing over other more senior (and more flamboyant) leaders. In 2005, Baitullah Mehsud signed a peace agreement with the Musharraf government. Mehsud agreed to stop attacking military installations in the tribal areas. In return, he was granted amnesty and, according to some reports, a rather sizable monetary gift. The Musharraf government touted the agreement as surrender by Baitullah Mehsud; in fact, he used the time to rebuild and expand his insurgency. It was during this peace accord that tribal leaders thought to be friendly to the Pakistani government were systematically assassinated and replaced by those supportive of Baitullah Mehsud. This allowed Mehsud to solidify his control over the tribal region of South Waziristan. The ceasefire remained in place until July 2007 when Pakistani troops stormed the Red Mosque. The Red Mosque is the oldest mosque in Islamabad. Leadership of the mosque was 1
aligned with the Taliban and began to close local video stores and brothels, initially through protests and later through kidnappings. Local police intervened to break up the protests and rescue those kidnapped. Tensions rose and eventually the Pakistani military stormed the mosque, capturing numerous students and killing the mosque s leadership. This event triggered a strong response from the Taliban in the tribal areas of Pakistan. the Taliban and started a shift in relations between Pakistan and the United States. This shift appears to have led to the actionable intelligence that led to Baitullah Mehsud s demise. The Taliban and the Geopolitics of Pakistan After the storming of the Red Mosque, the Taliban, led by Mehsud, engaged in a series of attacks on Pakistani military forts in the tribal regions. At one point, Mehsud swapped 250 Pakistani troops and paramilitaries for 30 insurgents with ties to the Taliban and al-qaida. Even more unsettling was a surge of suicide bombings in the urban areas of Pakistan. In 2007, the United Nations estimated that 80% of suicide bombings in Pakistan were ordered by Baitullah Mehsud. However, the act that raised his profile in the West was the assassination of Benazir Bhutto in December 2007. According to Pakistani officials, he was responsible for ordering this act. In reality, it isn t clear if he really did order the killing, but he did threaten to end her life when she returned to Pakistan in October 2007. Due to his leadership, in December 2007, Mullah Omar, the leader of the Taliban in Afghanistan, named Mehsud to lead Tehrike-Taliban (the Taliban Movement in Pakistan). Naming Mehsud to this position changed the Pakistan government s view of (Source: University of Texas) Pakistan s geopolitics starts with its geography. The core of the country is the Indus River valley, which runs through the plains of Pakistan, between the mountains and India. To protect the core, Pakistan holds the mountains that border Afghanistan and Iran. While these buffers tend to offer protection from invaders, they also make the country difficult to unify. 2
There are four major ethnic groups in Pakistan the Sindhis and Punjabis, who occupy the Indus River Valley, and the Baluch and Pashtuns who live in the mountains. The latter three groups are also well represented in surrounding countries. In fact, India has a state called Punjab. Iran has a large minority of Baluch and the Pashtuns represent over 40% of Afghanistan s population. Pakistan needs the mountains as a buffer, but the central government has little control over the mostly separate ethnic groups in this region. In effect, Pakistan as a nation has lacked a unifying theme for most of its history. Since independence, Pakistan has alternated between weak democratic governments and military regimes. Because of the absence of a unifying theme, democracies tend to be ineffective. Military governments have been able to control Pakistan but have been unpopular. Prior to the junta led by General Zia-ul-Haq (1977-88), Pakistani governments were usually secular and leftist, reflecting the sentiment among Sindhis and Punjabis in the Indus River valley. General Zia introduced Islam as a unifying principal as a way to bring the Pashtuns and Baluch into the fold. After the Soviets invaded Afghanistan, Pakistan s formidable intelligence agency, the Inter-Services Intelligence (ISI) began to cultivate various Islamic groups which were based in the Pakistani tribal regions and operating against the Soviets. After the communist puppet government in Kabul fell in 1992, a civil conflict developed among these Islamic groups. By 1994, the Taliban, a group of students and teachers from Kandahar, rose above the factions and began capturing territory. The ISI and the Saudi intelligence agencies were impressed with the Taliban and threw their support behind the movement. Eventually, the Taliban took control of Afghanistan, meaning that Pakistan had a solid ally on its western border. However, this relationship came under pressure after al Qaeda, which was sheltered by the Taliban, attacked the United States in September 2001. After the Taliban refused to turn Osama bin Laden to the West, the United States attacked Afghanistan, overthrowing the Taliban. Pakistan, facing a potential attack from the United States, agreed to support the U.S. military. However, the Pakistan government and the ISI were divided on ousting the Taliban. After all, Pakistan was using radical Islam as a unifying theme and it had led to a friendly government in Afghanistan. Overall, the Musharraf government reluctantly and intermittently supported U.S. efforts against the Taliban. For the most part, the Taliban retreated into the tribal regions of Pakistan and rebuilt its insurgency to try to recapture the Afghan government. However, the Pakistan government began to take a different view of the Taliban with the rise of Baitullah Mehsud. As Mehsud s influence expanded and his attacks into the urban areas of the Indus River Valley increased, the Pakistan regime came to the conclusion that the Pakistani Taliban was a threat to the government. This year, the 3
Pakistan military launched a major offensive into Swat, a province in the tribal regions that had fallen under control of the Taliban. The military was able to regain control of the region and began to move against North and South Waziristan. However, the Pakistani military recognized that these regions were more firmly controlled by Baitullah Mehsud. That s when it appeared the ISI gave the U.S. actionable intelligence that led to Mehsud s death. The ISI and NATO in Afghanistan The NATO plan to stabilize Afghanistan is to adopt the surge plan that worked in Iraq. Namely, NATO will try to splinter the Taliban, incorporating the good Taliban into the government and eliminating the bad Taliban. This program worked in Iraq because the U.S. was able to determine who was good and bad within the Sunni insurgency. However, this insurgency situation is more complicated in Afghanistan because the Taliban has used the tribal regions in Pakistan as a base of operations. NATO has less intelligence on which groups within the Taliban can be turned. Because of this lack of intelligence, NATO relies on the ISI for this information. Unfortunately, the interest of NATO and the ISI are not well aligned. For the most part, the ISI would prefer to create a compliant government in Afghanistan. While this may not necessarily have to be a Taliban regime, Pakistan had good relations with the last one and would likely prefer such a government instead of the Karzai administration. Thus, from the point of view of the ISI, the bad Taliban operate in Pakistan and want to overthrow the regime in Islamabad or cooperate with the government in Kabul. Good Taliban operate in Afghanistan and want to dominate the government in Kabul. From NATO s perspective, the Taliban that want to dominate in Kabul and Islamabad are both bad while those that would cooperate with the current government in Kabul are good. This doesn t mean that NATO and the ISI won t have areas where they have mutual interests. Clearly eliminating Baitullah Mehsud was one of those areas. This assassination obviously benefited Pakistan by eliminating a terrorist threat and it also helped NATO by showing that, with good intelligence, specific actors can be eliminated. In the aftermath of Baitullah Mehsud s death, the Taliban in Pakistan appears to be in disarray. Unconfirmed reports suggest a major leadership struggle is underway. This should give Pakistan a window of opportunity to further disrupt this organization and gain better control over the tribal regions. However, it is unlikely that the ISI will work with NATO to undermine the Taliban that operate in Afghanistan. One of the issues for NATO and the United States is the ultimate goal in Afghanistan. Although there is the stated goal of building a friendly democracy in Afghanistan, that is an unlikely outcome unless the U.S. is prepared to remain in Afghanistan for decades. However, one very good outcome 4
would be the elimination of al Qaeda. Since it is believed that al Qaeda operates in the tribal regions of Pakistan, it is possible the ISI would assist in locating and eliminating the leadership of this terrorist organization. In the May 18 th WGR ( A New Direction in South Asia ) we discussed the appointment of Lt. Gen. Stanley McChrystal to Afghanistan. McChrystal is experienced in special operations warfare. In that report, we speculated that his appointment signaled a change in policy in the Afghan conflict. Instead of trying to stabilize the Afghan government, appointing someone with McChrystal s background suggested a new goal of eliminating the leadership of al Qaeda. Perhaps the recent cooperation of NATO with the ISI signals the beginning of such efforts. Ramifications Overall, the assassination of Baitullah Mehsud did not affect the financial or commodity markets. Given the U.S. media s current focus on domestic issues, it is understandable that such a significant event was ignored. However, if we do see greater cooperation between the ISI and NATO on attacking al Qaeda, news of the elimination of that terrorist group s leadership would likely bring a lift to investor sentiment. In the long run, developing an exit strategy in Afghanistan is crucial. Essentially, NATO must decide what its goals are in that conflict. We suspect that, in the coming months, a decision to scale back operations and focus on al Qaeda makes sense. Already we are seeing public sentiment in Europe turn against NATO participation in Afghanistan. Narrowing the goals in the Afghan conflict will likely be a result. Ending the war in Afghanistan would likely be supportive for financial markets. Bill O Grady August 17, 2009 This report was prepared by Bill O Grady of Confluence Investment Management LLC and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security. Confluence Investment Management LLC Confluence Investment Management LLC is an independent, SEC Registered Investment Advisor located in St. Louis, Missouri. The firm provides professional portfolio management and advisory services to institutional and individual clients. Confluence s investment philosophy is based upon independent, fundamental research that integrates the firm s evaluation of market cycles, macroeconomics and geopolitical analysis with a value-driven, fundamental company-specific approach. The firm s portfolio management philosophy begins by assessing risk, and follows through by positioning client portfolios to achieve stated income and growth objectives. The Confluence team is comprised of experienced investment professionals who are dedicated to an exceptional level of client service and communication. 5