Iran Gains Ground in Afghanistan as U.S. Presence Wanes

By CARLOTTA GALL
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An Afghan police officer at his unit’s outpost overlooking the districts north of Farah, the capital of the province that goes by the same name. In October, the Taliban overran posts like this one in a siege. Credit Bryan Denton for The New York Times



FARAH, Afghanistan — A police officer guarding the outskirts of this city remembers the call from his commander, warning that hundreds of Taliban fighters were headed his way.

“Within half an hour, they attacked,” recalled Officer Najibullah Amiri, 35. The Taliban swarmed the farmlands surrounding his post and seized the western riverbank here in Farah, the capital of the province by the same name.

It was the start of a three-week siege in October, and only after American air support was called in to end it and the smoke cleared did Afghan security officials realize who was behind the lightning strike: Iran.

Four senior Iranian commandos were among the scores of dead, Afghan intelligence officials said, noting their funerals in Iran. Many of the Taliban dead and wounded were also taken back across the nearby border with Iran, where the insurgents had been recruited and trained, village elders told Afghan provincial officials.

The assault, coordinated with attacks on several other cities, was part of the Taliban’s most ambitious attempt since 2001 to retake power. But it was also a piece of an accelerating Iranian campaign to step into a vacuum left by departing American forces — Iran’s biggest push into Afghanistan in decades.

President Trump recently lamented that the United States was losing its 16-year war in Afghanistan, and threatened to fire the American generals in charge.

There is no doubt that as the United States winds down the Afghan war — the longest in American history, and one that has cost half a trillion dollars and more than 150,000 lives on all sides — regional adversaries are muscling in.

Saudi Arabia and Pakistan remain the dominant players. But Iran is also making a bold gambit to shape Afghanistan in its favor.

Over the past decade and a half, the United States has taken out Iran’s chief enemies on two of its borders, the Taliban government in Afghanistan and Saddam Hussein in Iraq. Iran has used that to its advantage, working quietly and relentlessly to spread its influence.

In Iraq, it has exploited a chaotic civil war and the American withdrawal to create a virtual satellite state. In Afghanistan, Iran aims to make sure that foreign forces leave eventually, and that any government that prevails will at least not threaten its interests, and at best be friendly or aligned with them.

One way to do that, Afghans said, is for Iran to aid its onetime enemies, the Taliban, to ensure a loyal proxy and also to keep the country destabilized, without tipping it over. That is especially true along their shared border of more than 500 miles.

But fielding an insurgent force to seize control of a province shows a significant — and risky — escalation in Iran’s effort.

“Iran does not want stability here,” Naser Herati, one of the police officers guarding the post outside Farah, said angrily. “People here hate the Iranian flag. They would burn it.”


A carpet market in Herat that deals in machine-made Iranian textiles and rugs. Herat is sometimes called “Little Iran.” Credit Bryan Denton for The New York Times        


Iran has conducted an intensifying covert intervention, much of which is only now coming to light. It is providing local Taliban insurgents with weapons, money and training. It has offered Taliban commanders sanctuary and fuel for their trucks. It has padded Taliban ranks by recruiting among Afghan Sunni refugees in Iran, according to Afghan and Western officials.

“The regional politics have changed,” said Mohammed Arif Shah Jehan, a senior intelligence official who recently took over as the governor of Farah Province. “The strongest Taliban here are Iranian Taliban.”

Iran and the Taliban — longtime rivals, one Shiite and the other Sunni — would seem to be unlikely bedfellows.

Iran nearly went to war with the Taliban when their militias notoriously killed 11 Iranian diplomats and an Iranian government journalist in fighting in 1998.

After that, Iran supported the anti-Taliban opposition — and it initially cooperated with the American intervention in Afghanistan that drove the Taliban from power.

But as the NATO mission in Afghanistan expanded, the Iranians quietly began supporting the Taliban to bleed the Americans and their allies by raising the cost of the intervention so that they would leave.

Iran has come to see the Taliban not only as the lesser of its enemies but also as a useful proxy force. The more recent introduction of the Islamic State, which carried out a terrorist attack on Iran’s parliament this year, into Afghanistan has only added to the Taliban’s appeal.

In the empty marble halls of the Iranian Embassy in Kabul, Mohammad Reza Bahrami, the ambassador, denied that Iran was supporting the Taliban, and emphasized the more than $400 million Iran has invested to help Afghanistan access ports on the Persian Gulf.

“We are responsible,” he said in an interview last year. “A strong accountable government in Afghanistan has more advantages for strengthening our relations than anything.”

But Iran’s Foreign Ministry and its Islamic Revolutionary Guards Corps act as complementary arms of policy — the first openly sowing economic and cultural influence, and the second aggressively exerting subversive force behind the scenes.

Gen. Sir David Richards of Britain, right, then NATO’s top commander in Afghanistan, and his interpreter, Cpl. Daniel James in 2006. Credit Rodrigo Abd/Associated Press        


Iran has sent squads of assassins, secretly nurtured spies and infiltrated police ranks and government departments, especially in western provinces, Afghan officials say.

Even NATO’s top commander in Afghanistan at the time, Gen. Sir David Richards of Britain, discovered that Iran had recruited his interpreter, Cpl. Daniel James, a British-Iranian citizen. Corporal James was sentenced to 10 years in prison for sending coded messages to the Iranian military attaché in Kabul during a tour of duty in 2006.

More recently, Iran has moved so aggressively in bulking up the Taliban insurgency that American forces rushed to Farah Province a second time in January to stave off a Taliban attack.

“The Iranian game is very complicated,” said Javed Kohistani, a military analyst based in Kabul.

Having American forces fight long and costly wars that unseated Iran’s primary enemies has served Tehran’s interests just fine. But by now, the Americans and their allies have outlasted their usefulness, and Iran is pursuing a strategy of death by a thousand cuts “to drain them and cost them a lot.”

The vehicle that was carrying Mullah Akhtar Muhammad Mansour, the Taliban leader, when it was destroyed by a drone strike last year in the remote town of Ahmad Wal in Pakistan. Credit Agence France-Presse — Getty Images        


An Ambitious Expansion

The depth of Iran’s ties to the Taliban burst unexpectedly into view last year. An American drone struck a taxi on a desert road in southwestern Pakistan, killing the driver and his single customer.

The passenger was none other than the leader of the Taliban, Mullah Akhtar Muhammad Mansour. A wanted terrorist with an American bounty on his head who had been on the United Nations sanctions list since before 2001, Mullah Mansour was traveling without guards or weapons, confident and quite at home in Pakistan.

The strike exposed for the second time since the discovery of Osama bin Laden in the Pakistani hill town of Abbottabad the level of Pakistan’s complicity with wanted terrorists. It was the first time the United States had conducted a drone attack in Pakistan’s Baluchistan Province, a longtime sanctuary for the Taliban but until then off limits for American drones because of Pakistani protests.

Yet even more momentous was that Mullah Mansour was returning from a trip to Iran, where he had been meeting Iranian security officials and, through Iran, with Russian officials.

Afghan officials, Western diplomats and security analysts, and a former Taliban commander familiar with Mullah Mansour’s inner circle confirmed details of the meetings.

Both Russia and Iran have acknowledged that they have held meetings with the Taliban but maintain that they are only for information purposes.

That the Taliban leader was personally developing ties with both Iran and Russia signaled a stunning shift in alliance for the fundamentalist Taliban movement, which had always been supported by the Sunni powers among the Arab gulf states and Pakistan.

But times were changing with the American drawdown in Afghanistan, and Mullah Mansour had been seeking to diversify his sources of money and weapons since taking over the Taliban leadership in 2013. He had made 13 trips to Dubai, United Arab Emirates, and one to Bahrain, his passport showed, but also at least two visits to Iran.

Set on expanding the Taliban’s sway in Afghanistan, he was also preparing to negotiate an end to the war, playing all sides on his terms, according to both Afghan officials with close knowledge of the Taliban and the former Taliban commander close to Mullah Mansour’s inner circle.

It was that ambitious expansionism that probably got him killed, they said.

“Mansour was a shrewd politician and businessman and had a broader ambition to widen his appeal to other countries,” said Timor Sharan, a former senior analyst of the International Crisis Group in Afghanistan who has since joined the Afghan government.

Mullah Mansour had been tight with the Iranians since his time in the Taliban government in the 1990s, according to Mr. Kohistani, the military analyst. Their interests, he and other analysts and Afghan officials say, overlapped in opium. Afghanistan is the world’s largest source of the drug, and Iran the main conduit to get it out.

Iran’s border guards have long fought drug traffickers crossing from Afghanistan, but Iran’s Revolutionary Guards and the Taliban have both benefited from the illicit trade, exacting dues from traffickers.

The main purpose of Mullah Mansour’s trips to Iran was tactical coordination, according to Bruce Riedel, a former C.I.A. analyst and fellow at the Brookings Institution in Washington. At the time, in 2016, the Taliban were gearing up for offensives across eight Afghan provinces. Farah was seen as particularly ripe fruit.

Iran facilitated a meeting between Mullah Mansour and Russian officials, Afghan officials said, securing funds and weapons from Moscow for the insurgents.

Mullah Mansour’s cultivation of Iran for weapons was done with the full knowledge of Pakistan, said the former Taliban commander, who did not want to be identified since he had recently defected from the Taliban.

“He convinced the Pakistanis that he wanted to go there and get weapons, but he convinced the Pakistanis that he would not come under their influence and accept their orders,” he said.

Pakistan had also been eager to spread the political and financial burden of supporting the Taliban and had encouraged the Taliban’s ties with Iran, said Haji Agha Lalai, a presidential adviser and the deputy governor of Kandahar Province.

On his last visit, Mullah Mansour traveled to the Iranian capital, Tehran, to meet someone very important — possibly Iran’s supreme leader, Ayatollah Ali Khamenei, said the former Taliban commander, who said he had gleaned the information from members of Mullah Mansour’s inner circle.

Mullah Mansour stayed for a week, also meeting with a senior Russian official in the town of Zahedan, said Mr. Lalai, who spoke with relatives of the Taliban leader.

He was almost certainly negotiating an escalation in Iranian and Russian assistance before his death, Mr. Lalai and other Afghan officials said, pointing to the increase in Iranian support for the Taliban during his leadership and since.

But the meeting with the Russians was apparently a step too far, Afghan officials say. His relations with Iran and Russia had expanded to the point that they threatened Pakistan’s control over the insurgency.

The United States had been aware of Mullah Mansour’s movements, including his ventures into Iran, for some time before the strike and had been sharing information with Pakistan, said Seth G. Jones, associate director at the RAND Corporation. Pakistan had also provided helpful information, he added. “They were partly supportive of targeting Mansour.”

Gen. John Nicholson, the United States commander of coalition forces in Afghanistan, said President Barack Obama had approved the strike after Mullah Mansour failed to join peace talks being organized in Pakistan.

Col. Ahmad Muslem Hayat, a former Afghan military attaché in London, said he believed that the American military had been making a point by striking Mullah Mansour on his return from Iran.

“When they target people like this, they follow them for months,” he said. “It was smart to do it to cast suspicions on Iran. They were trying to create a gap between Iran and the Taliban.”

But if that was the intention, Mr. Lalai said, it has not succeeded, judging by the way the new Taliban leader, Mawlawi Haibatullah Akhundzada, has picked up his predecessor’s work.

“I don’t think the contact is broken,” he said. “Haibatullah is still reaching out to Iran. They are desperately looking for more money if they want to extend the fight.”


Afghan laborers and merchants moved goods through a bazaar in Herat known for Iranian dry foodstuffs and other sundries. Credit Bryan Denton for The New York Times               


Intrigue in ‘Little Iran’

There is no place in Afghanistan where Iran’s influence is more deeply felt than the western city of Herat, nearly in sight of the Iranian border.

Two million Afghans took refuge in Iran during the Soviet invasion in the 1980s. Three million live and work in Iran today. Herat, sometimes called “Little Iran,” is their main gateway between the countries.

People in Herat speak with Iranian accents. Iranian schools, colleges and bookshops line the streets. Women wear the head-to-foot black chador favored in Iran. Shops are full of Iranian sweets and produce.

But even as the city is one of Afghanistan’s most decorous and peaceful, an air of intrigue infuses Herat.

The city is filled with Iranian spies, secret agents and hit squads, local officials say, and it has been plagued by multiple assassinations and kidnappings in recent years. The police say Iran is funding militant groups and criminal gangs. A former mayor says it is sponsoring terrorism.

Iran is constantly working in the shadows. The goal, Afghan officials say, is to stoke and tip local power struggles in its favor, whether through bribery, infiltration or violence.

One day in January, Herat’s counterterrorism police deployed undercover officers to stake out the house of one of their own men. Two strangers on a motorbike seemed to be spying on the house, so secret agents were sent out to spy on the spies.

Within hours, the police had detained the men and blown their cover: They were Iranian assassins, according to the Afghans. The passenger was armed with two pistols.

Residents of Herat walking over a bridge in the city where, in January, the police stopped two Iranian men who were armed and carrying false documents. Credit Bryan Denton for The New York Times        


Forensics tests later found that one of the guns had been used in the murder of an Iranian citizen in Herat 10 months earlier, police officials said.

The two Iranians are still in Afghan custody and have yet to be charged. They have become a source of contention between Iran and Afghanistan.

Iran disowned them, pointing to their Afghan identity cards, but Afghan officials paraded them on television, saying they were carrying false papers and had admitted to being sent by Iran as a hit squad.

The Afghan police say they have arrested 2,000 people in counterterrorism operations in Herat over the last three years. Many of them, they say, are armed insurgents and criminals who reside with their families in Iran and enter Afghanistan to conduct dozens of attacks on police or government officials.

Iran is set on undermining the Afghan government and its security forces, and the entire United States mission, and maintaining leverage over Afghanistan by making it weak and dependent, Afghan officials say.

“We caught a terrorist who killed five people with an I.E.D.,” a senior police officer said, referring to a roadside bomb. “We released a boy who was kidnapped. We defused an I.E.D. in the city.”

Flicking through photographs on his phone, he pointed to one of a man in a mauve shirt. “He was convicted of kidnapping five people.” Much of the kidnapping is criminal, for ransom, but at least some of it is politically motivated, he added.

The 33-year-old, English-speaking Farhad Niayesh, a former mayor of Herat, is even more blunt, and exasperated. He says the Iranians use their consulate in the city as a base for propaganda and “devising terrorist activities.”

“Iran has an important role in terrorist attacks in Herat,” Mr. Niayesh said. “Three or four Iranians were captured. They had a plan against government officials who were not working in their interest.”

Members of Parliament and security officials say Iran bribes local and central government officials to work for it, offering them 10 to 15 Iranian visas per week to give to friends and associates. Afghans visit to conduct business, receive medical care and see family.

A former member of the Afghan police service who is now in the Pul-e-Charki prison. She was accused of being a secret Iranian agent after shooting an American trainer to death in the Kabul Police Headquarters in 2012, and was sentenced to death. Credit Bryan Denton for The New York Times        


The Afghan police have uncovered cases of even deeper infiltration, too. A female member of the Afghan police service was sentenced to death, accused of being a secret Iranian agent, after fatally shooting an American trainer in the Kabul Police Headquarters in 2012.

“Our western neighbor is working very seriously,” said the senior Afghan police official in Herat who requested anonymity because of the nature of his work. “ We have even found heavy artillery to be used against the city.”

Iran is supporting multiple anti-government militant groups in half a dozen western provinces, he said. The Afghan police, despite a lack of resources, are working to dismantle them.

“The same sort of people are still in the city,” he added. “They are doing their work, and we are doing our work.”

Members of the Afghan security forces walked through a set of riverside gardens that were the scene of running gun battles between the Taliban and Afghan security forces last fall. Credit Bryan Denton for The New York Times        


Double-Edged Soft Power

Afghans dream of restoring their landlocked, war-torn country to the rich trading center it was in days of old, when caravans carried goods along the Silk Road from China to Europe, and people and ideas traveled along the same route.

If Tehran has its way, the modern Silk Road will once again run across Afghanistan’s western border, and proceed through Iran. At least that is the ambition.

On one side of the Afghan border, India has been building a road through southwestern Afghanistan to allow traders to bypass Pakistan, which has long restricted the transit of Afghan goods.

Tehran’s goal is to join that route on the Iranian side of the border with road and rail links ending at the port of Chabahar on the Persian Gulf.

“We said that Afghanistan would not be landlocked anymore and we would be at Afghanistan’s disposal,” said Mr. Bahrami, the Iranian ambassador in Kabul, stressing that Iran’s contribution to the Afghan road was not stalled even by its economic difficulties under sanctions.

But Iran’s economic leverage comes at a price.

Afghan officials say Iran’s support of the Taliban is aimed in part at disrupting development projects that might threaten its dominance. The Iranian goal, they contend, is to keep Afghanistan supplicant.

The biggest competition is for water, and Afghans have every suspicion that Iran is working to subvert plans in Afghanistan for upstream dams that could threaten its water supply.

Mohammed Amin, a farmer, with his greenhouse-grown tomatoes in the city of Farah. He said the proposed Bakhshabad dam project, which would irrigate Farah Province, would help him compete with Iranian produce prices. Credit Bryan Denton for The New York Times        


Iran has raised the issue of the dams in bilateral meetings, and President Hassan Rouhani recently criticized the projects as damaging to the environment.

With the upheaval of 40 years of coups and wars in Afghanistan, large-scale development plans, like hydroelectric projects, have largely been stalled since the 1970s. Even after international assistance poured into Afghanistan after 2001, internal and external politics often got in the way.

But President Ashraf Ghani, determined to generate economic growth, made a priority of completing the Salma dam in Herat Province, and has ordered work on another dam at Bakhshabad, to irrigate the vast western province of Farah.

In Farah, despite the two calamitous Taliban offensives on the provincial capital in October and January, the Bakhshabad dam is the first thing everyone mentions.

“We don’t want help from nongovernmental organizations or from the government,” said Mohammed Amin, who owns a flourishing vegetable farm, growing cucumbers and tomatoes under rows of plastic greenhouses. “We in Farah don’t want anything. Just Bakhshabad.”

Afghanistan’s lack of irrigation makes it impossible to compete with Iranian produce prices, something Bakhshabad could solve, he said.

The project is still only in the planning stage. But the dam, with its promise of irrigation and hydroelectricity for a population lacking both, is a powerful dream — if Iran does not thwart it.

“The most important issue is water,” Mr. Lalai, the presidential adviser, said of relations with Iran. “Most of our water goes to our neighbors. If we are prosperous, we might give them less.”

     Taliban fighters in Herat Province last year. Credit Allauddin Khan/Associated Press        


Peace or Proxy War?

The death of Mullah Mansour removed Iran’s crucial link to the Taliban. But it has also fractured the Taliban, spurring a number of high-level defections and opening opportunities for others, including Iran, to meddle.

An overwhelming majority of Taliban blame Pakistan for Mullah Mansour’s death. The strike deepened disillusionment with their longtime Pakistani sponsors.

About two dozen Taliban commanders, among them senior leaders who had been close to Mullah Mansour, have since left their former bases in Pakistan.

They have moved quietly into southern Afghanistan, settling back in their home villages, under protection of local Afghan security officials who hope to encourage a larger shift by insurgents to reconcile with the government.

Those with family still in Pakistan live under close surveillance and control by Pakistani intelligence, said the former Taliban commander, who recently abandoned the fight and moved his family into Afghanistan to escape reprisals.

He said he had become increasingly disaffected by Pakistan’s highhanded direction of the war. “We all know this is Pakistan’s war, not Afghanistan’s war,” he said. “Pakistan never wanted Afghanistan to be at peace.”

The question now: Does Iran?

Citing the threat from the Islamic State as an excuse, Iran may choose, with Russian help, to deepen a proxy war in Afghanistan that could undermine an already struggling unity government.

Or it could encourage peace, as it did in the first years after 2001, for the sake of stability on at least one of its borders, prospering with Afghanistan.

For now, Iran and Russia have found common cause similar to their partnership in Syria, senior Afghan officials and others warn.

Emboldened by their experience in Syria, they seem to be building on their partnership to hurt America in Afghanistan, cautioned the political analyst Mr. Sharan.

As American forces draw down in Afghanistan, jockeying for influence over the Taliban is only intensifying.

“Pakistan is helping the Taliban straightforwardly,” said Mr. Jehan, the former Afghan intelligence official who is now governor of Farah. “Russia and Iran are indirectly helping the Taliban. We might come to the point that they interfere overtly.

“I think we should not give them this chance,” he added. “Otherwise, Afghanistan will be given up to the open rivalry of these countries.”

The former Afghan foreign minister, Rangin Dadfar Spanta, warned that the country risked being pulled into the larger struggle between Sunni powers from the Persian Gulf and Shiite Iran.

“Afghanistan should keep out the rivalry of the regional powers,” he said. “We are vulnerable.”

Some officials are optimistic that Iran is not an enemy of Afghanistan, but the outlook is mixed.

“There is a good level of understanding,” Abdullah Abdullah, the Afghan government’s chief executive, said of relations with Iran.

“What we hear is that contacts with the Taliban are to encourage them to pursue peace rather than military activities,” he said.

Mohammad Asif Rahimi, the governor of Herat, warned that if Farah had fallen to the Taliban, the entire western region would have been laid open for the insurgents.

Iran’s meddling has now grown to the extent that it puts the whole country at risk of a Taliban takeover, not just his province, he said.

But it could have been prevented, in the view of Mr. Sharan.

“The fact is that America created this void,” he said. “This vacuum encouraged countries to get involved. The Syria issue gave confidence to Iran and Russia, and now that confidence is playing out in Afghanistan.”

“Pakistan is helping the Taliban straightforwardly,” said Mr. Jehan, the former Afghan intelligence official who is now governor of Farah. “Russia and Iran are indirectly helping the Taliban. We might come to the point that they interfere overtly.

“I think we should not give them this chance,” he added. “Otherwise, Afghanistan will be given up to the open rivalry of these countries.”

The former Afghan foreign minister, Rangin Dadfar Spanta, warned that the country risked being pulled into the larger struggle between Sunni powers from the Persian Gulf and Shiite Iran.

“Afghanistan should keep out the rivalry of the regional powers,” he said. “We are vulnerable.”

Some officials are optimistic that Iran is not an enemy of Afghanistan, but the outlook is mixed.

“There is a good level of understanding,” Abdullah Abdullah, the Afghan government’s chief executive, said of relations with Iran.

“What we hear is that contacts with the Taliban are to encourage them to pursue peace rather than military activities,” he said.

Mohammad Asif Rahimi, the governor of Herat, warned that if Farah had fallen to the Taliban, the entire western region would have been laid open for the insurgents.

Iran’s meddling has now grown to the extent that it puts the whole country at risk of a Taliban takeover, not just his province, he said.

But it could have been prevented, in the view of Mr. Sharan.

“The fact is that America created this void,” he said. “This vacuum encouraged countries to get involved. The Syria issue gave confidence to Iran and Russia, and now that confidence is playing out in Afghanistan.”

A bridge in Farah that was nearly captured in October in fierce fighting as Iranian-backed Taliban forces carried out a major assault on the city. Credit Bryan Denton for The New York Times        


Ruhullah Khapalwak contributed reporting from Kabul, Afghanistan.


China Prepares for a Crisis Along North Korea Border

Beijing bolsters defenses along its 880-mile frontier and realigns forces in surrounding regions

By Jeremy Page

North Korean soldiers recently rode on a boat used as a local ferry as they cross the Yalu river north of the border city of Dandong, China. Photo: Kevin Frayer/Getty Images


BEIJING—China has been bolstering defenses along its 880-mile frontier with North Korea and realigning forces in surrounding regions to prepare for a potential crisis across their border, including the possibility of a U.S. military strike.

A review of official military and government websites and interviews with experts who have studied the preparations show that Beijing has implemented many of the changes in recent months after initiating them last year.

They coincide with repeated warnings by U.S. President Donald Trump that he is weighing military action to halt North Korea’s nuclear weapons program, while exerting pressure on China to do more to rein in Pyongyang.

Recent Chinese measures include establishing a new border defense brigade, 24-hour video surveillance of the mountainous frontier backed by aerial drones, and bunkers to protect against nuclear and chemical blasts, according to the websites.

China’s military has also merged, moved and modernized other units in border regions and released details of recent drills there with special forces, airborne troops and other units that experts say could be sent into North Korea in a crisis. They include a live-fire drill in June by helicopter gunships and one in July by an armored infantry unit recently transferred from eastern China and equipped with new weaponry.

China’s Defense Ministry didn’t respond directly when asked if the recent changes were connected to North Korea, saying only in a written statement that its forces “maintain a normal state of combat readiness and training” on the border. It has denied previous reports of thousands of extra Chinese troops moving into border areas.

A Chinese Foreign Ministry spokesman on Monday said: “Military means shouldn’t be an option to solve the Korean Peninsula issue.”

Chinese authorities have nonetheless been preparing for North Korean contingencies, including economic collapse, nuclear contamination, or military conflict, according to U.S. and Chinese experts who have studied Beijing’s planning.

China’s recent changes in force structure, equipment and training are connected to nationwide military reforms launched last year to overhaul Soviet-modeled command structures and prepare better for combat beyond China’s borders, those experts say.

In the northeast, however, those reforms are geared predominantly toward handling a North Korean crisis, the experts say.

China’s contingency preparations “go well beyond just seizing a buffer zone in the North and border security,” said Mark Cozad, a former senior U.S. defense intelligence official for East Asia, now at the Rand Corp.

“Once you start talking about efforts from outside powers, in particular the United States and South Korea, to stabilize the North, to seize nuclear weapons or WMD, in those cases then I think you’re starting to look at a much more robust Chinese response,” he said. “If you’re going to make me place bets on where I think the U.S. and China would first get into a conflict, it’s not Taiwan, the South China Sea or the East China Sea: I think it’s the Korean Peninsula.”

China, like many foreign governments, still considers a U.S. military strike unlikely, mainly because of the risk of Pyongyang retaliating against South Korea, an American ally whose capital of Seoul lies within easy reach of the North’s artillery.

The Pentagon declined to discuss U.S. planning efforts. American officials didn’t respond to questions about steps taken by China. But top American officials say they are focused on diplomatic and economic pressure, and view military action as a last resort.

Although technically allied to Pyongyang, Beijing wouldn’t necessarily defend its regime, but is determined to prevent a flood of North Koreans from entering northeastern China and to protect the population there, U.S. and Chinese experts say.

Beijing also appears to be enhancing its capability to seize North Korean nuclear sites and occupy a swath of the country’s northern territory if U.S. or South Korean forces start to advance toward the Chinese border, according to those people.

That, they say, would require a much larger Chinese operation than just sealing the border, with special forces and airborne troops likely entering first to secure nuclear sites, followed by armored ground forces with air cover, pushing deep into North Korea.

It could also bring Chinese and U.S. forces face to face on the peninsula for the first time since the war there ended in 1953 with an armistice—an added complication for the Trump administration as it weighs options for dealing with North Korea.

Beijing has rebuffed repeated American requests to discuss contingency planning, American officials say.

China has long worried that economic collapse in North Korea could cause a refugee crisis, bring U.S. forces to its borders, and create a united, democratic and pro-American Korea. But China’s fears of a U.S. military intervention have risen since January as Pyongyang has test-fired several missiles, including one capable of reaching Alaska.

“Time is running out,” said retired Maj. Gen. Wang Haiyun, a former military attaché to Moscow now attached to several Chinese think tanks. “We can’t let the flames of war burn into China.”

He wrote an unusually outspoken article for one of those think tanks in May arguing that China should “draw a red line” for the U.S.: If it attacked North Korea without Chinese approval, Beijing would have to intervene militarily.

A man in Dandong offered tourists the use of binoculars to view the North Korean side of the Yalu River in April. Photo: Damir Sagolj/REUTERS


China should demand that any U.S. military attack result in no nuclear contamination, no U.S. occupation of areas north of the current “demarcation line” between North and South, and no regime hostile to China established in the North, his article said.

“If war breaks out, China should without hesitation occupy northern parts of North Korea, take control of North Korean nuclear facilities, and demarcate safe areas to stop a wave of refugees and disbanded soldiers entering China’s northeast,” it said.

Maj. Gen. Wang said he didn’t speak for the government. But his article isn’t censored online—as it would likely be if Beijing disapproved—in China and other Chinese scholars and military figures recently voiced similar views.

In recent weeks, some details of China’s preparations have also emerged on the military and government websites.

The new border defense brigade patrolled the entire frontier in June to gather intelligence and has drawn up detailed plans for sealing it in a crisis, according to the military’s official newspaper.

Aerial drones would help identify targets, supplementing the new 24-hour video surveillance and addressing problems with “information access, rapid mobility and command and control,” another report in the newspaper said.

Many other units in the northeast have recently conducted new combat-focused training for the kind of joint military operations that experts say would be needed for an intervention within North Korea.

In one drill, a new “combined arms brigade” simulated battle against a “blue team” with artillery, tanks and helicopters, state television reported in June.

The new Northern Theater Command, which controls forces in the northeast, also now incorporates units in eastern China that experts say could be launched across the Yellow Sea toward North Korea.

Meanwhile, authorities in Jilin province, which borders North Korea, are reinforcing and expanding a network of underground shelters and command posts to withstand air, nuclear or chemical attack, local government notices show.

Chinese soldiers recently patrolled the streets of Dandong near the North Korean border. Photo: Jiwei Han/ZUMA PRESS        


Such facilities were needed “to respond to the complicated security situation surrounding the province,” Jilin’s civil air defense bureau said in a notice on its website, which also features photos and specifications of U.S. military aircraft.

In May, Jilin’s government unveiled what it called China’s first “combat-ready big data disaster preparedness center” in an underground facility designed to protect critical military and government data from nuclear or chemical attack.

Jilin authorities declined to comment, citing the sensitivity of the subject.

China’s military reforms aren’t complete and the People’s Liberation Army, or PLA, remains ill-prepared for a North Korean operation, some experts say.

“I don’t see the PLA at this time being particularly enthusiastic about being tasked to undertake a potential near-term mission in North Korea,” said Dennis Blasko, a former U.S. military attaché in Beijing.

But China, like the U.S., has been surprised by how fast North Korea’s nuclear weapons program has progressed, say foreign diplomats and experts. Beijing also worries that Pyongyang’s actions are now harming Chinese security interests, since the U.S. deployment in South Korea in April of a missile-defense system that China says can track its own nuclear missiles, diplomats and experts say.

Beijing’s interests “now clearly extend beyond the refugee issue” to encompass nuclear safety and the peninsula’s long-term future, said Oriana Skylar Mastro, an assistant professor at Georgetown University who has studied China’s planning for a North Korean crisis.

“China’s leaders need to make sure that whatever happens with (North Korea), the result supports China’s regional power aspirations and does not help the United States extend or prolong its influence,” Ms. Mastro said.


—Ben Kesling in Washington contributed to this article.


The Coming Financial Volatility

Gene Frieda

Monetary tightening

LONDON – Bond investors are from Mars, and central bankers are from Venus – or so suggests the bond market’s negative reaction to signals that the exceptional monetary-policy accommodation of the last decade is winding down. Risky asset markets, however, are ignoring the red flags that the bond markets are waving. Are they right?
 
Today, inflation remains low in much of the developed world. But previously dovish central banks in countries like the United States and the United Kingdom are itching to roll back the accommodative monetary policies that they have pursued since the eruption of the global financial crisis of 2008.
 
Inflation-targeting central banks assume that, when inflation expectations are stable, changes in inflation stem from changes in the amount of slack in the economy. When slack diminishes – as is happening now, with unemployment now well below average levels over the business cycle (and at multi-decade lows in the US and the UK) – inflation will eventually rise.
 
Already, these central banks have maintained loose monetary policies for much longer than in the past, in order to offset the headwinds to growth and inflation that the financial crisis produced. Yet they know from past asset bubbles that leaving monetary policy too loose for too long risks digging an ever deeper hole, with natural interest rates and potential growth ending up even lower in the next cycle.
 
So are investors in risky asset markets right to be so complacent? For now, there can be no definitive answer. But the record from past periods of calm suggests that, when cross-asset market volatility is low, de-risking is prudent.
 
To be sure, investors would have greater cause for concern if there were clearer signs of excessive risk-taking in financial markets and the real economy – the kind of excess that craves the monetary-policy punch. Because periods of asset-price euphoria – exemplified by the dotcom and real-estate bubbles of 2000-2008 – typically feature exceptionally loose monetary policy, central banks are now trying to extend the business cycle by removing monetary accommodation in a gradual and predictable manner.
 
But asset-price bubbles also tend to feature new innovations that entice markets and central banks into believing that this time really is different. In the post-crisis context, the most likely justification for higher asset-price valuations is the global decline in the “price” of savings (the natural rate of interest), or R-star. If corporate earnings grow as a function of trend growth (the underlying rate of growth), but funding costs remain a function of an even lower R-star, then equity multiples should be higher than in the past on a structural basis, and credit spreads should generally be tighter.
 
But, while this argument appears accurate today, investors have at least two reasons to be worried.
 
First, to the extent that the gap between trend growth and natural rates drives up asset valuations, marginal changes in that gap should lead to changes in those valuations. If central banks were simply altering short-term interest rates – the traditional tool of monetary policy – as they have done in the past, this would be less of a concern.
 
But, in the present cycle, central banks have become far more dependent on indirect tools – namely, long-term interest rates. The effects of such tools are shaped by investor expectations, and are thus prone to sudden and extreme shifts. In 2013, for example, the US Federal Reserve’s suggestion that it would begin to taper off one of its quantitative easing programs triggered a “taper tantrum,” with money pouring out of the bond market and bond yields rising substantially.
 
The second key cause for concern is that higher valuations do not necessarily mean higher returns or better volatility-adjusted returns. Even if the positive gap between potential growth and natural interest rates justifies higher asset valuations, lower potential growth denotes lower returns across asset classes. As interest rates rise toward the natural rate, financial conditions should tighten, and risky asset valuations should fall. Central banks want this tightening to come about gradually, but the brief history of unconventional monetary policy suggests that asset re-pricing tends to occur abruptly – sometimes disruptively so.
 
Why, then, don’t investors take advantage of extremely low volatility to buy cheap insurance?
 
Markets do not explode every time volatility is low, but volatility has always been extremely low when markets have exploded. Insurance is needed most when imbalances become extreme.
 
Equity and credit valuations are not cheap; but they are not egregiously expensive, either.
 
Here on Earth, central bankers and bond investors have something in common: both worry that the current period of extremely low volatility is neither sustainable nor desirable. After all, lower combinations of fixed income, foreign exchange, and equity volatility have been seen three times before: just prior to the onset of the global financial crisis, in the month preceding the taper tantrum, and in the summer of 2014.
 
In short, there is no doubt that volatility will eventually rise to normal levels. For investors today, the lesson is clear: reducing the scale of risk exposure is the right way forward.
 
 

 
Bello
 
Latin America’s disappointing economic growth
 
The commodity hangover has been compounded by political uncertainty
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SCAN the Latin American newspapers and it is hard to find much sign of a convincing economic recovery. True, Brazil’s industrial production is perking up after a two-year slump.

Mexico’s energy reform is starting to pay off, at last, with a big new oil discovery by an international consortium. And Peruvian restaurateurs celebrated “National Char-roasted Chicken” day on July 16th, hoping to dispatch a million birds, up from last year’s 720,000.

Otherwise, animal spirits are in short supply. After five years of deceleration and one of recession, Latin America should register modest economic growth of 1-1.5% this year, according to forecasters. The picture varies from country to country. The return to aggregate growth is largely thanks to Brazil and Argentina, which are coming out of recessions.

Venezuela’s economy is collapsing. Mexico, Chile, Colombia and Peru are expanding at a sluggish rate of 2-3%. Only in Central America, the Dominican Republic and Bolivia is growth a respectable 4% or so.

What makes this particularly worrying is that external conditions are generally favourable.

The world economy is picking up speed. The United States and China, the region’s biggest trading partners, are growing nicely. Financiers look favourably on Latin American governments and companies, as Argentina’s recent launch of a 100-year bond illustrated.

So why is the region still so off-colour? One answer is that adjusting to the end of the commodity boom, which benefited South America particularly, has taken longer than expected.

Between 2003 and 2010 China’s industrialisation boosted demand for minerals, oil and foodstuffs. Commodity prices fell steadily between 2010 and 2015. As export revenue shrank, the region’s currencies weakened, curbing imports and pushing up inflation.

The good news is that in many countries this external adjustment went smoothly and is largely over. The region’s current-account deficit narrowed by 1.4 percentage points of GDP last year (to 2.1%). Inflation is falling swiftly, allowing central banks to cut interest rates (see chart).

That offers hope of a pickup in growth in 2018.

But Latin America also faces a fiscal squeeze. The commodity boom temporarily boosted tax revenues. Too many governments spent, rather than invested or saved, this windfall. The primary fiscal deficit (ie, before interest payments) in the region as a whole increased from 0.2% of GDP in 2013 to 2.6% last year. In other words, public debt is rising. Many governments have started to retrench. Few are in a position to prime the pump of recovery.

There is a second factor slowing the rebound: political uncertainty. That starts with Donald Trump. While he has agreed to renegotiate, rather than scrap, the North American Free-Trade Agreement with Mexico and Canada, he continues to threaten to impose protectionist measures, discourage investment south of the Rio Grande and deport millions of Mexicans and Central Americans. So far Mexico’s economy has held up better than feared: the peso is stronger now than it was before Mr Trump’s election last November. The annual growth rate was 2.7% in the first quarter of this year. But Mexico is living from month to month.

The second doubt concerns domestic politics. Latin America will not return to faster growth unless it does more to solve the structural problems that hold it back. They include inadequate infrastructure, poor-quality schooling, badly designed taxes and regulations that hobble business. Fixing these requires persuasive leadership. But in the larger countries, the only president who is even moderately popular is Mauricio Macri of Argentina. In Brazil, Michel Temer has an approval rating of 7% and may be evicted from office because of corruption allegations.

Between November of this year and October 2018, Chile, Colombia, Mexico and Brazil all face presidential elections (while Argentina has an important mid-term congressional election this October). These contests will take place amid popular disillusion with politicians, caused partly by corruption. In each, there is some risk that a populist could triumph.

No wonder investment remains depressed. Growth this year is coming mainly from a small recovery in exports and from import substitution. The first task facing governments is to provide investors, both local and foreign, with a reasonable degree of policy certainty. More than is usually the case, for insights on their economic prospects, Latin Americans should turn to political scientists rather than to economists.


Russia’s Strategy: Built on Illusion

By George Friedman



Strong powers can underplay their hands and afford to make mistakes. Weak powers, on the other hand, need to exaggerate their power and be far more precise in its use. Power is like money; the less you have, the more you need to flaunt it and the fewer mistakes you can afford to make. But by trying to convince others that they have more power than they actually do, they run the risk of squandering a scarce resource. It’s nearly impossible to both flaunt power and preserve it at the same time.

This is the core strategic problem of Russia. On the one hand, it is still trying to find its way more than 25 years after the collapse of the Soviet Union, an event President Vladimir Putin has referred to as “the greatest political catastrophe” of the 20th century. In the lives of nations, a quarter of a century is not very long, and the reverberations of the catastrophe are still being felt. On the other hand, Russia lives in a complex and dangerous region, and appearing weak can be the biggest threat to its well-being. Therefore, like a wealthy person coming into hard times, Russia must simultaneously try to appear more powerful than it is and meticulously manage what power it has.
Russia’s Geographic Weakness
Since the fall of the Soviet Union, Russia has faced two fundamental problems. The first is geographic. The second, which we’ll return to later, is economic.

Russia’s main geographic problem is that it needs to maintain a buffer zone to its west to stem the risk of attack from the European Peninsula. Russia has been invaded three times, once by France and twice by Germany. In each case, it survived because of strategic depth. The Baltics, Belarus and Ukraine created the buffer zone that gave Russia room to retreat and exhaust the enemy. Although the weather also played a role, distance was the main challenge for attacking armies. Even in World War I, Germany was unable to sustain the gains it won. In the Napoleonic Wars and World War II, the enemy was ground down and defeated.

After World War II, Russia’s buffer zone expanded dramatically. A second tier of nations to the West – Poland, Czechoslovakia, Hungary and Romania – came under Soviet dominion. Soviet power pushed into central Germany. For the first time in its history, it had strategic depth such that an attack from the European Peninsula was unthinkable.

But maintaining the force that was needed to hold this deep buffer exceeded Soviet resources. The drop in oil prices, the inherent inefficiency in the economy, and the cost of defending what it had won in World War II had become unsustainable, and the Soviet Union collapsed. It first lost the deep buffer of Eastern Europe, and two years later, it lost the critical elements of its core buffer, the Baltics and Ukraine.

An argument can be made that given the situation on the European Peninsula, the threat to Russia has evaporated. But nothing in Russia’s history permits such complacency. In 1932, Germany was a weak and divided liberal democracy. Six years later, it was the most powerful military force in Europe. Russia understands the speed with which European (and American) intentions and capabilities can change. It must therefore continue to pursue strategic depth.

Russian servicemen march at Red Square during the Victory Day military parade in Moscow on May 9, 2017. NATALIA KOLESNIKOVA/AFP/Getty Images
When the Baltic countries were brought into NATO, the Russians were unable to respond. But Ukraine was a different matter. It had become independent but was not absorbed by the West. It was also a critical part of Russia’s buffer. Ukraine is vast, and the cost of crossing it from the west is high. When Western countries, particularly the U.S., appeared to support the establishment of a pro-Western government in Kiev during the 2004 Orange Revolution, Russia believed they actually intended to undermine Russian security. A Ukraine armed or controlled by the West would make Russia very difficult to defend. The U.S. claimed the Orange Revolution was about human rights, but the Russians saw that as a cover. The Russians fought back with covert operations designed to install a pro-Russian government in Kiev. The Americans responded by supporting the uprising in 2014, and the Russians saw this too as a hostile act.

But Russia was in no position to do anything about it. Its intelligence services failed to understand or prevent what happened in Kiev. The Russians had to do something to demonstrate they were not impotent. So Russia formally annexed Crimea, a region that was historically Russian, and where Russian force was already overwhelming. This convinced the Americans that Russia was an aggressive power. Russia found itself in a strategic confrontation that outstripped its resources but which it could not abandon.

But with Russia unable to challenge Western forces and with the U.S. uninterested in an extended conflict with Moscow, the result was a frozen conflict in Ukraine. There was an implicit agreement: Russia would accept a pro-Western government in Kiev so long as that did not include a military alliance or deployment of Western forces in Ukraine. The U.S. and Europe would accept the status quo so long as the Russians did not become aggressive. The Russians had a buffer against the West, and the West had a buffer against Russia.

This achieved a solution the West could live with because Ukraine was not a fundamental interest. But for the Russians, it was only minimally acceptable. Ukraine was vital to Russian interests and this solution was only just short of a defeat.
Economic Constraints
Russia decided it had to act to increase its strength. But it was dealt another blow in 2014, when oil prices began to decline as a result of increased supplies and constrained demand. And this brings us back to Russia’s second fundamental problem: its economic weakness. Russia is dependent on an economic variable it can’t control. It remains heavily reliant on oil exports but it can’t dictate the price of oil. At a time when it needed to expand its military power, it was facing deep economic constraints. This was precisely the problem the Soviet Union faced in the 1980s. It had to increase its military force while its major export, energy, plunged in price. This problem was instrumental in the Soviet Union’s collapse. To avoid repeating this scenario, the Russians had to decrease their defense budget rather than increase it.

After the dual shocks of 2014, Russia could either acknowledge its weakness or attempt to appear more powerful than it was. But if it acknowledged its problems, Russia was afraid, reasonably so, that the U.S. could impose a more aggressive policy on Moscow. Russia was forced into the maneuver of a formerly wealthy man down on his luck. It had to appear convincingly more powerful than it was, with the attendant danger of using up resources it couldn’t afford to spend. It pursued this strategy through low-cost, low-risk actions.

One such action was in Syria. The intervention there served no Russian strategic interests. There was speculation that Russia was interested in pipelines or ports. But no one believed that Russia’s commitment to Bashar Assad was so deep that it would intervene to save him. In reality, the Russians intervened to show that they could, and to prove that they could deal with the United States and Turkey as equals. From a strategic standpoint, it made little sense. From a psychological standpoint, it made some sense. The forces it sent were limited, and while they may have prevented the fall of Assad, they are now as bogged down as the Americans, unable to win and unable to leave. But being as bogged down as the Americans was not a problem. To the contrary, it made Russia a player on a bigger stage.

Russia’s second low-risk action was an old Soviet strategy: using its intelligence forces in a destabilization campaign. The goal of the Russian campaign was not so much to interfere in political campaigns as to be seen as interfering. The Soviets also played this game in the 1980s, supporting various radical groups in Europe. Of course, the Soviet Union collapsed anyway. Actions taken by weak nations designed to make them appear stronger than they are always fail in the long run. A country’s real power is durable, but illusions are fleeting.

The Russians are delighted that they have convinced some that they control Donald Trump. Not only does this breed instability in the United States, but it gives a sense of overwhelming, if covert, Russian power. If they actually did try to control Trump, then their reputation for incompetence in such matters proceeds them, since being able to blackmail Trump had value only if it were kept secret. And the coup of the century (or several centuries) would be the biggest secret of all time. But the point was not to control Trump, but to destabilize the United States. And while it has certainly created an uproar, the fact remains that American power is intact, and so is Russian power. The balance of power has not changed.

Russia has achieved what it needed to in Syria and in its destabilization campaign. It appears to be stronger than it is. But Russia’s fundamental problems have not been addressed. Its strategic depth has been compromised if not lost, and its economy is staggering as oil prices remain low. The Russians have no solutions to these problems so instead they are engaging in a series of very impressive bluffs. But in the end, they are merely buying time, not solving their strategic problema.