An Israeli Iron Dome Interceptor launches. Image source

In the late hours of October 1, Iran launched 180–200 ballistic missiles aimed at targets in Israel. The attack reportedly comes as retribution for Israel’s September 27 killing of Hezbollah leader Hassan Nasrallah as well as its ongoing incursions into southern Lebanon. Here is what we know so far:

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Countries like Italy still rely heavily on gas-fired power plants for much of their electrical grid, and Russian gas to power them. Image source

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An LNG carrier, part of as series of developments that have changed both global gas markets and geopolitics as a whole. Image source

For Part 2, click here

On September 26, 2022, a series of four explosions on the Baltic Sea floor sent shockwaves across Europe and around the world. Saboteurs had set these explosive charges along the Nord Stream 1 and 2 gas pipelines that connect German and broader European markets to vast natural gas fields in northern Russia. According to the United Nations, the explosions caused what may be the greatest gas leak in history, releasing some 478,000 tonnes of methane into the atmosphere – the annual emissions equivalent to 1.3 million cars or a third of Denmark's national total.

This event marked a significant turning point in the global gas markets. It was not just a series of explosions, but a profound shift that was the culmination of decades of developments, which we explore in this article.

Gas bubbling up from the exploded Nord Stream pipelines. Image source

Natural gas and the emergence of pipeline politics in Europe

Humans have known of and used natural gas for millennia, and it became widely commercialized during the Industrial Revolution when Great Britain used it to fuel lighthouses and streetlights starting in 1785. In 1821, the city of Fredonia, New York, constructed the world's first gas pipeline to light homes in the area. By the first half of the 20th century, American industry constructed gas pipelines across much of the continental United States as the substance became increasingly used in heavy industry, power generation, home heating, fertilizer production, and other applications. Other large landmass countries, such as Canada and the Soviet Union, followed suit, constructing increasingly long and complex pipeline systems to fuel their burgeoning industrial economies.

Natural gas became a significant factor in geopolitics in 1968 when the Soviet Union made its first gas exports to Europe via the Brotherhood pipeline to Austria. Over the next few years, other Western countries such as West Germany, Italy, and France followed suit, increasing economic interdependence on either side of the Iron Curtain amid a thaw in the Cold War. It was a perfect partnership from an economic perspective. The Soviet Union had abundant cheap gas after extensively developing the country's vast fields starting in the Second World War. Western Europe's demand for energy skyrocketed due to heavy post-war investment in its export-driven industrial economy. By the 1980s, the Yamal gas pipeline exported an ever-growing supply of Soviet natural gas to Europe, despite protests from Washington over the Soviet War in Afghanistan and concerns over Europe's growing dependence, which the CIA assessed could impact European foreign policy to favor Soviet interests.

Soviet gas sales to Europe were highly lucrative and helped fund the country's increased military spending during the Brezhnev era and beyond. However, this spending, coupled with a collapse in oil prices and a costly war in Afghanistan, contributed significantly to the Soviet Union's collapse in 1991. Although the former Soviet economy had also collapsed, Russian gas sales to Europe exceeded 100 billion cubic meters (bcm) for each year of the tumultuous 1990s and expanded to over 160 bcm in the 2000s. Although Russia privatized much of its oil industry in the 1990s, gas exports remained primarily under the state-controlled Gazprom. During his first year in office, Vladimir Putin used state funds generated by Gazprom to return the company to majority state ownership. He later used the firm to acquire the assets of his defeated political foes. Thus, for over five decades, Soviet and later Russian gas sales to Europe provided a stable and lucrative revenue source for the state, helping fund projects that were core to its interests.

Europe remained highly dependent on Russian energy, and relations between Russia and the EU remained relatively cordial despite rising tensions on the world stage. However, by the late 2000s, European policymakers expressed growing concerns about their dependence on Russian gas, particularly after Moscow's August 2008 invasion of Georgia. That year, policymakers planned the Southern Gas Corridor pipeline that bypassed Russian pipeline systems to bring gas from the Caspian Sea to the European market through Türkiye. With the project's final leg completed in 2020, the pipeline can deliver 10bcm of non-Russian gas to the European market. Although Europe increasingly relied on other pipeline exporters such as Norway and Algeria, Russia remained the most significant supplier, with more 150bcm delivered via its pipelines in 2021.

By the 2020s, Russian pipelines remained Europe's top gas supplier. Although Washington regularly protested Russia's Nord Stream 2 pipeline expansion – which would have delivered an additional 55bcm to the European market upon completion – US Secretary of State Antony Blinken admitted that sanctions stemming from Russia's 2014 annexation of Crimea would not block its completion in a June 2021 speech. However, Russia faced growing competition from abroad, with imported liquified natural gas (LNG) gaining a growing foothold in the market. Then came 2022, which saw the most profound change in global energy markets in a century; one that will affect the global market for decades to come. None of this change would have been possible without the technological and economic means to transport gas by sea in a liquified form; a means that increasingly serviced markets on the other side of the world.

A BBC Map highlighting Europe’s gas pipeline infrastructure. Image source

The rise of LNG in Asia and the Shale Revolution

Although pipelines remained the most significant and economical means of transporting gas internationally until the 2020s, LNG shipments had grown in prominence, largely due to the influence of the US. By 2020, just 53% of global gas exports were sent via pipelines, and the US, Australia, Qatar, and other LNG exporters had made inroads into the European market, supplying 22 bcm there in 2021.

Although the world's first international LNG shipment departed the Louisiana Gulf Coast for the UK in 1959, the Asian markets popularized the technology, starting with Japan's first arrival in 1969. By the 1970s, South Korea and Taiwan began importing LNG to feed their rapidly expanding industrial demand. Brunei and Malaysia emerged as major regional suppliers with the help of US and Japanese investment in the 1980s. This popularization of LNG technology, combined with a dramatic increase in supply, made non-pipeline exporters important players in the global gas market and geopolitics as a whole. Global sellers and buyers invested billions of dollars in gas liquefaction plants, port infrastructure, regasification plants, and local pipelines to facilitate the burgeoning LNG trade over the succeeding decades.

Japan and the Asian Tigers' (Singapore, Hong Kong, South Korea, and Taiwan) rapid industrialization in the 1970s and 1980s required a massive influx of energy to the region as none of these places have significant natural resources at their disposal. Moreover, each is an island-based territory, either by geography or political circumstance, making transnational gas pipelines impossible. For these reasons, Japan and the Asian Tigers were willing to pay a premium to import natural gas by ship and invest billions in the necessary infrastructure to do so.

China's rapid industrialization in the 1990s and 2000s accelerated this trend. Unlike most of its neighbors, China has relatively abundant natural gas supplies derived from its extensive coal reserves and limited domestic oil fields. However, despite these resources and ongoing attempts to increase domestic production, China still imports 42% of its natural gas supply and is now the world's largest gas importer. Due to its large landmass and many borders, China has been able to import much of its gas needs via pipelines linking it to Central Asia, Russia, and Myanmar. However, these pipelines still fall short of China's gas import needs. Although Russia claims it will expand its Power of Siberia pipeline system to China, the two countries cannot agree on funding, leaving it in an effective deadlock. For this reason, China has also emerged as the world's largest LNG importer, with seaborne LNG accounting for some 60% of its imported gas at present. India and Southeast Asia have also emerged as significant LNG importers as - like the Asian tigers – most of these countries are islands either practically by geopolitical circumstance, at least when it comes to natural gas. These massive Asian markets continue to normalize and inspire innovation in the global LNG trade.

By the 2000s, Asia's rapid rise in demand for LNG coincided with a dramatic increase in supply. Major LNG exporters such as the United States, Australia, Qatar, and regional players such as Brunei, Indonesia, and Malaysia had steadily increased their output to meet Asia's rising demand. Russia also satiated some of Asia's LNG demand through its Sakhalin II LNG terminal, the product of joint Western and Japanese investment. Moreover, by the 2010s, shale oil and gas – which extracts previously unattainable 'tight' supplies using hydraulic fracking technology – significantly increased natural gas supplies in the United States and elsewhere, flooding the global LNG market.

After substantial infrastructure investment along the eastern and Gulf coasts, the US began exporting LNG from the lower 48 states for the first time in 2016, immediately becoming a top global supplier. Shale technology also allowed Australia to dramatically increase its LNG exports, and it supplied around 53% of China's market in 2019, up from 40% just three years prior. Although the US has become one of the world's largest natural gas producers and an important player in Asian LNG markets, most of its LNG export infrastructure lies on its Atlantic and Gulf coasts, far from the Pacific markets. Moreover, Europe's dependence on cheaper Russian pipeline gas hindered America's LNG export prospects, although American producers had made significant inroads into the European market by the late 2010s. Then came 2022, when Russia's invasion of Ukraine made Europe's gas markets more internationally competitive than ever before.

A planned LNG import terminal in China’s Shandong province. Image source

America’s LNG liquefaction plants. Image source

Continue to Part 2…

Between the Lines

The Geopolitics of Natural Gas: Part 2

For Part 1, click here…

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2 years ago · Adam Rousselle

Xi’s rise to to the apex of Chinese politics fundamentally changed the country’s foreign policy in under a decade. Image source

Paid subscribers gain exclusive access to the audio version of this article. Check it out here!

For other parts of this series, please see:

Part 1 / Audio Version

Part 2 / Audio Version

Part 4 - Coming soon!

March 13, 2013. Over ten thousand representatives from the Chinese Communist Party (CCP) gathered in Beijing's Great of the People for the Two Sessions. At this annual meeting, the Chinese Communist Party (CCP) deliberates on decisions affecting governance on the national level, although the party's real power players agree on such matters months in advance at their summer retreat in Beidaihe, a coastal resort town 300 kilometers east of the glittering, palatial chamber emblazoned in crimson and gold. The 2013 Two Sessions was more significant than most as the party's top powerbrokers had decided on a new president to lead the country. A man named Xi Jinping.

Xi Jinping's meteoric rise through the party ranks received national and global attention when, as Vice President, he oversaw preparations for the 2008 Beijing Olympic Games. In Xi’s youth, Mao's Cultural Revolution resulted in the brutal persecution of his entire elite family. He characterized his subsequent political career with a prudent approach to the ever-shifting party line. During his rise, he gained a reputation as a humble public servant, focusing on popular causes such as environmental conservation and remedying the actions of corrupt predecessors. Today, some of the country's most impressive urban parks exist in cities such as Fuzhou and Xiamen in Fujian, where Xi spent most of his early political career. In essence, Xi was a man with a reputation for doing good things relatively quietly while remaining steadfastly loyal to his superiors. The people who chose him for the highest office in the land could not have known what plans he had in store for them.

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The scene of the funeral for the 12 children killed in Majd Shams on Saturday. Image source

Cooler appear to be prevailing in the ongoing conflict between Israel and Lebanon-based terror group Hezbollah – at least for now. Although top Israeli leaders vowed revenge for the July 27 attack on Majdal Shams, four anonymous Israeli officials recently told Reuters that their government is working to avoid a major escalation. "The estimation is that the response will not lead to an all-out war…That would not be in our interest at this point," said one diplomatic source. On Monday, Israeli drones struck a remote road in southern Lebanon as tensions between Israel and Hezbollah continue to mount.

The death toll from Saturday’s rocket attack has risen to 12 people – all of them Druze children between the ages of 10 and 16 years-old. Hezbollah continues to deny involvement; however, images of shrapnel from the attack recently released by the IDF appear to confirm that the rocket used was an Iranian-made Falaq-1. Although Iran-aligned media outlets speculate that the attack was carried out using an Israeli iron dome interceptor, Ryan McBeth and others have released analysis dispelling this notion, based on the explosion on impact.

For now, the situation remains at or near the status-quo with tensions continuing to mount by the day. The fact that Israel has not entered into a full-scale conflict with Hezbollah speaks to two factors:

1. That the prospect of a war with Hezbollah and potentially Iran is extremely dangerous for Israeli security and potentially that of other regional and international partners

2. The two sides may be working toward some negotiated settlement behind the scenes.

The first factor is clear, the second is purely speculative on my part. However, recent shifts in Iranian politics, ongoing dialogue between Israel and Washington, and the fatigue of a drawn out conflict could signal positive shifts in this regard. However, these negotiations will require compromises on both sides and such a willingness to do so remains far from clear.

On Wednesday, I’ll put out my analysis on the current situation in Iran.

Israeli medics and security forces transport a victim of the latest attack. Image source

A rocket strike on a soccer field in the town of Majdal Shams in the Israeli-occupied Golan Heights has killed at least 11 children and teens and injured 20 others, according to Israeli authorities. In response, Israeli Prime Minister Benjamin Netanyahu warned that Hezbollah “will pay a heavy price for this attack, one that it has not paid so far.” Foreign Minister Israel Katz also stated “we are nearing the moment in which we face an all-out war.”

Hezbollah swiftly denied involvement following the attack on the predominantly Druze town. Nevertheless, Israeli authorities continue to move closer to war with IDF spokesman Daniel Hagari saying “We will prepare for a response against Hezbollah … we will act,” in a statement.

I don’t normally do this, but this news signals the high likelihood of an all-out war between Israel and Hezbollah that could have broad regional and global consequences. For more on this, I urge you to check out some of our previous analysis on the subject.

We will continue to monitor the situation closely and provide analysis to you wherever we can. Stay tuned!

According to Bloomberg, China’s oil reserves are pushing the limits of its storage capacity. Image source

Several reports in the international media have covered China’s stockpiling of commodities and other essential items, such as grain, oil, and semiconductors. These efforts have sparked fears that Beijing is preparing for war or some other destabilizing event that would cut it off from global supply chains. Although there is little evidence to support these fears in the near term, China’s moves toward greater self-reliance signal ongoing plans to shield itself from systemic global risks moving forward and do not discount the possibility of preparedness for conflict in the longer term.

Rapid stockpiling underway

It is difficult to access accurate estimates of Chinese stockpiles. China’s National Food and Strategic Reserves Administration oversees the country’s stockpiling efforts and does not reveal data. However, a combination of open-source research and sporadic Chinese statements indicates it has stockpiled several commodities and essential items over the past year and continues to do so rapidly. The US-China Economic and Security Review Commission also confirmed this in its June hearing.

The stockpiled items include minerals, such as aluminum, cobalt, copper, and zinc, which are essential for manufacturing and heavy industry. According to an expert who testified at the hearing, China has stored 2 million metric tons of copper, 900,000 tons of aluminum, and 7,000 tons of cobalt. However, China has a history of scooping up excess stock when commodity prices are low, which is now the case.

China is also stockpiling energy resources. In July, the government asked state firms to purchase an additional 60 million barrels of oil to add to the country’s reserves, according to a private analytics firm quoted in the international media. As of 2023, China’s Strategic Petroleum Reserve consisted of around 100 to 120 days’ worth of petroleum imports, exceeding international recommendations for peacetime. This reserve does not account for China’s continued access to Russian oil, which increases their total reserves to over four months’ worth of imports. China is also constructing tanks to hold liquified gas along its coast.

Beijing also appears to be stockpiling grain. Reports from earlier this year indicate a rise in Chinese purchases of feed grains, such as corn, barley, and sorghum, from various countries. In 2021, President Xi Jinping declared that “food security is an important foundation for national security.” As of mid-2022, China reportedly held over 69% of the world’s corn reserves, 60% of its rice, and 51% of its wheat. China is highly dependent on imported food, and this reserve has allowed the country to have relatively stable prices amid a series of extreme droughts and floods in recent years.

China now holds the majority of the world’s grain reserves. Image source

Likelihood of imminent conflict

China is the world’s second-largest importer in large part due to its limited domestic natural resources. With all of China’s ports surrounded by the first island chain – a string of islands stretching from Japan and Taiwan to the South China Sea that are predominantly aligned with US interests – a war in this region could severely jeopardize these imports that the country relies upon so heavily. Some experts argue that China’s recent stockpiling of strategic resources, combined with the increased deployment of forces close to Taiwan’s coastal waters and airspace, signals an upcoming war for the autonomous island. Moreover, rising tensions in the South China Sea could also signal an emerging conflict there.

These assessments are likely premature, if not incorrect. First, there are no estimates by the US or elsewhere that China intends to wage war over Taiwan in the immediate future. In June, US Secretary of Defense Lloyd Austin said that war over Taiwan was “neither imminent nor unavoidable.” In 2023, the US undersecretary of defense for policy, Colin Kahl, said, “I don’t see anything that indicates this thing is imminent,” regarding the prospect of a Chinese invasion of Taiwan. Last February, CIA Director William Burns suggested that Xi has doubts as to his country’s military capacity to successfully invade Taiwan. All of this is in contrast with the tone of US estimates before Russia invaded Ukraine, which offered ample forewarning.

Other credible indicators are also missing. If China were to invade Taiwan, there would be signs of an imminent conflict in the year or so prior. For instance, China would likely dramatically increase its production of ballistic and cruise missiles as well as rockets - these kinds of production are relatively easily to identify using satellite imagery. In terms of the economy, analysts have pointed out that China would freeze foreign financial assets within the country, suspend exports of critical minerals and other essential goods, and liquidate or repatriate large amounts of Chinese assets held abroad. 

Within two months before commencing hostilities, China would almost certainly commence an extensive countrywide military exercise to mask its exact preparations. As part of this, it would probably change its strategic military posture, repositioning multiple rocket launch systems and intermediate-range ballistic missiles, and conduct frequent large-scale cyberattacks to soften the enemy’s critical infrastructure. There would also be other signs, such as a military buildup in Fujian province on the southeastern coast of China opposite Taiwan, stockpiling of ammunition, and placing troops under various battle groups there.

A war in the next two years would present a severe challenge amid multiple current setbacks. China’s economy continues to struggle, with low investor confidence, high levels of youth unemployment, and an ongoing contraction in its property market. In a wartime scenario, China’s access to global markets could be cut off, thus presenting a detrimental threat to its economic recovery. China’s naval capabilities may also not be up to the task, particularly in providing an ‘amphibious lift’ or transporting troops and resources during seaborne operations. Although China has improved its amphibious capability by incorporating civilian vessels in recent years, more time is likely needed to achieve the full benefit of this move.

The First Island Chain hems in China’s access to the world’s oceans. Image source

Stockpiling as part of China’s strategic goal toward greater self-reliance

China’s stockpiling efforts are likely linked to its long-term strategy of improving self-reliance to safeguard its security and economic goals. These moves come amid increased US tariffs under the Trump administration that have continued under the Biden administration and growing calls for greater trade protectionism in Europe and elsewhere. Indeed, President Xi first referred to the need to “travel the road of self-reliance” in November 2018, around seven months after the announcement of US tariffs. Xi has reiterated this sentiment several times in subsequent party and government communications, including at the 2023 National People’s Congress.

China’s stockpiling of semiconductor chips and increased production of ‘legacy’ chips also comes amid US export controls on these technologies. These moves have likely caused the theme of self-sufficiency and national resilience to carry over into high-level policy roundtables, such as the Chinese Communist Party’s third plenum. This approach also helps China hedge against black swan events, including disease outbreaks such as COVID-19 and climate shocks.

Conclusion

Although China may initiate a war over Taiwan or the SCS at some point in the future, its ongoing stockpiling of commodities and other items does not necessarily indicate it is preparing to do so imminently. Instead, these moves align with its longstanding goal to improve self-reliance, limiting its vulnerability to foreign influence. However, they do not discount the possibility that China is preparing for a conflict in the longer-term.

Police officers at a police station destroyed in a bomb and gunfight by FARC-EMC fighters in May in Cauca. Image Source

FARC’s Resurgence Amid Rising Insecurity and Drug Production

The 2016 landmark peace deal between FARC and the Colombian government ended a decades-long conflict in the country that had claimed the lives of over 450,000 people. Although most FARC militants demobilized, some dissenting leaders and members refused to accept the deal, instead organizing under the banner of Estado Mayor Central (EMC), also known as FARC-EMC. Violence between armed groups increased in the following years, as did FARC’s claims that the government was not honoring the terms of the accord. When former rebel Gustavo Petro became President of Colombia in 2022, he introduced a plan for “Total Peace” to end the violence, and his administration entered into formal peace talks with FARC-EMC last year, with all parties agreeing to a ceasefire at the time.

FARC-EMC comprises multiple factions led by different leaders. Reports indicate that between two and six of these factions continue violently opposing the government. The recently lifted ceasefire applies explicitly to the Iván Mordisco-led FARC-EMC front, which experts believe is stronger than the other EMC factions as it maintains a fighting force of around 4,500 individuals who comprise over 60% of currently active FARC-EMC fighters. Iván Mordisco began consolidating rebel fighters under his banner during the COVID-19 pandemic as part of efforts to take over and secure smuggling routes in the country. Illicit smuggling is a vital source of income for all of FARC’s constituent factions, which together control roughly half of Colombia’s coca crop, the crucial base ingredient for cocaine production.

Over the past year, FARC-EMC factions have expanded their presence from 157 to 209 of the country’s 1,100 municipalities. Last year, kidnappings by the group increased by 50% while gunfights and the creation of illegal roadblocks rose as well. The UN now estimates that Colombia has seen a 36% year-over-year rise in the number of people displaced by conflict in the first five months of 2024. Writing for Insight Crime, Sergio Saffon and Sara Garcia argue that Petro’s “Total Peace” plan catalyzed insurgent groups to seek control of illicit economies, such as drug production and trafficking,  by allowing them to regroup amid the ceasefire. Colombia is currently home to the world’s second-largest concentration of organized criminal activity, which increased dramatically between 2021 and 2023.

According to the United Nations Office on Drugs and Crime, Colombia’s coca production hit a record high in 2022, rising 24% from the prior year. Territories where FARC-EMC has a significant presence produced nearly two-thirds of this crop, including in the provinces near the Ecuadorian and Venezuelan borders. In Putumayo province, coca production rose by 77% during this time, while the trafficking and processing of the crop in neighboring Ecuador has helped drive that country into chaos.

Notable FARC-EMC attacks in June 2024, including an attack on the vice president’s family. Image Source

Coca cultivation has risen significantly since 2020 and continues to trend upward. Image Source

The geographical spread of armed groups (FARC-EMC is in yellow) and major coca cultivation regions. Image Source

Hezbollah and FARC

Hezbollah has long been present in Latin America, where it remains heavily involved in criminal operations - something we explored in this June 7 article. In Colombia, Hezbollah has established a substantial foothold in the country by infiltrating Lebanese and Arab Shia communities in the Caribbean port city of Barranquilla– a key smuggling hub in the country. Colombian and US authorities have uncovered numerous Hezbollah operatives there, such as Ayman Joumaa, a Lebanese-Colombian man and suspected Hezbollah operative believed to be at the center of a multi-million dollar global money laundering ring until 2011 when the US government charged him. Last year, US authorities sanctioned three suspected Hezbollah operatives in Colombia, one of whom ran a charcoal export business as a front for drug exports. In Lebanon, the business remitted 80% of its cash flow to Hezbollah. Hezbollah also likely plays an important part in facilitating FARC’s ongoing expansion.

Hezbollah collaborates with FARC as well as its rival ELN, which both maintain a substantial presence in the Colombia–Venezuela border region. Through Venezuela, which maintains close ties to Iran, Hezbollah harnesses its vast networks to traffic Colombian cocaine and other substances to the global market in conjunction with other major distributors, such as powerful cartels operating out of Mexico.

Hezbollah’s vast global network of infiltrated Lebanese and Shia communities plays a vital role in FARC’s powerful and growing global drug trade. Hezbollah excels at money laundering because it can covertly move cash between various banks via its international front businesses and organizations. Moreover, Hezbollah has established new routes and means of transportation to move cocaine through Africa to Europe, Asia, and Australia. In this way, FARC and other illicit groups in the region rely on Hezbollah for both distribution and money laundering services. Money laundering has allowed FARC to expand its legitimate asset holdings greatly, which The Economist estimated to be over $11 billion in 2016.

Hezbollah also provides FARC with weapons. In 2014, US authorities charged Jamal Yousef in relation to an arms deal he allegedly orchestrated in Honduras. Yousef, a known Hezbollah operative, had agreed to supply FARC with military-grade weapons in exchange for hundreds of kilos of cocaine. That same year, authorities in Prague arrested Ali Fayad, a suspected top Hezbollah operative and arms trafficker, for his alleged role in the planned exchange of Ukrainian weapons for cocaine supplied by FARC. In 2020, US authorities charged Abdel El Zabayar – a former member of the Venezuelan National Assembly and close ally of Venezuelan President Nicolas Maduro – with trafficking weapons from the Middle East to FARC in conjunction with Hamas and Hezbollah.

Conclusion

FARC-EMC’s ongoing expansion in Colombia has global implications, especially as the group’s rising coca production stands to benefit Hezbollah amid rising tension in the Middle East. Colombia’s moves against FARC coincide with Argentina’s recently hardened stance against Hezbollah. Recently, Argentina blamed Hezbollah and Iran for 1992 and 1994 attacks in the country and sparked a row with neighboring Bolivia and Chile over claims that Hezbollah combat forces operate in those countries. Although these two factors are not likely directly related, they could signal a broader regional push against Hezbollah and its Latin American operations. If this is indeed the case, US law enforcement agencies that have long sought to implicate and eliminate regional Hezbollah operatives could find more willing partners moving forward. This trend could also further isolate Venezuela, whose close ties to Iran and Hezbollah at the official level could prove an even greater liability amid souring regional sentiments toward the Lebanese terror group.

Smoke rises from the Houthi-controlled port of Hodeidah following a July 20 Israel strike. Image source

I always tell other analysts not to write about or even try to analyze events immediately after they occur. I say this for two reasons: one, we cannot keep up with major news agencies like AP and Reuters, and two, there’s always so much more to be understood in the details that come out later.

The latest strike on Tel Aviv is no exception. When I woke on the morning of July 19, I had messages from people telling me it was by Hezbollah and asking what kind of weapon they used. Within an hour, the media revealed that the Houthis attacked Tel Aviv using a modified Samad-3 attack drone launched from Yemen. The strike killed one man and injured four others and came hours after Israel announced it had killed a senior Hezbollah commander in neighboring Lebanon. The next day, Israel struck the Houthi port of Hodeidah using F-15 fighter jets, destroying fuel depots and other port infrastructure, reportedly killing six people and injuring 83 others.

Now that we have the facts, we can do some analysis.

Yemen is just over 2,000 kilometers from Tel Aviv and the attack route was reportedly over 2,600 kilometers in length. Image source

A cheap drone infiltrates one of the world’s most defended airspaces

The Samad family of unmanned aerial drones (UAVs) – named after the Houthis’ former second in command, Saleh al-Sammad, who died in a 2018 coalition airstrike – are among the most advanced weapons in the Houthi arsenal. Israel claims that Iran manufactures these drones, but the Houthis claim they manufacture the units in Yemen and that Iran was not involved in the July 19 strike on Tel Aviv. According to weapons experts, the drone used in the July 19 strike was most likely a modified version of the Samad 3, which they claim was built in Yemen but designed in Iran.

The Houthis previously used the Samad 3 to conduct 2018 attacks on airports in Dubai and Abu Dhabi in the United Arab Emirates (UAE). The previous UAE strikes already pushed the limits of the drone’s reported 1,500-kilometer range, meaning that the July 19 strike on Tel Aviv – where the UAV traveled some 2,600 kilometers over 16 hours – required substantial modifications to the original device. By attack drone standards, the device is remarkably cheap, using components such as a $1,500 propeller and a $2,500 Nikon camera – components rebel operatives can order online from suppliers in Europe and China. That the Houthis can source parts under heavy sanctions to build one of these units and expand on its capabilities speaks to their ingenuity, or possibly that of their Iranian backers.

The Samad 3 has a 4.5-meter wingspan and a typical operational range of 1,500 kilometers. The one used to strike Israel was modified to fly at least 2,600 kilometers. Image source

The Houthis’ modified UAV not only successfully reached Israel but also evaded Israel’s Iron Dome and Arrow air defense systems. According to experts, the Samad 3 is not particularly fast, stealthy, or sophisticated. The Israeli Defense Forces (IDF) blamed human error for missing the drone as a blip on their radar and says it will double the number of radar operators in its employ moving forward.

In my April 30 article, I outlined the enormous cost of running traditional air defense systems due to the proliferation of cheap weapons deployed by Iran and its proxies. Israel’s air defenses are among the world’s most advanced; however, the systems in place today were designed between the 1990s and 2010s, with the latest Iron Dome system unveiled in 2011. The world has changed dramatically since then, especially with the proliferation of low-cost weapons from Iran among its proxies across the Middle East, something I outlined in a February 6 article. Today, Iran-backed proxies pose a more significant threat to Israeli airspace than other states in the region ever could. For example, Hezbollah can reportedly launch 3,000 munitions per day, which experts believe can overwhelm much of Israel’s air defense capabilities. The latest attack by the Houthis demonstrates the hypervigilance required to repel even minor, low-tech strikes.

The proliferation of low-cost consumer electronics powered by older model ‘legacy’ chips poses a severe threat to states and militaries globally, especially as China aims to export more of these low-cost chips in the coming years. Israel already plans to address this using a high-energy laser defense system called the ‘Iron beam,’ which Israeli sources claim costs just $3.50 per shot. Similarly, the British Army recently tested a laser defense system built by Raytheon, and a British firm made headlines earlier this year with its DragonFire laser system, which it is reportedly pushing for battlefield use in Ukraine. However, laser weapons have severe limitations, including limited capabilities under heavy cloud cover. AI-swarming drones are also under development but remain in the experimental phase. In the meantime, low-cost weapons will continue to pose a severe threat to advanced militaries worldwide, including that of Israel.

Hitting the Houthis where it hurts, but not enough to make them stand down

Given the Houthis’ reliance on imported fuel and food and their history of famine, the Israeli strike on their only major port with modern facilities could have severe consequences for them moving forward. However, the Houthis have remained firm in their resolve throughout this conflict, having now survived the nearly decadelong Saudi-led war against them. The Houthis remain highly resourceful and steadfast in their mission and, thus, unlikely to back down. For this reason, we can likely expect further attacks on the Red Sea, especially amid reports that the group is now collaborating with the Somalia-based al-Shabaab terrorist group, potentially furthering its reach across much of the Indian Ocean.

The Israeli counter strike on Yemen reportedly caused extensive damage at the port of Hodeidah. Image source

Houthis, not Hezbollah, not Iran

Not all Iranian proxies are the same. Whereas Hezbollah is closely linked to Iran politically and militarily, the Houthis are on the other end of the spectrum, with vastly reduced capabilities and much less operational coordination with Tehran, something I explored in depth in my January 22 article. Although the latest Houthi attack comes amid rising tensions between Israel and Hezbollah and comes on the heels of Israel’s killing of a top Hezbollah commander in Lebanon, we cannot say for sure that there was any coordination between these groups or Iran.

This ambiguity may be a blessing or a curse for Iran, depending on how one sees it.

From a positive perspective, the strike means that Israel has another front to deal with in its ongoing and increasingly regional war. Moreover, the vague relationship between Iran, Hezbollah, and the Houthis gives Tehran plausible deniability in the event of escalation. This style of engagement may mirror the  ‘grey zone’ tactics increasingly employed on the world stage by other countries such as Russia and China.

Conversely, a Houthi strike on Israel without Iran’s consent could result in unwanted escalation. From the war’s outset, Hezbollah has been careful to limit its escalation with Israel to avoid an outright conflict, resulting in tit-for-tat attacks. To date, Israeli strikes have killed several top Hezbollah commanders, whereas Hezbollah’s attacks on Israel have been comparatively minor in terms of damage. Although Hezbollah could inflict massive damage on Israeli critical infrastructure in the event of an all-out war, the threat of a total Israeli assault on Hezbollah could also pose an existential threat to the group. Similarly, I argued in an April 15 article that Iran’s April 13 counterstrike on Israel was limited in scope and more of an intended message than a desire for escalation, given the risks an all-out war with Israel poses for Tehran. If Iran cannot control the Houthis, then the Houthis potentially represent an even more significant threat to Iran than they do to Israel.

I believe Iran’s regime is in a state of flux at the moment and that it could go in multiple foreign policy directions in the coming months. We will explore this in my next analysis piece.

Iran’s proxies extend Tehran’s reach across the Middle East. Image source

The attacks were reportedly carried out by Omani brothers living and operating inside the country. Image source

In the late evening of July 15, three gunmen opened fire on worshipers at a Shia mosque in Wadi al-Kabir, on the outskirts of Oman’s capital, Muscat. The attackers sprayed bullets from a vantage point until the Royal Oman Police arrived to neutralize them. The attackers killed at least six people and injured over two dozen others. The Islamic State (IS) group claimed the attack the next day and released footage of the incident, calling it an ‘Inghimasi’ attack. Inghimasis, unlike suicide bombers, infiltrate by stealth and maximize casualties by using firearms before detonating their explosives.

This incident marks the first IS attack in Oman, which has historically been a relative oasis of stability in a troubled region and comes amid a string of attacks perpetrated by IS outside its traditional bases of operations. Despite repeated proclamations of victory over IS, the movement continues to thrive, and this latest attack could signal the group’s growing influence in the Arabian Peninsula and Persian Gulf regions.

Oman and its capital Muscat are generally known as quiet and peaceful. Image source

Decoding the Muscat attack

Oman owes much of its relative stability to its large population of Ibadi Muslims, whose removal from the Sunni-Shia divide that increasingly defines the region offers less fertile ground for extremism to take root in the country. However, Sunnis comprise an equal 45% share of the Omani population, and with IS cells increasingly targeting Shia communities throughout the region, Oman’s 5% Shia minority is now no exception. The attack also occurred close to Ashura– a Shia day of mourning – which is likely not a coincidence.

In a July 18 statement, the Royal Oman Police said the attackers were Omani nationals and brothers. The involvement of Omani nationals is almost unprecedented, given the relatively liberal ideological leanings of most Omanis. Omani nationals have been notably absent from most major global jihadist movements, with few exceptions. However, the IS has been steadily working to spread its ideological footprint in the Gulf region since around 2017, according to the group’s internal communications. In one document, the then head of IS in Yemen, Abu Usama al-Muhajir, wrote that they intended to carry out attacks on Western embassies in Oman, as well as the United Arab Emirates. The document cites information provided by an Omani IS member. However, no such attacks occurred before that of July 15.

Elsewhere in the region, the IS has been steadily ramping up activity. In 2015, the group bombed a Shia mosque in Kuwait City, killing at least 27 people. Since then, Kuwaiti security forces have foiled IS plots on several occasions, such as in 2016 and earlier this year. IS has also claimed rare attacks in Saudi Arabia, including in Riyadh and al-Dawadimiin 2016. However, the repressive tactics used by security forces in the region combined with these regimes’ carefully honed ‘soft’ de-radicalization measures make it difficult for the IS to operate there with impunity. Given Oman’s robust security capabilities, the group will likely remain limited to sporadic attacks moving forward.

The aftermath of the devastating IS bombing of the Imam Sadiq Mosque in Kuwait City that killed 27. Image source

The future of IS regional operations

As we have written in previous editions of Between the Lines, the IS is likely at its strongest since at least 2015, with formidable transnational attack capabilities across much of the world. On July 17, US Central Command warned that the IS is on pace to double its total number of attacks in Iraq and Syria this year compared to last, having already claimed 153 between January and June. Given this momentum, the group will likely attempt to make further inroads into the Gulf, mainly due to the prevalence of Western targets in these countries.

Although conducting frequent attacks in Gulf countries is an extremely difficult proposition, the IS has demonstrated creativity in adapting to challenging situations. This resilience was most recently demonstrated by the two suicide bombings that occurred in Iran this January. In this way, the group will likely continue seeking targets to make headlines while underscoring its sectarian ideological narrative. Saudi Arabia is one such place where attacks are probable in the coming months, despite the Kingdom’s stringent security protocols and extensive experience in counterterrorism.

The IS has plenty of reasons to attack Saudi Arabia, not least for its counterterrorism cooperation with the US. Recently, the IS called Saudi royals “slaves of the Crusaders and allies of the Jews” regarding the ongoing normalization of relations between the Kingdom and Israel. Aside from attacks within Saudi Arabia, the IS has tried to compromise Saudi interests elsewhere. For example, Saudi Arabia temporarily closed its embassy in Kabul, Afghanistan, in 2023 amid fears of an attack by the Islamic State Khorasan Province (ISKP). Indeed, elements within Saudi society have a history of support for the IS cause, with Saudi donors funding at least one of its affiliate groups despite the Kingdom’s attempts to curb private donations to jihadist groups, a lasting legacy of the Afghan mujahideen of the 1980s. Saudi authorities have already foiled IS plots in the country, including one to bomb the Grand Mosque in Mecca. In this way, it is possible that IS cells could slip through the cracks of the Kingdom’s security apparatus to conduct more brazen attacks moving forward.  

Yemen could emerge as a significant base of regional operations for the IS, and it is from here that the IS could launch future attacks, given Yemen’s proximity to other countries in the region. Although the IS has been largely unsuccessful in Yemen thus far, the country’s unstable and war-torn environment could provide fertile ground for the group’s brand of radicalism to take hold. Here, the US has conducted strikes against IS targets in recent years, and local IS affiliates continue to claim attacks.

A map of the Arabian peninsula and the Gulf states. Image source

Conclusion

As part of its push to conduct more transnational operations, the IS will likely increasingly target other countries in the Gulf in the coming months and years. These attacks could target longstanding enemies such as Saudi Arabia as well as other countries in the region, especially those with sizeable Shia populations and Western nationals present.

A China Coast Guard vessel sprays a Philippine fishing boat with a high-powered water cannon in waters Beijing claims as its own. Image source

On June 17, a China Coast Guard (CCG) vessel deliberately collided with a Philippine naval vessel near the disputed Second Thomas Shoal, a submerged reef in the South China Sea. According to the Philippines, this incident was yet another Chinese attempt at disrupting a mission to resupply its sailors stationed on the shoal, this time through an "intentional-high speed ramming" that reportedly injured eight personnel. Manilla has released several videos of the incident that show Chinese personnel armed with bladed weapons nearly coming to blows with Filipino sailors. Beijing, which claims "indisputable sovereignty" over the Second Thomas Shoal despite a lack of international recognition, said that the Philippines' "unprofessional conduct" forced it to take measures such as "warnings and blockades, boarding inspections, and forced evictions."

This clash is the most recent example of China's growing aggressiveness in asserting its sovereign claims in the South China Sea. These claims include the resource-rich and strategically important territorial waters in the Philippines' internationally recognized exclusive economic zone along with those of Brunei, Indonesia, Malaysia, Taiwan, and Vietnam. With over one-third of global trade passing through the South China Sea, this increasingly belligerent behavior raises serious risks, including that of a naval standoff that could result in outright war and global supply chain disruptions.

Historical context

The South China Sea, which links the Indian and Pacific Oceans, sees between $3.4 trillion and $5.3 trillion worth of goods transit its waters annually. It is the primary conduit through which Europe, the Middle East, and Africa conduct trade with industrial powerhouses such as China, Japan, and South Korea and contains significant emerging industrial economies such as Vietnam and Indonesia. According to estimates, the South China Sea also contains some 11 billion barrels of oil and 190 trillion cubic feet of natural gas reserves. These waters are also home to rich fishing grounds, including about 12% of the total global fish catch, and their seafloor contains vast quantities of rare earth metals needed for the ongoing revolution in global green technologies.

China claims sovereignty over almost all islands in the South China Sea and their surrounding waters, citing purported historical claims that date back several centuries, many of which scholars have debunked. China's claims stem from its ambiguous nine-dash line, a nearly 80-year-old map that claims Chinese sovereignty over 90% of the sea, which all other regional countries dispute. Beijing began pressing its claims in 1974 when it first occupied the Paracel Islands, which lie some 220 miles off its southern island of Hainan, following a brief battle with South Vietnam.

In 1988, a unified Vietnam unsuccessfully attempted to retake its claims in the Paracels, resulting in the last major interstate conflict in East Asia. Tensions between Beijing and Hanoi over the islands continue to flare up periodically. Vietnam continues to commemorate and hold protests for the 64 soldiers it lost while trying to retake the Paracels, although both sides have signed codes of conduct for engagement in the South China Sea in 2002 and 2009.

China’s nine-dash line map claims sovereignty over some 90% of the South China Sea and extends into the internationally-recognized exclusive economic zones of five other countries, plus Taiwan. Image source

Evolution of China's gray zone tactics

China cements its claims in the South China Sea by constructing extensive outposts, fully militarizing three islands, and placing all of its claims under the jurisdiction of an 800,000 square mile 'city' called Sansha, which Beijing claims as part of China's southernmost Hainan province. This expansion comes amid Washington's pivot toward Asia to preserve a "free and open" South China Sea, which Beijing views as a direct threat to its status as a regional power.

In recent years, Chinese forces have become more aggressive in asserting their claims as China continues to build semi-permanent structures in other countries' exclusive economic zones. In one example, Chinese forces laid steel markers to assert their claims to the disputed James Shoal, just 80 kilometers off the Malaysian coast in 2013. That year - which also saw Xi Jinping take office - China began harassing Filippino missions to resupply its troops on the Second Thomas Shoal. Since then, Chinese troops have become more aggressive, setting a Vietnamese fishing boat ablaze in one incident. China continues to fine-tune its deployment of a range of coercive tactics to dominate contested areas, including water cannon attacks, using military-grade lasers, ramming the civilian vessels of other countries, and more. Most recently, China has empowered its coast guard to detain foreign nationals in the waters it claims.

China increasingly relies on unofficial maritime militias that pose as fishing vessels, congesting local waterways while reinforcing Chinese claims in the South China Sea. China has artificially constructed more than 3,200 acres of new land in the Spratlys alone and currently possesses over 20 outposts in the Paracel Islands and seven in the Spratlys. Several reports have also identified vast networks of runways, weaponry, and storage facilities on these islands.

China’s 800,000 square-mile Sansha City is headquartered on Woody Island in the Paracel Islands. Image source

Security crisis more probable than ever

China's hardened posture, particularly over the past year, is a sign of a looming security crisis likely involving the Philippines and possibly other regional players such as Vietnam, which has recently pushed back against China's claims to its territory. Although Vietnam has sought to engage China diplomatically while balancing relations between Beijing and Washington, the Philippines has deepened its alliance with the US, which includes a mutual defense treaty. With confrontation between the Philippines and China ramping up and Manilla lacking the military means to assert its internationally recognized claims, each incident increases the risk of an all-out war involving US and Chinese forces in the region. However, China's use of unofficial maritime militias offers it the benefit of plausible deniability and time to de-escalate should such a conflict ensue.

Although China's use of grey zone tactics, including maritime militias, offers ample opportunity for deescalation by both sides, Beijing's continued assertion of its claims and the region's growing frustration increases the chance of a major conflict in the long term. However, China's current economic situation ensures it can ill afford a war that blocks it from conducting most of its international trade, potentially giving Beijing an even greater incentive to stand down.

China’s unofficial maritime militia contains hundreds of militarized fishing vessels. Image source

Conclusion

Although China's use of grey zone tactics maintains room for deescalation, regular and intense standoffs ensure that tensions in the South China Sea will remain high for years to come. With competition for resources rising, regional powers growing increasingly frustrated with China's tactics, and US forces increasingly involved, the possibility of an intense conflict looms large over the region and the world.

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China plays a vital role in the ongoing rise in global criminal activity and poses a serious threat in several countries. Known and alleged activity linked to China includes the trafficking of humans, narcotics, natural resources, and wildlife, cybercrime, money laundering, and various other illicit activities. Chinese criminal syndicates carry out these activities with the tacit support of the ruling Chinese Communist Party (CCP), which uses these non-state actors to further its geopolitical agenda as a grey zone tactic. This state-sponsored illicit activity not only fuels the ongoing spike in global crime, but also exacerbates ongoing conflicts.

CCP Links to Organized Crime

The Chinese Communist Party (CCP) has long been accused of maintaining mutually beneficial links with Chinese organized crime syndicates operating in foreign countries. The CCP allegedly uses these connections to extend its influence and protect its interests while exerting control over Chinese diaspora communities abroad. The links between the CCP and criminal groups are evident in many cases. For example, Wan “Broken Tooth” Kuok-Koi, the notorious leader of the Hong Kong-based 14K Triad, is also a member of the CCP and sits on the Chinese People’s Political Consultative Conference, a high-level advisory body to the ruling party.

Over the past decade, China’s massive international investment under its Belt and Road Initiative (BRI) has spurred a pattern of organized criminal activity, particularly in major infrastructure hubs and special economic zones in Southeast Asia and Africa. Wan and his 14K triads attempted to legitimize their organization by linking their operations to BRI projects before US authorities imposed sanctions on Wan in 2020. Beijing has vowed to crack down on corruption related to BRI projects, with President Xi calling for a ‘clean BRI’ in 2017 and dramatically increasing the number of investigations against alleged cases of corruption in 2021, particularly those relating to embezzlement. Indeed, the party has pushed its elites to shed their overseas assets, reportedly in response to Western sanctions against Russian overseas assets. However, China’s recent BRI investigations primarily target embezzlement and assets rather than bribery, ties to known criminals, and other forms of corruption. Moreover, as with domestic corruption cases, Xi Jinping loyalists are likely immune to ongoing BRI anti-corruption probes.

The CCP relies on criminal groups to serve many functions abroad. In several cases, criminal groups have targeted regime critics and dissidents in Chinese diaspora communities, policing and silencing these individuals amid growing concerns at home. During Hong Kong’s large-scale protests in 2019, suspected triad members assaulted pro-democracy protesters on multiple occasions, often with alleged police impunity. These criminal groups often supplement the activities of China’s secret police, who are deployed globally for different functions, including tracking dissidents; China has reportedly opened over 100 police stations globally since 2016. 

Criminal triad groups maintain substantial connections to legitimate businesses in China and overseas, using these businesses as fronts for illicit activities and money laundering. These groups take advantage of global transport systems to supply precursor chemicals for synthetic opioids such as fentanyl. Through these ties, Chinese criminal networks also provide services to other legitimate companies, fostering connections with international business and political elites while gathering information for the CCP.

In Palau, a small archipelago in the Pacific, high-profile Chinese criminals, including Wan “Broken Tooth,” have built connections with the country’s political elite – including two former presidents – reportedly at the behest of the CCP. Here, Chinese criminal groups operate illegal online gambling sites and sex trafficking rings while reportedly trying to sway elites in the strategically important Pacific island nation of just 18,000 people to end their country’s diplomatic recognition of Taiwan. In the Philippines, controversy erupted last month when authorities discovered that a local mayor was a Chinese citizen pretending to be Filipino. The mayor, Alice Leal Guo, had reportedly facilitated operations at a scam center operated by a Chinese criminal group in her jurisdiction, prompting growing concerns over the scale of Chinese influence in the country.

Alleged China-backed criminals attack pro-democracy protesters in Hong Kong in 2019. Image Source

Allegedly smuggled rosewood logs at a port in Shanghai, China. The high demand for these logs in China is funding an insurgency in Mozambique. Image Source

When Crime Fuels Conflict

China’s criminal networks frequently exacerbate or fuel conflict around the world, particularly in Africa, where its economic, security, and criminal presence has dramatically expanded over the past decade. In northern Mozambique, where Islamic State insurgents have staged attacks since 2017 thanks in part to funds derived from illicit smuggling, Chinese criminals operate largely with impunity. According to an undercover probe by the Environmental Investigation Agency earlier this year, Chinese criminal groups have smuggled millions of metric tonnes of rosewood worth hundreds of millions of dollars out of the country and into China despite an export ban. The agency reports that this illegal trade provides nearly $2 million per month to the Islamic State-Mozambique.

Rosewood logs, likely illegally smuggled, at a port in Shanghai, China. The high demand for these logs in China is funding an insurgency in Mozambique. Image Source

Chinese criminal networks play an essential role as the money launderers of choice for Mexico’s hyper-militarized drug cartels, offering ‘clean cash’ more quickly and at cheaper rates than traditional methods. By offering high-quality money laundering services and providing precursor chemicals for synthetic opioids, Chinese criminals are fueling conflict and crisis on both sides of the US–Mexican border. Chinese criminals operate a vast underground banking system that allows cartel members to exchange vast sums of dollars for pesos using recruited Chinese couriers and legitimate businesses. In one case, members of the Sinaloa cartel in Los Angeles, US, laundered over $50 million through one of these schemes before they were apprehended by the US Drug Enforcement Agency (DEA).

Although China frequently uses criminal groups to further its interests, there are also many cases where these groups’ activities have negatively impacted China and its interests. Along China’s border with Myanmar and across the greater Golden Triangle region, Chinese criminal groups engage in many forms of illicit activity, including human, weapons, and narcotics trafficking, as well as cybercrime. Although the CCP and Myanmar’s junta regime have facilitated and benefited from these activities, the surge in cyber crime emanating from scam centers in the region has resulted in a public backlash in China. This backlash comes amid reports of the luring and abduction of Chinese nationals forced to work in these centers, as well as billions of dollars scammed from the Chinese public each year. Beijing’s subsequent cross-border crackdown exacerbated Myanmar’s escalating civil war and drove the scam operations south toward Thailand. Meanwhile, Chinese criminal networks continue to operate in Myanmar with the understanding that if they do not harm Chinese interests, they can operate without interference.

“The issue for Beijing [in Myanmar] is not the illicit economy; it is illicit activity that targets Chinese nationals,” said Morgan Michaels, the International Institute for Strategic Studies.

Image Source

Conclusion

The growing influence of Chinese organized crime networks is a complex global security issue that requires coordinated efforts from law enforcement agencies, governments, and international organizations. Economic opportunities, diaspora communities, and the global reach of Chinese businesses fuel the growth of these networks. These criminal actors flourish in areas of weak governance, where they often become significant players in local economies and co-opt local elites. The CCP’s backing of these actors makes tackling the threats from this nexus even more challenging, as it aids Beijing in pushing agendas or securing interests. Chinese criminal networks will likely continue to pose a growing threat to many states, not only due to increased crime but also to Beijing’s use of them to push its geopolitical, economic, and security agendas.

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China continues to find new ways to import high-end semiconductor chips and other technologies in violation of US export controls introduced in late 2022. On July 2, a Wall Street Journal investigation revealed an underground network of over 70 Chinese entities that receive shipments of contraband chips and chip manufacturing equipment each week. This investigation's results are only the latest in a series of efforts by Chinese entities to procure these items in recent years.

Although China has continued to import smuggled chips since 2022, these are hardly enough to meet local demand. This lack of imports, combined with a limited domestic capacity, could deprive China of the next generation of advanced military technologies.

Export controls and their impact

In October 2022, the US Department of Commerce revised its export controls on semiconductor technology to limit China's access to high-end chips, manufacturing equipment, and know-how. This agreement was followed by a three-way export control agreement with the Netherlands and Japan, further revisions to the 2022 export controls, and restrictions on outbound investments in semiconductors and quantum information.

The results of these restrictions have been mixed. They have impaired China's ability to legally procure advanced chips used in areas such as artificial intelligence (AI) development. Nvidia, now the world's most valuable company, is one of the largest producers of specially-manufactured chips for AI applications. Due to the export controls, China has been unable to tap into this supply and the equipment needed to produce homegrown alternatives, undercutting progress in spheres such as AI and military modernization. However, gaps in the enforcement of export controls have allowed China to continue to import some of these technologies.

International export restrictions have impacted the balance sheets of Chinese semiconductor companies, with the country's largest chipmaker, Yangtze Memory Technologies, reportedly burning through $7 billion to maintain operations as a result of them. Meanwhile, China's premier semiconductor foundry, Semiconductor Manufacturing International, experienced a 13.1% fall in annual profits in 2023. However, China has significantly expanded its production of so-called 'legacy chips'; these older model units are primarily used in cars, home appliances, and consumer electronics but also have military applications. The proliferation of these 'dual-use' chips is a major concern to policymakers around the world due to their expanding usage in low-cost drone and missile technologies, which pose a significant threat to conventional militaries.

The Iran-made Shahed 131 contains several Western-made legacy chips, demonstrating the deadly consequences of the proliferation of these older units. Image source

China's struggle to keep pace

China has long aspired to technological self-sufficiency, as evidenced by its 2015 'Made in China 2025' initiative that aims to make the country an advanced manufacturing hub. During a 2018 tour of northeast China's rust belt, President Xi Jinping said, "Unilateralism and trade protectionism have risen, forcing us to travel the road of self-reliance." Beijing also expressed its goal to enhance China's technological self-sufficiency in its fourteenth and current Five-Year Plan, which it adopted in 2021. However, increased export controls have likely lengthened China's timeline toward technological self-sufficiency.

China has adopted a multipronged approach to achieve its technological goals. Intellectual property theft is a significant component of this strategy. According to the Centre for Strategic and International Studies, Chinese entities have engaged in 224 publicly reported instances of intellectual property theft and industrial espionage in the US since 2000; 78% of these cases occurred between 2010 and 2022. Several notable cases have occurred in recent years, such as the 2016 theft of microchip designs from an American company that paved the way for a $5.7 billion production plant in China.

Export controls will likely accelerate the pace of China's industrial espionage if they have not already. China aims to produce 70% of its own chips by 2025 but currently only produces around 20%. China must acquire advanced lithography machines for chip production to achieve this goal. Last year, ASML, Europe's largest tech company and the world's only manufacturer of sophisticated Extreme Ultraviolet (EUV) lithography machines, said that a Chinese company had misappropriated proprietary data from the company. Semiconductor companies from Japan, Korea, and Taiwan have experienced similar thefts.

Another pillar of China's strategy is to circumvent export controls. It is doing so by setting up shell companies and offshore entities en masse, which, coupled with falsified documents, allow it to smuggle in chips in vast quantities. On multiple occasions, chips have been imported to a country far from the US and then rerouted to China. In this way, several Chinese military and state-owned AI research institutions have reportedly accessed small batches of advanced H100 chips made by Nvidia. In other cases, China has exploited export control loopholes to import chips and equipment legally. In one example, China frontloaded imports of lithography machines from US allies before these partners could follow America's lead in imposing restrictions. 

Export restrictions have also spurred a flurry of illicit activity from individual buyers within China, as well as smuggling rings, which purchase chips from Nvidia insiders in places such as Hong Kong, Malaysia, and Singapore. Human couriers transport these chips to mainland China; in one incident, a woman wore a prosthetic pregnant abdomen containing several chips and other devices before airport customs intercepted her. However, this kind of smuggling primarily caters to the demand of retail consumers and smaller Chinese research institutions and companies rather than large conglomerates due to the relatively small quantity of units a single person can transport. Moreover, the lithography machines needed to produce chips are massive, with some as large as a school bus; this represents a problem that Chinese smugglers cannot address.

In the longer term, China aims to improve its technological self-sufficiency by fostering domestic research and development. Last year, the government empowered firms such as SMIC and toolmakers such as Naura to access privileged R&D resources. It has also infused funding into the sector, setting up a $47.5 billion state investment fund, the third of its kind. The effects of this push are already visible across several parts of China's semiconductor value chain. For example, China's imports of semiconductor chips declined in 2022 and 2023, which Citigroup Global Insights claims could be a sign of import substitution.

Many believe China is poised to dominate the global legacy chip market. Image source

Way forward

Various studies note that the Chinese government is now working to exert greater control over its legacy semiconductor chip markets while pushing out US customers such as Intel and Broadcom. Specifically, China will likely continue to ramp up its capacity to make these dual-use chips, with some claiming it is poised to become a major exporter of these moving forward. Like other domestic industries, the Chinese government guides this process at every step, from procuring machinery to setting up factories and attracting top talent. Last year, the Chinese government launched a new talent program called Qiming to attract Chinese engineers and chip designers from around the world, many of whom have been educated at top American universities.

Although China continues to make significant strides in its domestic production of legacy chips, the technological gulf between it and the US continues to widen regarding cutting-edge chips. This gap is mainly due to China's lack of extreme ultraviolet (EUV) lithography machines, which are only produced by ASML and subject to heavy export restrictions. EUV machines are essential for producing advanced AI chips, hindering China's development in this area to the point that Chinese firms are reportedly rationing their computing power until they can find an alternative solution. China is reportedly working to develop a domestic EUV machine in response. Still, the innovative capacity and high capital intensity required to achieve this could make such a feat years off, likely depriving China of the most critical military technological advances moving forward. In response, China has already begun restricting its exports of other items with military applications, such as shipbuilding and aerospace components.

EUV lithography machines produce the world’s most advanced chips. Each one is around the size of a school bus and costs over $380 million. Image source

Conclusion

The competition for advanced chip supply chains will remain central to the strategic competition between the US and China in the years to come. China's growing edge in legacy chip production may work in its favor as the US will not want to be crowded out of those markets. Although Washington's efforts to curb China's development in the most advanced fields of military technological development, including AI, have been largely successful, China’s proliferation of older legacy chips on the world stage could have significant consequences moving forward.

North Korean leader Kim Jong Un at a weapons factory in the country. Image Source

Russia's latest purchase of vast quantities of North Korean munitions thrust the hermit kingdom's arms exports into the global spotlight, with North Korean deputy leader Kim Yo Jang – sister of Supreme Leader Kim Jong Un – recently dismissing allegations. However, North Korea's history of arms exports and military assistance spans decades and has raised vast sums of cash for the isolated regime, often via illicit means.

North Korea's Emergence as A Weapons Exporter

During the Cold War, North Korea actively exported weapons to various countries and movements aligned with the Soviet Bloc or those engaged in anti-colonial struggles. During the Vietnam War, North Korea provided North Vietnam with extensive military assistance, including weapons, training, and knowledge of underground tunnel construction from their own wartime experience. According to a declassified CIA document, North Korea exported small arms, artillery systems, anti-aircraft systems, tanks, rockets, mines, patrol boats, logistics vehicles, and more to at least 23 countries in the Middle East, Asia, Africa, and Latin America between 1975 and 1984. They also sent technical specialists, tactical contingents, and advisory groups and helped partner countries develop arms production facilities.

North Korea maintains longstanding arms export ties to the Middle East. In the 1960s, Pyongyang provided weapons to the Palestinian Liberation Organization (PLO) and exported arms to Syria and later Iran in the 1970s and 1980s. Through Iran, North Korea also provides weapons to Hezbollah and Hamas. Between 2003 and 2004, North Korean agents provided Hezbollah with the technical assistance needed to construct massive fortified underground facilities, including arms depots, food storage, medical clinics, and more that were instrumental in the group's survival during the 2006 Israeli invasion. When Hamas took over the Gaza Strip in 2007, North Korea provided the group with weapons and training as well as technical assistance in constructing its extensive tunnel network. In 2007, an Israeli strike on a Syrian nuclear reactor allegedly killed 10 North Korean nuclear scientists; the reactor site was reportedly similar to other North Korean nuclear reactor sites.

North Korea's weapons exports help the cash-strapped regime raise the funds it needs to sustain itself in a post-Cold War reality. Although North Korea is one of the world's poorest countries, it maintains one of the largest militaries in terms of active duty personnel as well as nuclear weapons and ballistic missile programs. The regime needs vast sums of cash that it must raise despite extensive international sanctions to finance these programs. Pyongyang maintains an active diplomatic network in nearly 50 countries, and these diplomatic missions are often allegedly involved in illicit trades, such as facilitating smuggling, money laundering, and arms transfers. Although the exact amount North Korea raises from arms transfers is unknown, its recent sales to Russia could generate $1 billion for the regime, making weapons exports an essential component of its struggling economy.

North Korea's Kim Il Sung and Vietnam's Ho Chi Minh, in 1958. Image Source

North Korean weapon sales destinations. Image Source

The North Korean Arms Trade Today

North Korea continues to export arms in vast quantities despite considerable sanctions on the country. Over the past decade, North Korea has further aligned itself with anti-Western regimes, with Russia, Syria, and Iran being the most significant direct recipients of its weapons and weapons-related technologies. Relations between North Korea and Iran further deepened in 2018 when former US President Donald Trump exited the Iran nuclear deal.

Iran and North Korea collaborate extensively on missile technology, with North Korea providing much of the original technology and components behind Iran's now extensive missile arsenal. For example, Iran's Shahab-3 ballistic missile is based on the North Korean Nodong-1, which is adapted from the Soviet scud missile. In turn, North Korea has since benefitted from Iranian expertise regarding the development of its long-range missile and satellite programs. Reports also indicate that North Korea recently helped Iran develop an underground airbase that could "seriously obstruct Western air attacks." In Syria, North Korea continues to assist the embattled Assad regime, including providing it with ballistic missiles and related technology. North Korea has also allegedly been involved in Syria's chemical weapons programs.

North Korea continues to provide arms, training, and more to Hamas and Hezbollah. South Korea claims that Hamas used North Korean-made rocket launchers during its October 7, 2023 attack on Israel. In Lebanon, Hezbollah's tunnel networks – developed with North Korean assistance – allow the group to store and move ballistic missiles and other weapons virtually undetected. North Korean forces fought alongside Hezbollah during the Syrian civil war, and Pyongyang has played an instrumental role in developing the group's security and intelligence apparatuses.

Russia's increased demand for weapons and munitions – the result of its ongoing war in Ukraine – has made it one of the largest markets for North Korean exports. Reports from South Korea claim that North Korea has exported millions of artillery shells to Russia since last September in exchange for food, raw materials, machine components used in weapons factories, and other necessities. Images released last October confirm Russia's use of North Korean artillery shells on the battlefield in Ukraine. Other reports indicate that Russia uses sophisticated North Korean short-range ballistic missiles against Ukrainian cities and that Pyongyang may also be sending anti-tank missiles, portable surface-to-air missiles, rifles, rocket launchers, and more. Meanwhile, Russia is considering sending arms to North Korea in defiance of sanctions after South Korea stated that it would supply weapons to Ukraine.

Over the past decade, North Korea has exported smaller shipments to Fiji, Niger, Egypt, Qatar, Trinidad and Tobago, El Salvador, Myanmar, and others. 

The remnants of the suspected North Korean Hwasong-11A missile fired by Russia in Kharkiv, Ukraine, in January 2024. Image Source

Hamas fighters with a suspected North Korean-made rocket. Image Source

Conclusion

North Korea's active push to provide arms has allowed it to cultivate relationships and gain foreign exchange earnings and resources. These exports are likely a significant source of income for the regime, which utilizes the revenue to fund military programs and possibly other sectors of its economy. With North Korea ramping up its arms sales to Russia, Iran, and Syria over the past year, these weapons pose a serious and growing risk to global security as these countries remain embroiled in significant conflicts directly and indirectly. Moreover, the revenue from these sales helps bolster North Korea's own military programs as the regime takes an increasingly aggressive regional stance. Because the regime excels at providing these exports through illicit and shadowy means, its vast arms proliferation will likely continue to have a destabilizing impact on global security moving forward.

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Today’s podcast is delayed, but I wanted to talk about the rising tensions between Israel and Hezbollah. Although Hezbollah is a designated terrorist group, it is so much more in the sense that it possesses an arsenal that even Israeli commentators claim is more powerful than 95% of the world’s militaries. In addition to Iranian patronage, the group operates a vast multi-billion dollar criminal syndicate that is global in scope. If Israel opens up a second front to its current war, the whole world could feel the results.

Preston, myself, and the rest of the team at Between the Lines are watching this story closely and have written several articles on the subject, the links to which are below. We’ve done a lot of coverage of this possibility over the past few months, and these articles provide a lot of background and coverage you aren’t likely to see all in one place.

Here are a few quick facts on Hezbollah:

• Hezbollah maintains a vast arsenal of munitions, some with a range of up to 300km, putting them within strike distance of major Israeli cities such as Tel Aviv and Haifa.

• Nobody knows the exact number of munitions Hezbollah possesses, with conservative estimates claiming 120,000 and one Iranian official claiming over a million in a recent meeting.

• Reports indicate Hezbollah can fire over 4,000 munitions in a single day, likely enough to overwhelm Israel’s air defense capabilities.

• The two governates of southern Lebanon, where Hezbollah bases its operations, are roughly six times the size of Gaza, with rugged, mountainous terrain that, like Gaza, contains a vast amount of underground facilities. Hezbollah also maintains a substantial base of operations in neighboring Syria.

Although most of Hezbollah’s rockets are short-range, its medium- and long-range munitions pose a serious threat to Israel, especially should it overwhelm Israel’s air defenses. Image source

Regional and global ramifications

An all-out war between Israel and Hezbollah would almost certainly have broad regional and global implications. Hezbollah has already threatened to strike Cyprus, a European Union member state in the Eastern Mediterranean that the group claims could serve as a staging group for Israeli aircraft. Iran is also warning of an ‘obliterating war’ should Israel launch a full-scale war against Hezbollah. The Iran-backed Houthis have significantly impacted Red Sea shipping in recent months, and a recent rise in Houthi activity there shows they maintain the capacity to fight on. Should a regional war escalate to the point that Iran closes the Persian Gulf via the Straits of Hormuz, global energy prices would immediately spike.

With the global economy on shaky ground, the ramifications of such a war could prove disastrous to global stability. China relies most heavily on Gulf energy shipments and is currently undergoing a profound economic and debt crisis: a spike in energy prices could prove disastrous to its current situation. Moreover, the European Union is more reliant on Gulf energy than ever before, thanks to Russia’s 2022 invasion of Ukraine, and the economies of several of its member states remain in austerity and COVID-related turmoil. With recent EU elections delivering an onslaught of Eurosceptic party wins, a sudden spike in energy prices could further jeopardize the bloc as member states seek to cut their own deals to further their energy security needs. The impact of a sudden spike in energy prices on poorer, less developed countries could be even more disastrous, especially with food prices already high due to inflation and the ongoing war in Ukraine.

The spectre of US involvement

The possibility of US involvement in a broad Middle Eastern war also looms large. Should Washington become directly involved, it will be forced to counter Iran’s anti-access area denial (A2AD) strategy that, as the name implies, could limit the movement of American military assets throughout much of the region. Hezbollah and the Houthis are part of this strategy, and they, along with other proxies operating in places such as Syria and Iraq, pose a significant threat due to the ongoing proliferation of cheap Iranian weapons exports that allow them to strike targets hundreds of kilometers away. Although AI drone technology potentially offers a means to address the vast proliferation of Iranian-made munitions, it remains under development for the time being.

Check out our previous articles

We at Between the Lines are committed to providing updates as this story unfolds. Please see the links to our previous articles below for our full depth of coverage.

Israel-Hezbollah Tensions

• https://prestonstewart.substack.com/p/israel-hezbollah-tensions-could-signal

Hezbollah’s illicit financial schemes and overseas operations

• https://prestonstewart.substack.com/p/funding-a-war-chest-hezbollahs-strategic

• https://prestonstewart.substack.com/p/close-to-home-hezbollah-in-latin

Iran’s Counterattack on Israel

• https://prestonstewart.substack.com/p/iranian-counterattack-tensions-rise

Iranian Proxies and Sectarianism

• https://prestonstewart.substack.com/p/iranian-nexus-how-sectarianism-furthers

Iranian weapons and their impact

• https://prestonstewart.substack.com/p/beware-irans-military-industrial

The Houthis and the Red Sea

• https://prestonstewart.substack.com/p/red-sea-shutdown-why-houthi-attacks

Stay tuned for our podcast later this week!

Smoke rises from the Lebanese town of Khiam amid cross-border hostilities between Israel and Hezbollah. Image source

Over the past week, the Israeli Defence Forces (IDF) conducted a series of military exercises simulating war in neighboring Lebanon. Israeli Prime Minister Benjamin Netanyahu and IDF Chief of Staff Lieutenant General Herzi Halevi personally oversaw the exercises on June 25 and 26. These preparations come amid an escalation in cross-border strikes between Israel and the Lebanon-based Islamist militant group Hezbollah. While both sides have been engaging in near-daily clashes since October 2023, the severity of fighting has increased in recent weeks. Nearly one hundred Lebanese civilians have been killed, with over 60,000 Israelis and 94,000 Lebanese displaced to date.

With a war between Israel and Iran-backed Hezbollah increasingly likely, several countries have asked their citizens to leave Lebanon, and Washington is now calling for diplomacy between the two sides amid the growing threat of regional escalation.

Basis for escalation

Israel appears intent on dealing a significant blow to Hezbollah’s capability as a matter of restoring deterrence. Since last October, Israel has launched thousands of cross-border attacks on Hezbollah. Still, these have done little to deter the organization, which continues to step up its attacks into northern Israel using armed drones and surface-to-air missiles. The city of Kiryat Shimona near the border has been a favored Hezbollah target, especially since January.

These Hezbollah attacks have placed an unpopular Israeli government under pressure to respond and are a significant driver of its increasingly bellicose rhetoric in recent weeks. On June 27, Israeli Defense Minister Yoav Gallant warned that the IDF is capable of taking Lebanon “back to the stone age.” A war with Hezbollah also offers Israeli Prime Minister Benjamin Netanyahu a way to garner public support amid a crisis of confidence in his leadership, including within his former war cabinet, over his handling of the war in Gaza. According to a survey by the Jewish People Policy Institute, 62% of Jewish Israelis support a “full force”  attack on Hezbollah.

Hezbollah has mostly matched Israel’s rhetoric. On June 19, the group threatened the Israeli port of Haifa and warned that it would strike Cyprus for aiding Israel’s war effort. Hezbollah leader Hassan Nasrallah claimed that the group was rejecting offers from armed entities willing to send foot soldiers to combat Israel since it is “overwhelmed by the numbers” it already has. Hezbollah currently commands support from a range of Iranian proxies in the Middle East, such as the Popular Mobilization Forces in Iraq.

In Lebanon, much of the country has little appetite for another war with Israel, especially amid the country’s dire economic situation. A patchwork of religious and ethnic groups comprise Lebanese society, including Sunni and Shia Muslims, Maronite Catholic, Greek Orthodox, and other Christian groups, Druze, Palestinian refugees, and more. Following a brutal civil war between these ethnic factions that lasted between 1975 and 1990, most of these groups have little interest in further bloodshed, nor do they share Hezbollah’s enmity toward Israel. For example, Maronite Catholic community leaders advocate for Lebanon’s neutrality, and interviews with members of the Marjayoun Christian community interviewed by international media claim that Gaza is not their war, indicating their opposition to Hezbollah’s stance.

Lebanon’s ethnic groups have historically maintained militias to protect their communities. While these are largely a legacy of past conflicts, the remnants of such militias remain at the forefront of sectarian tensions in today’s Lebanon. Still, these forces are unlikely to play a significant role in a potential war between Israel and Hezbollah, given the lack of support within their communities. However, should war ensue, anger against Hezbollah could result in increased sectarian strife, which has been building up in recent years with local Christian far-right groups, such as Soldiers of God, firmly opposed to Hezbollah’s engagement with Israel.

Hezbollah also appears to lack an appetite for war. The 2006 Israel-Lebanon conflict resulted in high costs for the group; indeed, Nasrallah admitted in 2009 that he regretted the kidnapping of two Israeli soldiers that sparked the war. This regret is partly why the group has been careful to avoid rapid escalation, instead engaging in tit-for-tat attacks and Israel inflicting much heavier casualties in the process. The potential wholesale degradation of Hezbollah would also deal a significant blow to Iran’s regional standing.

Hezbollah survived Israel’s 2006 war and is now much stronger than ever before. Image source

Challenges and setbacks

A war between Israel and Hezbollah appears increasingly likely. Earlier this month, the IDF “approved and validated” plans for an offensive in Lebanon, and Israel seems to be establishing the basis for initiating a cross-border invasion. A British newspaper recently ran a story citing whistleblowers claiming that Hezbollah was importing and storing Iranian weapons at the Beirut–Rafic Hariri International Airport. However, Lebanese authorities denied this claim and invited the press and foreign diplomats to tour the facility. It is possible that the supposed leaks came from Israel-linked sources seeking to make the airport a legitimate target in the event of a war.

Any confrontation could come in the form of a limited conflict or an all-out war, with each option guided by different considerations. A limited conflict offers Israel a chance to potentially degrade Hezbollah with daily strikes while avoiding another ground war before completing its military and political objectives in Gaza and limiting casualties amid suspicions of morale problems within the IDF. Should Israel decide to engage Hezbollah in an all-out war, it would likely begin with the large-scale aerial bombardment of suspected Hezbollah targets in southern and central Lebanon, particularly Sidon, the Bekaa Valley, southern Beirut, and south of the Litani River. However, the latter option presents significant challenges as Hezbollah’s capacity to wage war has expanded dramatically since Israel’s 2006 operations.

Hezbollah has established concealed sites across southern Lebanon to facilitate rocket and anti-tank guided missile attacks against northern Israel, in violation of UN Security Council Resolution 1701. Therefore, it is likely that Israel would seek to strike these to push Hezbollah back across the Litani River before launching a ground operation to further secure the safety of its citizens living in the border areas. Deploying infantry and mechanized forces, even at a later stage, will pose significant challenges in the event, given the IDF’s regular and reserve elements are stretched thin following nine months of combat in Gaza.

Should Israel engage Hezbollah in an all-out war, the result could be catastrophic for both sides. When faced with an existential threat, Hezbollah will likely respond with coordinated rounds of rocket, missile, and drone strikes in several key locations, including north of Haifa and Golan in the east. The group has formidable strike capabilities. Previous issues of Between the Lines have covered this extensively, including its suspected arsenal of as many as 200,000 missiles. US officials claim Hezbollah can launch 3,000 missiles per day, likely enough to overwhelm at least some of Israel’s air defenses, resulting in significant civilian casualties and damage to critical infrastructure. A war on such a scale could also provoke direct Iranian involvement.

Hezbollah maintains an extensive arsenal of rockets and missiles. Image source

Conclusion

The Middle East is on the cusp of yet another conflict as tensions between Israel and Hezbollah continue to mount. This time, the stakes are much higher given the size of Hezbollah’s firepower and potentially that of Iran and its other proxies. In this way, this potential war can escalate to a broad regional conflict with global consequences.

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On June 11, the International Monetary Fund (IMF) again warned of the "stealth erosion" of the US dollar's dominance. According to the organization, the USD's share of global central bank reserves dropped from over 70% in 2000 to about 55% in the final quarter of 2023. This downturn in dollar reserves has been the subject of much debate between those who argue that the greenback is in terminal decline and others who contend that the currency's dominance is unassailable, at least for now. This debate comes amid the rise of other currencies, such as the Chinese renminbi and Australian dollar, and reports that new alternatives are on the horizon.

Despite current trends, data suggests that the USD's share of global reserves, while lower than in previous decades, is considerably higher than alternatives such as the Japanese yen, British pound, and Chinese renminbi. With approximately 88% of all foreign exchange transactions carried out using the dollar and no viable alternatives on the market, the greenback will likely remain the global reserve standard for years to come. In this article, we explore how judgments as to the greenback's imminent demise are, at the very least, premature and likely the product of great power posturing.

De-dollarization

The greenback's centrality in global trade and finance began with the Bretton Woods Conference of 1944, where participating countries agreed to abandon their ability to adjust their currencies unilaterally. Instead, all currencies would be fixed to the USD, which was fixed to gold. The currency's dominance increased in 1974, when Saudi Arabia, the world's largest oil exporter, agreed to sell its oil exclusively in USD, which began trading at a floating exchange rate in 1973. Other oil exporters followed suit, giving rise to what became known as the 'petrodollar,' paving the way for the USD to dominate the trade of oil, by far the world's most traded commodity. Today, no currency matches the various functions of the USD. The US dollar is the most widely accepted means of buying and selling goods internationally and the standard by which trading partners value their goods and services.

Over the years, various countries have spearheaded movements to reduce dependence on the US dollar. These efforts come amid rising concerns that Washington is increasingly weaponizing the greenback by shutting off some countries' access to it by closing financial channels and freezing central bank assets – measures collectively referred to as 'sanctions.' Russia is currently the world's most sanctioned country following its 2022 invasion of Ukraine, and other countries, such as Iran and North Korea, have been subjected to extensive and crippling sanctions for decades. Recent news that US authorities plan to use seized Russian assets to pay for Ukraine's war efforts and reconstruction has greatly added to these concerns.  

Recent sanctions on Russia have spurred fears of a weaponized dollar on the global stage. Image source

A lack of viable alternatives

The fundamental problem with de-dollarization is the lack of a viable alternative. In 2009, the US Department of Treasury identified several criteria for a currency to gain trade and financial dominance. For any such currency, the underlying economy must be sizable and essential in international trade. Moreover, its financial markets must be open, with stable macroeconomic policies and ease of currency convertibility also playing a role. Although the euro meets both criteria, it lacks the political diversification needed to serve as an alternate currency, as EU monetary policymakers tend to mirror their US counterparts. According to this assessment, the Chinese renminbi is the closest challenger to the greenback. Although it comes from a massive globalized economy, it does not come from an open financial market.

The renminbi is also structurally constrained by several factors. First, limited amounts of the currency are available outside China, making it difficult for its meaningful adoption on a global scale. China uses capital controls to severely restrict the movement of its currency in and out of the country, which is also detrimental to business confidence. The renminbi is not fully convertible, meaning it cannot be freely traded or converted into other currencies. China's ongoing economic slowdown has only worsened the resultant lack of international confidence. As a recent sign of this diminished confidence, investors have been routinely selling Chinese government bonds since early 2022, with bond holdings down $15 billion in March 2023 alone.

The global trust deficit in China goes far beyond its economy. Unfavorable opinions of China among those living in advanced economies peaked at the height of the COVID-19 pandemic and have subsided little since then. Regionally, many Southeast and East Asian countries have retaliated against China's aggressive diplomacy and saber-rattling over territorial disputes. In key Chinese trading partners such as Australia, public opinion has plummeted following China's extensive tactics of economic coercion in recent years. Developing countries such as Sri Lanka and Pakistan have been trapped by Chinese debt.

China's extensive financial integration with the US economy also renders the idea of a renminbi-led de-dollarization moot. Despite being a vocal proponent of decoupling from the greenback, China regularly purchases vast sums of USD, hinting at robust demand for the currency in the Chinese banking system. More importantly, China parks its excess liquidity in US treasury bonds, the levels of which have not drastically decreased over the last decade despite geopolitical upsets between Beijing and Washington. In fact, the USD's share in Chinese reserves has been more or less stable since 2015.

The Chinese yuan faces many obstacles to toppling the greenback that many see as insurmountable. Image source

Is a BRICS currency feasible?

In recent months, there has been a considerable amount of media buzz surrounding the concept of a common currency between the BRICS bloc of countries that could challenge the greenback's dominance. Russian President Vladimir Putin first floated the idea in June 2022 and has suggested that the currency could be backed by gold. Alternatively, international media reports have indicated that it may be modeled on the IMF's Special Drawing Rights (SDR) asset, a unique reserve asset used to supplement the official currency reserves of member countries but not an official currency itself. However, the creation of a BRICS currency is almost certainly doomed to fail, partly because there is a clear divergence in how BRICS member states view de-dollarization.

For instance, Russia's de-dollarization efforts began in the early 2000s to de-risk its banking sector, among other goals. Since 2014, these efforts have entirely focused on reducing sanctions risks. In contrast, India views de-dollarization through the narrow lens of hedging against trade volatility, with alternate currency use accounting for only a small but growing part of its international trade. Alternatively, China's view of de-dollarization primarily focuses on internationalizing the renminbi, which has been a nominal pillar of its economic policy at least since the 2008 global financial crisis but contrasts sharply with its strict capital controls.

Geopolitical considerations will further undercut the formation of a BRICS currency. The first step to collectively establish the basis for a joint tender would involve increased trade in an alternative currency used by many BRICS members, the renminbi. India is unlikely to agree to any move that promotes the renminbi amid border tensions with China, especially as this would implicitly signal Chinese leadership of the bloc. India is also moving closer to the US for security reasons, further preventing it from wholeheartedly pledging support to a China-led political order. Similarly, Russia will likely be wary of Chinese leadership on the world stage, given the historical strategic rivalry between it and Beijing.

Material constraints are another factor likely to hinder the launch of a BRICS currency. For one, trade between BRICS members is quite limited, although it is increasing quickly. Moreover, there is no good way to underwrite a BRICS currency. For example, the share of gold held by founding BRICS members has been falling steadily, with the notable exception of Russia, giving what other member states could see as an unacceptable advantage. Some have made the case for an oil-backed BRICS currency, though this too has its challenges, with researchers pointing out that such an arrangement would require a fixed exchange rate between a particular unit of oil and a unit of the BRICS currency. Should oil prices rise, BRICS currency holders would be virtually unable to transact at this fixed rate, requiring another round of negotiations.

These are likely some of the reasons why other BRICS members have been reluctant to back the concept of a common currency, which has primarily been a Russia-led media campaign. Last July, the Indian foreign minister pushed back against the prospect of a BRICS currency, saying, "There is no idea of a BRICS currency." Likewise, South Africa's finance minister said last August that "no one has ever tabled the issue of a BRICS currency, not even in informal meetings." Even the CEO of the New Development Bank, a financial institution created by the bloc, declared that "you cannot step outside of the dollar universe and operate in a parallel universe."

Despite the BRICS common currency's bleak prospects, the use of alternative currencies is very likely to increase over the coming years. The renminbi will likely lead the pack, with the currency's share in China's cross-border payments increasing by 47% from 2016 to 2021. As of March, its share in global payments rose to 4.7%, up from 2.37% in late 2022. The recent announcement that Saudi Arabia will settle some of its oil exports in yuan ends decades of dollar exclusivity. Other contenders include the Indian rupee, the growing use of which will probably be most apparent in intra-BRICS trade. India has signed agreements to transact across borders in its currency with Indonesia and the UAE, among others. Twenty-two countries have opened special bank accounts in India to settle trade in rupees.

Although the dollar will likely remain dominant, a growing amount of international trade will likely be settled by other currencies moving forward amid persistent fears of a weaponized dollar. Image source

Conclusion

The absence of a strong alternative currency and the limited adoption of other currencies in bilateral cross-border transactions indicate that the greenback is here to stay for the foreseeable future. The USD remains too entrenched in the global financial system to be easily eliminated. However, the US' growing weaponization of the dollar could continue to spark concerns even among friendly countries that they could be next. These concerns could slowly bolster the de-dollarization movement in the coming years.

Imran Khan during a rally in Islamabad after he was ousted from power. Image Source

On February 8, Pakistan held what has been called the "most rigged" general elections in its history. While the military backed former Prime Minister Imran Khan's opponents, Khan remained imprisoned and his party suppressed. Despite this repression, Khan's supporters rallied, leading the vote in many places. Regardless, the military-backed Pakistan Muslim League-Nawaz (PML-N) prevailed in the official results, forming a government mainly comprised of the country's entrenched political elite.

Although the Pakistani military facilitated Imran Khan's rise, he frequently clashed with the top brass while in office, sealing his fate. However, his populist legacy endures, and his controversial ousting continues to produce ramifications for Pakistan's ruling military elite, who must now operate with the diminished façade of civilian rule.

Pakistani military Special Services Group in 2018. Image Source

The Rise and Fall of Imran Khan

Imran Khan rose to international fame as one of the world's best cricket players. He dabbled in politics until the 2010s when he became a serious player in Pakistani politics as head of the Pakistan Tehreek-e-Insaf (PTI) party. In the run-up to the 2018 general elections, Khan engaged in a bitter feud with then-Prime Minister Nawaz Sharif, who had been a prime minister on three separate occasions and ousted by the military each time. This time, the Pakistani military reportedly backed Khan and the PTI against Sharif, who Pakistani courts later found guilty of several corruption charges. Khan became Pakistan's 22nd Prime Minister on August 18, 2022, with Sharif later exiled to the UK.

Despite initially warm relations between the military and Khan, the prime minister’s actions soon brought him to loggerheads with the country's de-facto ruling elite. Although Khan remained popular throughout his tenure, Pakistan's unfolding economic crisis – unprecedented in scope and stemming from decades of corrupt mismanagement – resulted in widespread anti-government sentiment. Opposition parties comprised of Pakistan's traditional ruling elite staged protests, eventually ousting Khan in an April 2022 vote of no confidence, a move allegedly supported by the US. In November of that year, Khan appeared at a march protesting the new government, where an assailant shot him in the leg; he later accused the military and interim government of orchestrating the alleged assassination attempt. On May 9, 2023, authorities arrested Khan on multiple charges, including corruption, terrorism, rioting, blasphemy, contempt of court, and others. Mass protests erupted in response.

Although Pakistan's constitution mandated elections be held in 2023, the interim government and military delayed these until February 2024. With Khan imprisoned and his PTI heavily suppressed, the political elites handily won, forming a coalition government led by Shehbaz Sharif, brother of Nawaz Sharif, the latter of whom is now back in Pakistan. Other elite names in the coalition include Zardari and Bhutto – families that have nominally ruled Pakistan and been involved in some of its most egregious corruption cases for generations.

"That's military's cardinal sin: they brought Imran in power, it was a mistake, after that it removed him from power through a vote on no-confidence, it was a bigger mistake."

– Abdul Basit, Senior Associate Fellow, International Centre for Political Violence and Terrorism Research, Singapore

Imran Khan political timeline

The Goliath Military and Its Gambles

Imran Khan's increased involvement in military affairs eventually drew the ire of Pakistan's top brass. In October 2021, Khan involved himself in a feud between the Chief of Army Staff (COAS) General Qamar Javed Bajwa and Inter-Services Intelligence (ISI) chief Lt. General Faiz Hameed. According to reports, Khan maintained a close relationship with Faiz and attempted to extend his tenure as head of the ISI in an apparent bid to gain his support for future elections. However, Bajwa prevailed, and Faiz now faces several court cases. Khan also reportedly clashed with Bajwa and the military on foreign policy matters, notably on his statements on the war in Ukraine, attempts to restore trade with India, and talks with the Afghan and Pakistani Taliban (TTP) that ultimately failed. These failed talks with the Taliban come amidst a notable shift in Pakistani policy toward the group in recent years, with Khan's perceived appeasement of these groups earning him the label "Taliban Khan."

Pakistan's military has a lengthy history of election interference, often resorting to violence. In 1979, the military hanged the country's first elected prime minister, Zulfikar Ali Bhutto. In 2007, the ISI was infamously implicated in the assassination of his daughter and former prime minister, Benazir Bhutto. However, the 2022 ousting of Imran Khan provoked a much more intense reaction from the Pakistani public, with his May 9, 2023 arrest resulting in unprecedented riots that specifically targeted military institutions and killed at least eight people. During these riots, mobs damaged police stations, broke into the corps commander's residence in Lahore (once home to Pakistani founding father Muhammad Ali Jinnah), and vandalized the General Headquarters of the Army in Rawalpindi. Authorities arrested nearly 2,000 people in response, and reports indicate that Khan's arrest had even polarized establishment elites, resulting in intense debate among them.

The historic Jinnah House in Lahore after being set ablaze by Khan supporters in May 2023. Image Source.

Conclusion

Although Pakistan's military has remained in de facto control for much of the country's history, it has done much to maintain the veneer of civilian rule through democratic institutions and a nominally independent judiciary. However, by harnessing the populist wave of support for Imran Khan, only to overthrow him before the end of his first term, the military has raised questions about the legitimacy of these institutions, drawing significant public ire for the first time. Although the military is now attempting a return to nominal civilian rule under Pakistan's traditional and entrenched political elite, public trust in the military has eroded in a way that cannot likely be undone. For Pakistan, a nuclear-armed country already deep into a protracted economic crisis, this is a perilous situation. Like other military regimes, such as that of Myanmar, the situation could spiral out of control.

Africa Corps (formerly Wagner) continues to expand in Africa despite major changes in leadership and organization. Image source

On September 19, the U.S. agreed to remove its troops from Niger following a request from the country’s military junta regime. This withdrawal comes amid a realignment in Niger’s foreign policy under the junta from one that favors cooperation with the West on matters such as counterterrorism to a pro-Russian alignment. At the forefront of this change is Africa Corps (formerly Wagner Group), a Private Military Company (PMC)-turned proxy network of assets that primarily serves Russian interests by generating income from abroad, helping Moscow to finance its war effort in Ukraine while bypassing sanctions.

The Wagner name rose to prominence in recent years amid Russia’s growing presence in Africa. With the group now reorganized and rebranded under official state control as it continues to expand in Africa, it remains to be seen if its success on the continent will continue.

Origins of Wagner Group

The Africa Corps’ predecessor, the Wagner Group, originated in 2013 from the Slavonic Corps, a PMC comprised of former Russian special forces troops and other mercenaries. In 2013, the Assad regime in Syria covertly hired Slavonic Corps to guard energy facilities near Palmyra amid the country’s civil war. When an attack by the Islamic State reportedly killed over 100 of the 250 poorly equipped Slavonic Corps personnel, Russian authorities summoned its leaders to Moscow, charging them with “unlawful warfare abroad,” an embarrassing end to the group’s operations.

Former special forces officer Dmitry Utkin was one of Slavonic Corps operatives in Syria. He was reportedly obsessed with Nazi history and had links to ultranationalist groups such as the Night Wolves. In Syria, he adopted the military call sign ‘Wagner,’ reportedly after Adolf Hitler’s favorite composer, Richard Wagner. He became a founding member of the Wagner Group, which formed in late 2013, just months after the Syria debacle. The exact role Utkin played in the company is a matter of some debate.  

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Wagner’s history is intertwined with its former leader, Yevgeny Prigozhin. A former convict and street thug, Prighozin worked his way from being a hot dog Moscow hot dog vendor to owning a stake in a chain of supermarkets and restaurants by the mid-1990s. In the early 2000s, Prigozhin became friends with Russian President Vladimir Putin, who often dined at his restaurants. The relationship became lucrative for Prigozhin, who frequently catered events for top officials and foreign dignitaries in the Kremlin. Two decades later, he reportedly earned over USD 1.3 billion in the first year of the Ukraine war alone.

Reports suggest that a cabal of senior Russian intelligence and military officers handpicked Prigozhin to sell the idea of a state-sponsored mercenary company to Putin in 2010. Although Prigozhin denied being associated with Wagner for nearly a decade, he later claimed he founded the group in 2014. However, it is more likely that senior officials paired Prigozhin with the remnants of the Slavonic Corps that year at the behest of Putin, his longtime benefactor. In this way, the hand of the state remained present in the Wagner Group from its inception, including the Main Intelligence Directorate (GRU), powerbrokers close to Putin, heads of state enterprises, and other military staff officers.

Although the state was pivotal in creating Wagner, the association was not public. This arms-length approach allowed Moscow to maintain plausible deniability internationally, shield its military from unnecessary battlefield exposure, and hide casualties from its citizens. But the group is much more than just a PMC today, operating a quasi-corporate global network of special operations assets, disinformation agents, and financial intermediaries.

Russia’s Slavonic Corps briefly operated in Syria before seeing their poorly-equipped ranks decimated by attacks from the Islamic State. Russian authorities prosecuted its leaders, and later incorporating members into Wagner under the leadership of Putin loyalist, Yevgeny Prigozhin. Image source

Before he ran Wagner, Yevgeny Prigozhin (left) maintained close ties to Vladimir Putin, often catering events at the Kremlin. Image source

Modus Operandi

Wagner’s primary focus is profiteering in loosely governed countries, including extracting and smuggling natural resources such as gold and diamonds, especially in Africa’s Sahel region. Previous articles from Between the Lines have covered Wagner’s activities in this regard in Sudan. Similarly, in the Central African Republic (CAR), Wagner is poised to reap around USD 1 billion in annual profits from gold mining conducted by its shell company, Midas Resources, along with timber and diamond extraction. In Mali, the group is on its way to expand existing mining operations.

Wagner’s focus on natural resource extraction coincides with increased international sanctions on Russia that started with its 2014 annexation of Crimea and intensified greatly with its 2022 invasion of Ukraine. Given Moscow’s current economic and political isolation, it is more reliant than ever on spoils generated by the Wagner Group, particularly gold, which has helped bolster its currency. Investigative reports also show that Wagner has contributed some $2.5 billion in illicit cash to Russia’s war effort. It does this by propping up the military regimes of countries such as those of the Sahel, which experienced a wave of coups starting in 2020. These regimes allow Wagner to operate with general impunity in exchange for military assistance.

Wagner engineers anti-Western sentiments in African states where Western countries engage in peacekeeping and counterterrorism operations. In April 2022, France released drone footage showing Wagner Group operatives arriving at a base in Gossi, northern Mali, where they arranged corpses in shallow graves in an apparent attempt to show mass killings by French troops. The Internet Research Agency – a troll farm once funded by Prigozhin – has run other successful anti-France campaigns that speak to local grievances, such as France’s colonial history and exploitation of the country’s vast uranium reserves.

Wagner’s record in the places it operates frequently gives rise to new local grievances, including war crimes against civilians. In one example, Wagner personnel and CAR forces killed over 100 people, mostly civilians, in the town of Bambari in February 2021. In 2023, Wagner personnel reportedly raped civilians near Bambari, with experts saying this organized violence is another tool of state capture. Similar accounts have emerged from Mali and Sudan.

Gold is a key component of Wagner’s presence in Africa. It reportedly controls several mines there, including the largest in the CAR (pictured). Image source

The Prigozhin Affair and Reorganization

On June 23, 2023, Prigozhin and Wagner staged an insurrection against the Russian government amid a public feud with Defense Minister Sergei Shoigu over the latter’s handling of the war in Ukraine. Although Wagner troops briefly took control of Russia’s Southern Military District and Rostov-on-Don, Russian authorities soon quashed the insurrection, ordering Prigozhin and his men into exile in Belarus. On August 23, Prigozhin, Utkin, and 21 others died in a plane crash while traveling from Moscow to St. Petersburg in what was almost certainly an assassination orchestrated by Russia’s top leaders. It remains unclear whether Prigozhin staged the mutiny on his own accord or that of his political sponsors, who may have sought to replace Shoigu with their own people. Regardless, the incident marked a turning point in Wagner’s history.

Russian authorities have officially disbanded the Wagner Group, with many of its members subsumed into the Africa Corps under Russia’s Ministry of Defence. The group’s name, a likely nod to the German expeditionary force during World War II, also indicates renewed focus. Putin also seems to be taking a more hands-on approach to managing the Africa Corps, firing Defense Minister Shoigu – who was frequently subject to accusations of incompetence and corruption – and replacing him with Andrei Belousov, an economist who previously served in key positions in the state planning department, including the management of Wagner’s accounts. In an apparent attempt to clean house, Putin has also detained top Shoigu loyalists on corruption charges.

Belousov brings a substantial bureaucratic and academic background to the Ministry of Defense and is, in this sense, the antithesis of Utkin and Prighozin. Still, the road ahead is difficult. To reorganize the Africa Corps into an effective institution, Belousov will likely have to contend with Prigozhin loyalists operating with little oversight far from Russia’s borders. As with many things in the Russian system, obtaining and maintaining loyalty and ensuring the money still flows will likely be his greatest challenges.

Russian authorities recently arrested former Deputy Defense Minister, Timur Ivanov on corruption charges in an apparent attempt to purge Shoigu loyalists from the department. Image source

Conclusion

Africa Corps remains a potent force in the Sahel and beyond, where it will likely continue to expand its footprint amid growing regional instability, with Chad and Cameroon likely candidates. Moreover, it is important in generating revenue for Russia’s increasingly costly war effort in Ukraine. However, with the organization now under new leadership, ensuring it continues to function in all the ways that benefit the state with none of the bad could prove challenging. Regardless, the organization’s ability to generate revenue from abroad for a regime under sanctions may have set an important precedent for other countries seeking to do the same, potentially legitimizing further theft and violence worldwide.

The iconic Taj Hotel in Mumbai, India, one of the multiple locations targeted in a 2008 large terrorist attack allegedly directed by the ISI. Image Source

Pakistan's Inter-Services Intelligence (ISI) agency is frequently at the center of controversy, both domestically and abroad. In India, authorities arrested an employee of a government contract-holding firm on suspicion of divulging sensitive details on India's military drone program. A female agent of the ISI had set up the alleged 'honey-pot' operation. In Pakistan, multiple judges now allege that ISI agents abducted and tortured their relatives to coerce favorable outcomes on 'politically consequential' cases. Meanwhile, the Pakistani Army continues to investigate allegations that the former ISI chief had abused his power while in office.

A longtime supporter of radical groups both domestically and internationally, the ISI is arguably one of the world's most potent terror threats. Given its protection by the Pakistani military, bringing the organization to heel remains a near impossibility in a country locked in a perpetually spiraling crisis.

ISI Insignia. Image Source

From Domestic Necessity to Global Player

The Pakistani government formed the ISI in 1948 amidst a brutal war with India following the bloody Partition of the two countries. Originally conceived as an intelligence agency focused on external threats - primarily India - the ISI's mandate expanded greatly in subsequent decades, especially in the 1970s and 1980s. This expansion led to a significant rise in the ISI's role and influence within Pakistan and abroad. The ISI officially operates under the jurisdiction of the Pakistani military. Its primary focuses include external intelligence gathering, counterintelligence, and covert operations.

Pakistan's relationship with the United States brought the ISI to international prominence. During the Soviet occupation of Afghanistan in the 1980s, the ISI served as the primary conduit for funding between Washington, its Gulf partners, and the Afghan Mujahideen. Later, in the 2000s, the ISI served a crucial role during the US-led invasion of Afghanistan and the Global War on Terror. Over the years, the US Central Intelligence Agency (CIA) looked the other way when the ISI used drug money to finance and spread jihadist ideologies in Afghanistan. The ISI also reportedly channeled funds into the creation of madrassas (religious schools) in northwest Pakistan, sometimes without oversight from the Pakistani military. For these reasons, the ISI played an outsized role in shaping current politics in both Pakistan and Afghanistan.

The ISI reportedly trained former Afghan Taliban leader Mullah Omar, who died in 2013. In Afghanistan's current Taliban-led de-facto government, Interior Minister Sirajuddin Haqqani – leader of the infamous Haqqani network – and various other Afghan Taliban leaders are graduates of Pakistan's Darul Uloom Haqqania madrassa, infamously known as the 'university of jihad.' It was also at this madrassa where conspirators – potentially including agents of the ISI – allegedly plotted the 2007 assassination of former Pakistani Prime Minister Benazir Bhutto.

Apparent connections between the ISI and the Taliban caused Washington's perception of the organization to shift in the late 2000s. In 2011, Joint Chiefs Chair, Admiral Mike Mullen openly accused the Taliban Haqqani Network of being an arm of the ISI, claiming that the ISI helped to facilitate several Haqqani-led attacks on US forces that year, including a truck bombing at a NATO base that killed 77 US service members. That year, a leaked US document listed the ISI, along with the Afghan Taliban and Al-Qaeda, as "terrorist and terrorist supporting entities identified by associated forces." A 2009 US leak also stated that officials from the ISI maintained links with and supported a wide array of other extremist organizations.

Although the ISI allegedly viewed the Afghan Taliban's 2021 takeover as a success for Pakistan, they proved mistaken, and the new Taliban regime has resulted in significant blowback for the country. This strategic backfire is even more dangerous when considering the global context of ISI operations. In India, the ISI continues to play a significant role where it supports several Islamist groups currently active in Kashmir, Sikh nationalists in the Khalistan-Punjab insurgency and allegedly played a critical role in the 2008 Mumbai attacks that killed over 100 people and injured hundreds of others. The ISI continues to pose a significant threat to India. On March 1, a blast killed nine people at a café in India's technology hub of Bangalore. Indian authorities are investigating alleged links between the attackers and the ISI.

The ISI's influence also extends beyond South Asia. For example, the agency's support for ethnic Bosnian Muslims during the Yugoslav Wars caused the International Criminal Court (ICC) to summon a former ISI chief to the Hague; Pakistan refused the request. The ISI reportedly sent operatives to the US to intimidate members of the Pakistani diaspora critical of the government in Islamabad. In 2011, the then-ISI chief visited with Chinese defense officials who publicly accused Pakistan of involvement in attacks in Xinjiang that year. One former ISI chief also claimed the organization supported Muslim rebel groups in the Philippines under his tenure.

 "By exporting violence, they [Pakistan] have eroded their internal security and their position in the region. They have undermined their international credibility and threatened their economic well-being."

-        Admiral Mike Mullen, former Chair of the Joint Chiefs of Staff

The ISI chief (suit with orange tie), with Pakistan's then-foreign minister and Taliban co-founder Mullah Abdul Ghani Baradar in a meeting in Islamabad in 2020. (Image Source)

An Institutional Behemoth

The broad powers of the ISI have cemented the organization's role in Pakistani politics, ensuring the de-facto rule of the Pakistani military. The West helped facilitate this role as it viewed the Pakistani military as a regional bulwark against communism at a time when India enjoyed close relations with the Soviet Union and led the Non-Aligned Movement. As such, the ISI played integral roles in Pakistan's 1958 and 1977 coups, providing intelligence and logistical support to senior military leaders. During periods of nominal civilian rule - including in the post-Musharraf era from 2008 to the present day – military leaders have relied on the ISI to manage Pakistan's 'democracy,' including influencing elections.

Pakistan's military establishment propelled former Prime Minister Imran Khan to power in 2018, forcing then-Prime Minister Nawaz Sharif to exile for corruption. When Khan seemingly interfered in selecting the new ISI chief in 2021, he fell out of favor with the top brass, who orchestrated his ouster in a no-confidence motion. With Khan imprisoned and his party suppressed in the latest election, Nawaz Sharif has returned to power with his brother as prime minister – all with the assent of the military and ISI. While keeping the military in power, the ISI continues to support and advocate on behalf of some of the most retrograde elements in Pakistani society, such as Tehreek-e-Labbaik Pakistan (TLP), which recently killed a Christian man in a mob lynching.

Pakistan's military remains firmly in charge of the country, controlling some of its largest and most lucrative business interests. The ISI helps to facilitate this in many ways, even going so far as to funnel as much as half the money given to it by the US to fight the Soviets toward funding Pakistan's nuclear weapons program. Because the ISI does so much to keep the military in power, the top brass tolerates many of the ISI's less desirable activities, including previous support for domestic threats such as the Pakistani Taliban and massive corruption. As such, the military has actively resisted attempts to reform the ISI, including revoking a 2008 attempt to bring the organization under the control of the interior ministry within hours. For these reasons, the ISI will likely continue to operate with little or no oversight and with near total impunity for the foreseeable future.

A vigil for slain journalist Saleem Shahzad, who was allegedly tortured and killed by the ISI for writing about the relationship between Pakistan's military and militants. Image Source

Conclusion

The ISI's value to the military ensures its practically free reign over Pakistan's domestic and global interests. Its ties to jihadist elements, access to funds, and apparent lack of judgment make it a regional and global threat. Its near-total lack of oversight ensures the continued victimization of Pakistani citizens, especially those from its media and civilian institutions. Although Western governments increasingly recognize the threat posed by the ISI, it will likely remain a global threat for the foreseeable future.