Stratfor's Fourth Quarter Forecast for South Asia

Our third-quarter forecast for South Asia was almost entirely accurate. Many of the core issues laid out in that forecast will continue to play out in the coming quarter. In what we described as the "Washington Effect," India and Pakistan during the third quarter largely formulated their foreign policies based on the Bush administration's priorities. Once more, South Asia's relevance in the global arena will reflect U.S. interests.

The fourth quarter begins in the intense build-up to the November U.S. congressional elections. U.S. President George W. Bush is promoting his Republican base with a clear focus on national security issues and is ramping up efforts to capture another high-value al Qaeda target to help ensure Republicans' hold on both chambers of Congress. We state in the third-quarter forecast that the Bush administration would deliver an ultimatum to Pakistani President Gen. Pervez Musharraf: Cooperate with U.S. forces and provide the necessary human intelligence to launch a successful operation and take out a key al Qaeda figure, or be left to face growing domestic opposition alone.

It appears that the Bush administration's negotiations with Pakistan are well under way. Musharraf recently announced an agreement with tribal leaders in North Waziristan to help boost his image at home after coming under severe criticism for having Pakistani security forces kill a major rebel leader. In spite of widespread concerns that the deal would create a sanctuary for Taliban militants, the United States has gone out of its way to praise Musharraf for his cooperation in the war on terrorism. Islamabad and Washington's behavior reveal that the two governments have reached an agreement to allow Musharraf to regain popularity at home in exchange for providing intelligence and greater access for U.S. forces in the region. There is a strong chance that the United States will be able to claim the capture or killing of another high-value al Qaeda target in the fourth quarter.

As in the past, a major U.S. operation on Pakistani soil would undoubtedly compromise Musharraf's domestic standing. The Pakistani president will be forced to confront intensifying opposition claims that he has sold out the country's territorial integrity to Washington. Though Musharraf is bound to run into some rough patches this quarter, he will maintain his hold over the country, mainly because of the various opposition groups' inability to overcome their own differences.

Major challenges remain for NATO forces in Afghanistan. NATO's September request for reinforcements highlights the tenacity of a resurgent Taliban. A security crisis already exists in the country, and fighting will intensify as both sides try to consolidate gains as winter approaches. Meanwhile, suicide attacks have grown more frequent and more effective; they will not decrease, even as winter sets in. Nevertheless, the Taliban is in no position to topple the government, and ultimately, the stalemate with NATO will continue.

India will begin the quarter by appearing more cooperative in reinvigorating peace talks with Pakistan, but New Delhi has little intent to move the talks forward significantly. Pakistan-based Islamist militant group Lashkar-e-Taiba (LeT) is very likely to carry out another attack in a major Indian city this quarter. Following the July Mumbai railway bombings, Indian security forces have dealt with an alarmingly high number of bomb hoaxes. Though many of these are pranks, LeT has likely staged several dry runs to time Indian security forces' responses at intended targets. Setting up numerous bomb hoaxes also allows the Kashmiri militants to confuse or distract Indian security forces. The cities of Mumbai, New Delhi and Bangalore are prime targets for such an attack. Another militant attack would prompt retaliatory attacks carried out by fundamentalist Hindu groups against Muslim targets. Should LeT carry out another bombing, relations between New Delhi and Islamabad will be strained, but an attack would not result in a substantial shift in the governments' positions or actions toward each other.

India's main struggle this quarter will be maintaining momentum on a major civilian nuclear deal that it has been trying to cement for more than a year. We correctly stated in the last quarter that the U.S.-Indian civilian nuclear agreement would not gain any real traction before the U.S. congressional elections. With time and room to maneuver on the nuclear deal, New Delhi, as we forecast, test-launched its long-range Agni III ballistic missile without fearing significant backlash from the United States over nuclear proliferation concerns.

The nuclear deal will not move forward in the fourth quarter either. With the U.S. Congress preoccupied with the November elections, a Senate vote on the deal will not be a priority. The deal could come up for discussion in a lame-duck session in November, but any final decision will not take place until after a new congressional session begins in January 2007. Should North Korea decide to ramp up its nuclear threat early in the quarter, the U.S.-Indian nuclear deal will be paralyzed. Meanwhile, India and the United States will continue to woo recalcitrant members of the Nuclear Suppliers Group, whose support will ultimately be necessary for the deal to be approved internationally.

Domestic issues will take up most of India's attention this quarter. With the nuclear deal in limbo, the ruling Congress Party once again will take up the issue of implementing a caste-based quota system for Indian universities. New Delhi's stalling on the issue has given anti-quota protesters more time to plan their demonstrations. When the quota issue was first introduced to the Indian public four months ago, students and professionals from medical, engineering and management schools poured into the streets across India to join demonstrations, many of which turned violent and ended up paralyzing business operations in major Indian cities. When the Indian Parliament takes up the issue again toward the end of this quarter, more protests can be expected throughout the country.

India will also be keeping a close eye on its war-ravaged neighbor in the south, where the Sri Lankan government has been pursuing an aggressive offensive against the Liberation Tigers of Tamil Eelam to divide the northern and eastern Tamil strongholds. As we stated in our last forecast, violence between Colombo and the Tigers steadily escalated as the Sri Lankan government continued pursuing its strategy of allowing the breakaway Karuna faction to target Tiger militants. India came under growing pressure from its own Tamil population to intervene in the crisis, as we predicted, and even publicly said it would no longer provide military assistance to Colombo. Beaten down by the military offensive, the rebel group will entertain the idea of peace talks in Oslo to buy time to recuperate from its losses and pressure Colombo to put the brakes on its military campaign. The Tigers will drag their feet in the peace talks, and hostilities will restart once the Tigers feel they are back in a position of strength. In other words, the civil war is far from over despite talk of negotiations.

Our third-quarter forecast for Nepal was on track. Negotiations between the Nepalese government and Maoists progressed, but a great deal of distrust remains between the two parties. The Parliament majority's insistence on retaining a role for the monarch and hesitance to incorporate Maoist cadres in the armed forces will likely lead to another Maoist standoff in the form of mass public demonstrations this quarter. These street protests will have a paralyzing effect on the country's economy, but the Maoists will not return to insurgent tactics this quarter. Meanwhile, the royalists in the government who have remained loyal to King Gyanendra will attempt to fuel distrust between the Maoists and the government by leaking stories of arms deliveries to the Royal Nepalese army to the press.

Another hot spot in South Asia this quarter will be Bangladesh. A 14-party opposition alliance led by former Prime Minister Sheikh Hasina is expected to stage mass protests against current Prime Minister Begum Khaleda Zia over the latter's refusal to implement electoral reforms ahead of the January elections. The riots will be marked with violence and will intensify in the run-up to the elections.[Stratfor]