The Silk Road To Riches
By Yiannis G. Mostrous
ATHENS, Greece–As the second quarter comes to an end, I’m in the process of reviewing the SRI Portfolio results and making some adjustments to the Portfolios. Consequently, today’s issue will deal with one of the most misunderstood aspects of investing—namely, geopolitics.
SRI readers know, though, that this is one of my investing cornerstones. The following piece is an excerpt from the book, The Silk Road to Riches: How You Can Profit by Investing in Asia’s Newfound Prosperity, which I co-authored.
Ambiguous Relationships
“India is now a nuclear weapons state…we have the capacity for a big bomb now. Ours will never be weapons of aggression,” asserted then Prime Minister Atal Behari Vajpayee on May 14, 1998, after India’s nuclear test.
The Prime Minister’s statement betrayed India’s knowledge that the ways of the 1970s, when the US would send the Seventh Fleet to the Bay of Bengal to intimidate India during its war with Pakistan, were over. Although the Clinton Administration adopted harsh measures toward India after the test, one year later, during the Kargil War, US diplomatic efforts favored India, marking a shift in US policy.
Serious observers knew that it was only a matter of time before India demonstrated its nuclear capabilities due to the longstanding belief of a large part of India’s ruling class that possession of an independent nuclear capability is a prerequisite for achieving major-power status.
As professors Baldev Raj Nayar and T.V. Paul have noted, India’s vision for major-power status has been alive for a long time. “Although Nehru often spoke against great-power politics, underneath his idealism lay a submerged realism about the potential of India to become a major power in the international system. Such a desire was evident in his pursuit of nonalignment, in his autarkic economic development strategy, which placed heavy emphasis on the public sector and heavy industry, and in the prominence he gave to science and technology. The building up of the nuclear and space program by Nehru and his successors has also been driven largely by the desire to become a major power.”
India never signed the Treaty on the Non-Proliferation of Nuclear Weapons because, as K. Subrahmanyam has noted, “India has a far more realistic view of the game of ‘non-proliferation’ and therefore refused to accept a regime conceived by a few nations violating the basic international norms that all nations are entitled to the same category of weapons for their defense. Nor was India taken in by the concept of a ‘nuclear-weapon-free zone,’ which legitimized nuclear weapons in the hands of a few powers.”
India’s obsession with security is understandable in light of its turbulent relationship with the US in the period after World War II. The Cold War years proved to be difficult for India. Its non-alignment policy was viciously rejected by the US, and India was considered a satellite of the Soviet Union. This misapprehension caused a delay in cooperation that could have begun years ago. It must be noted that “India turned to the Soviets for arms in the 1960s only after the United States had started its military aid to Pakistan and only after New Delhi had made an unsuccessful bid for large-scale US military aid.”
US-India relations began to improve after 2000, a rapprochement that gathered momentum in the wake of September 11, 2001, terrorist attacks. Though the central focus of their respective foreign policies have not changed, the US has come to realize that India can be a major ally in Asia. The new relationship is founded on an understanding that “[India] is bound to emerge as a major market; it is a reservoir of readily tappable brainpower which will be required by the US if it is to maintain its position as a technological hyperpower. There are no inherent conflicts of national interests between the US and India. And in the light of uncertainties regarding China and the Islamic world, India could be a convenient and friendly countervailer.”
Relations are improving not only in economic terms, but also in strategic and militarily ones. The US views India as a potentially strong ally in its global war on terrorism. What is important to India are the technologies offered by the US and Israel. Of special significance is the transfer of military technology from the US.
India is slowly gaining support in domestic US political circles. Many opinions that would have been characterized as reckless or anti-American five or 10 years ago are now freely expressed and accepted. Former US Ambassador to India, Robert D. Blackwill, said in the summer of 2005, “In my view, the United States should now integrate India into the evolving global non-proliferation regime as a friendly nuclear weapons state. We should end constraints on assistance to and cooperation with India’s nuclear industry and high-tech trade, changing laws and policy when necessary.”
President George W. Bush acknowledged in July 2005 that India is “a responsible state” and said he would seek agreement from Congress to end more than four decades of sanctions that have barred full US cooperation with India on civilian nuclear energy programs, perhaps hinting at a desire to positively influence the process of change in Asia. But the president’s proposals require the blessing of a Congress that, as of this writing, may be loath to give it.
The end of the Cold War has given rise to cooperation that once would have been deemed impossible between other states, at the same time further complicating the geopolitical game. In January 2005, India and Iran signed a multibillion-dollar deal under which Iran will supply India with 7.5 million tons of liquefied natural gas (LNG) annually for 25 years starting in 2009. India will participate in the development of other oilfields in Iran in cooperation with Iran’s state oil company, Petropars. The two countries have also conducted joint military exercises, and it is believed that Indian personnel have helped Iran modernize its Soviet-made weapons systems. Cooperation also extends to improvements in ports, roads, and rail systems.
The problems are obvious. Iran has been identified as part of President Bush’s “axis of evil” and is not trusted by Israel. India’s position is, at times, very difficult. The US knows that India’s importance grows by the day, and that a constructive relationship is in everyone’s best interest. The evolving view of India by US opinion leaders lowers the political costs of advocating a closer relationship, as does the realization that Pakistan can compete with India neither in commerce nor in arms purchases, both essential components of the US economic growth. The US has been lenient with India and its dealings with Iran–given the 1996 US Iran-Libya Sanctions Act, which penalizes foreign companies for investing more than $20 million in either of the countries. Obviously, the money being invested by India (and China) in Iran exceeds the limit by a wide margin.
India’s position on the subject has been clear. Its Ministry of External Affairs spokesperson explained, “The United States has its relationship with Pakistan, which is separate from our own relationship with them. Our relationship with Iran is peaceful and largely economic. We do not expect it to affect our continuing good relations with the United States.”
Israeli Prime Minister Ariel Sharon raised concerns regarding the Iran relationship, particularly the possibility that India might transfer Israeli military technology to Iran, on a visit to India in September 2003. As Sudha Ramachandran reported, “Sharon is said to have demanded explicit guarantees from India that it would not transfer any technology acquired from Israel to a third country, especially Iran. India, while assuring Israel that such ‘leaking’ would not happen rejected Israeli calls to shun Iran.”
“A continuation of sophisticated military aid [to Pakistan] at the levels that have prevailed since 1980,” wrote Selig S. Harrison in 1989, “would place the United States on a collision course with India–a course that would become increasingly damaging to American security interests as New Delhi achieves regional power and importance in the decades ahead.” Up until 2000, many US political analysts and power players refused to face this reality, advocating instead confrontational and paternalistic policies.
As in the investment side of the story, few people are paying attention to India. But the country will surprise in the geopolitical arena as it will in the investment one. The main story for the next 20 years is whether India can realize its economic and geostrategic potential.
The preceding is excerpted from The Silk Road To Riches: How You Can Profit By Investing In Asia’s Newfound Prosperity, published by Financial Times/ Prentice Hall. It can be purchased at Amazon.com.
Fresh Money Buys
If you’d like to add to your positions in Portfolio recommendations or allocate new funds, focus on the following markets, in order (for both countries and sectors): South Korea (banking), Hong Kong (real estate, publishing, infrastructure), India (pharmaceutical, banking), Malaysia (ETF), Russia (telecommunications, energy), Taiwan (technology, telecommunications), Singapore (telecommunications, banking, industrial), Europe (oil, pharmaceuticals, industrials, communications equipment, media), Japan (industrials, banking), China (consumer, coal, power, oil, water) and Macau.
ATHENS, Greece–As the second quarter comes to an end, I’m in the process of reviewing the SRI Portfolio results and making some adjustments to the Portfolios. Consequently, today’s issue will deal with one of the most misunderstood aspects of investing—namely, geopolitics.
SRI readers know, though, that this is one of my investing cornerstones. The following piece is an excerpt from the book, The Silk Road to Riches: How You Can Profit by Investing in Asia’s Newfound Prosperity, which I co-authored.
Ambiguous Relationships
“India is now a nuclear weapons state…we have the capacity for a big bomb now. Ours will never be weapons of aggression,” asserted then Prime Minister Atal Behari Vajpayee on May 14, 1998, after India’s nuclear test.
The Prime Minister’s statement betrayed India’s knowledge that the ways of the 1970s, when the US would send the Seventh Fleet to the Bay of Bengal to intimidate India during its war with Pakistan, were over. Although the Clinton Administration adopted harsh measures toward India after the test, one year later, during the Kargil War, US diplomatic efforts favored India, marking a shift in US policy.
Serious observers knew that it was only a matter of time before India demonstrated its nuclear capabilities due to the longstanding belief of a large part of India’s ruling class that possession of an independent nuclear capability is a prerequisite for achieving major-power status.
As professors Baldev Raj Nayar and T.V. Paul have noted, India’s vision for major-power status has been alive for a long time. “Although Nehru often spoke against great-power politics, underneath his idealism lay a submerged realism about the potential of India to become a major power in the international system. Such a desire was evident in his pursuit of nonalignment, in his autarkic economic development strategy, which placed heavy emphasis on the public sector and heavy industry, and in the prominence he gave to science and technology. The building up of the nuclear and space program by Nehru and his successors has also been driven largely by the desire to become a major power.”
India never signed the Treaty on the Non-Proliferation of Nuclear Weapons because, as K. Subrahmanyam has noted, “India has a far more realistic view of the game of ‘non-proliferation’ and therefore refused to accept a regime conceived by a few nations violating the basic international norms that all nations are entitled to the same category of weapons for their defense. Nor was India taken in by the concept of a ‘nuclear-weapon-free zone,’ which legitimized nuclear weapons in the hands of a few powers.”
India’s obsession with security is understandable in light of its turbulent relationship with the US in the period after World War II. The Cold War years proved to be difficult for India. Its non-alignment policy was viciously rejected by the US, and India was considered a satellite of the Soviet Union. This misapprehension caused a delay in cooperation that could have begun years ago. It must be noted that “India turned to the Soviets for arms in the 1960s only after the United States had started its military aid to Pakistan and only after New Delhi had made an unsuccessful bid for large-scale US military aid.”
US-India relations began to improve after 2000, a rapprochement that gathered momentum in the wake of September 11, 2001, terrorist attacks. Though the central focus of their respective foreign policies have not changed, the US has come to realize that India can be a major ally in Asia. The new relationship is founded on an understanding that “[India] is bound to emerge as a major market; it is a reservoir of readily tappable brainpower which will be required by the US if it is to maintain its position as a technological hyperpower. There are no inherent conflicts of national interests between the US and India. And in the light of uncertainties regarding China and the Islamic world, India could be a convenient and friendly countervailer.”
Relations are improving not only in economic terms, but also in strategic and militarily ones. The US views India as a potentially strong ally in its global war on terrorism. What is important to India are the technologies offered by the US and Israel. Of special significance is the transfer of military technology from the US.
India is slowly gaining support in domestic US political circles. Many opinions that would have been characterized as reckless or anti-American five or 10 years ago are now freely expressed and accepted. Former US Ambassador to India, Robert D. Blackwill, said in the summer of 2005, “In my view, the United States should now integrate India into the evolving global non-proliferation regime as a friendly nuclear weapons state. We should end constraints on assistance to and cooperation with India’s nuclear industry and high-tech trade, changing laws and policy when necessary.”
President George W. Bush acknowledged in July 2005 that India is “a responsible state” and said he would seek agreement from Congress to end more than four decades of sanctions that have barred full US cooperation with India on civilian nuclear energy programs, perhaps hinting at a desire to positively influence the process of change in Asia. But the president’s proposals require the blessing of a Congress that, as of this writing, may be loath to give it.
The end of the Cold War has given rise to cooperation that once would have been deemed impossible between other states, at the same time further complicating the geopolitical game. In January 2005, India and Iran signed a multibillion-dollar deal under which Iran will supply India with 7.5 million tons of liquefied natural gas (LNG) annually for 25 years starting in 2009. India will participate in the development of other oilfields in Iran in cooperation with Iran’s state oil company, Petropars. The two countries have also conducted joint military exercises, and it is believed that Indian personnel have helped Iran modernize its Soviet-made weapons systems. Cooperation also extends to improvements in ports, roads, and rail systems.
The problems are obvious. Iran has been identified as part of President Bush’s “axis of evil” and is not trusted by Israel. India’s position is, at times, very difficult. The US knows that India’s importance grows by the day, and that a constructive relationship is in everyone’s best interest. The evolving view of India by US opinion leaders lowers the political costs of advocating a closer relationship, as does the realization that Pakistan can compete with India neither in commerce nor in arms purchases, both essential components of the US economic growth. The US has been lenient with India and its dealings with Iran–given the 1996 US Iran-Libya Sanctions Act, which penalizes foreign companies for investing more than $20 million in either of the countries. Obviously, the money being invested by India (and China) in Iran exceeds the limit by a wide margin.
India’s position on the subject has been clear. Its Ministry of External Affairs spokesperson explained, “The United States has its relationship with Pakistan, which is separate from our own relationship with them. Our relationship with Iran is peaceful and largely economic. We do not expect it to affect our continuing good relations with the United States.”
Israeli Prime Minister Ariel Sharon raised concerns regarding the Iran relationship, particularly the possibility that India might transfer Israeli military technology to Iran, on a visit to India in September 2003. As Sudha Ramachandran reported, “Sharon is said to have demanded explicit guarantees from India that it would not transfer any technology acquired from Israel to a third country, especially Iran. India, while assuring Israel that such ‘leaking’ would not happen rejected Israeli calls to shun Iran.”
“A continuation of sophisticated military aid [to Pakistan] at the levels that have prevailed since 1980,” wrote Selig S. Harrison in 1989, “would place the United States on a collision course with India–a course that would become increasingly damaging to American security interests as New Delhi achieves regional power and importance in the decades ahead.” Up until 2000, many US political analysts and power players refused to face this reality, advocating instead confrontational and paternalistic policies.
As in the investment side of the story, few people are paying attention to India. But the country will surprise in the geopolitical arena as it will in the investment one. The main story for the next 20 years is whether India can realize its economic and geostrategic potential.
The preceding is excerpted from The Silk Road To Riches: How You Can Profit By Investing In Asia’s Newfound Prosperity, published by Financial Times/ Prentice Hall. It can be purchased at Amazon.com.
Fresh Money Buys
If you’d like to add to your positions in Portfolio recommendations or allocate new funds, focus on the following markets, in order (for both countries and sectors): South Korea (banking), Hong Kong (real estate, publishing, infrastructure), India (pharmaceutical, banking), Malaysia (ETF), Russia (telecommunications, energy), Taiwan (technology, telecommunications), Singapore (telecommunications, banking, industrial), Europe (oil, pharmaceuticals, industrials, communications equipment, media), Japan (industrials, banking), China (consumer, coal, power, oil, water) and Macau.
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