We have written about the benighted country that is Afghanistan before, and discussed it again only last month on the most recent Jupiter Merlin Webcast. That the Taliban is back in control comes as no surprise; the surprise is that it happened as rapidly and completely as it has in little more than four months since April 14 when President Biden announced the US withdrawal timetable; it was the removal of the last combat troops and, critically, US airpower (both in mid-July) which precipitated the surrender of Kabul and the complete disintegration of the national government.

Operation Enduring Freedom: a catastrophic failure of Western policy

The only undisputed statement of the original aim in Afghanistan was the eradication of al-Qaeda in the aftermath of the 9/11 atrocities. Militarily, the UN-mandated, US-led ISAF (International Security Assistance Force, a NATO construct) succeeded to the extent that al-Qaeda, its leader Osama bin Laden, and its acolytes were largely destroyed, and the surviving remainder driven out across the porous border into the lawless areas of Pakistan. And there the consensus largely ends.


In the face of international condemnation of the US and President Biden in particular at the scenes of the past 10 days, especially the harrowing footage of refugees clinging to any available hand or foothold on moving US military aircraft and some falling to their deaths from the air, Biden’s defence of his policy was as weasel-worded and self-exculpating as it was delusional. Everyone’s fault but his. As supposed leader of the free world, it did him no credit.


Much has been written and spoken of the tensions extending back to the very beginning among the Coalition members about the prosecution of the campaign, particularly the Americans’ flat refusal to “do nation building” beyond the military phase. Biden asserted that it had never been the intention to drive regime change, i.e. removing the incumbent Taliban government. However, given the terrorist organisations were being actively harboured and encouraged by the Taliban, only the removal of that government would have minimised or eliminated the risk of those proscribed groups re-emerging as a renewed danger at a later date; that is precisely what happened but the plan remained largely military with little thought given to a comprehensive civilian and governance strategy with which to build enduring stability. As Admiral Mullen, former Chairman of the US Joint Chiefs of Staff, said quite openly on Radio 4, “we got nation building wrong”. Further, Biden claimed that the US had no business in others’ civil wars; but the moment ISAF sought the support of the anti-Taliban warlords in the tribal areas of northern Afghanistan through the Northern Alliance, like it or not NATO embroiled itself in centuries of internecine tribal and religious strife; to suggest anything else is absurd.


Biden’s final insult was to the Afghans themselves: that they wouldn’t fight. Lumping Afghans together as a homogenous population betrays an ignorance of the complexities of Afghan socio-political, religious and tribal affiliations and sensibilities: this was a civil war. As for the Afghan National Army, as UK Chief of the Defence Staff General Sir Nick Carter answered the criticism with icy calm in the face of hostile Radio 4 questioning, “that’s precisely what they’ve been doing since 2014 and the end of Operation Enduring Freedom, Mishal. 69,000 ANA troops have died. This was a failure of Afghan government and military leadership, not courage”.


Anyone wishing to understand the multi-layered tensions within ISAF, notably between the British approach of ‘hearts and minds’ against the Americans’ heavily military boots-and-hardware-focused stance, and also the coalition forces’ tensions with their political masters at home many thousands of miles away from the realities on the ground, and the difficulties of understanding (or the unwillingness even to try and understand) the immensely complex array of frequently fluid relationships between a bewildering number of Afghan parties all working to their own agendas, would do worse than read the excellent autobiographies of Lords Dannatt (commanded NATO’s Allied Rapid Reaction Corps, the military core of ISAF) and Richards (commanded both ISAF and the ARRC), as well as “Unwinnable”, Theo Fennell’s excellent analysis on the campaign, and listen to Radio 4’s Briefing Room from 15 August hosted by David Aaronovitch.


In among all the indignation, what nobody seems to want to ask is this: how is it that since 2014 when the now ironically named ‘Enduring Freedom’ was abandoned and yet thousands of ISAF troops, intelligence officers and air assets were still in the country, the Taliban was able to re-group, to exert direct pressure over large rural areas, to fund itself royally by way of protection rackets involving business ‘licences’, ‘taxing’ the movement of all goods across the Afghan borders, and demanding money with menaces from the highly lucrative opium trade, and then to acquire sufficient weapons and train an effective guerrilla army with which rapidly to dominate the country when the opportunity presented itself? Natural fear, the need for self-preservation, split loyalties, endemic corruption at the top of Afghan society: all the above were factors; but the Coalition was powerless to stop it, even if it wanted to.

The Ramifications

It is best to look at the ramifications from two aspects: geopolitically and the potential effects on domestic politics in the US, the UK and elsewhere.

Full time: Taliban 1, United States 0

The most obvious casualties geopolitically are the western democracies, especially the US. Every President since George W Bush has struggled to balance the need to achieve the objective in Afghanistan (whatever they thought it was) with maintaining political and public support at home. There is no dispute that the majority of Americans, tired of the cost in both blood and treasure (and perhaps to a degree having lost sight of the original point during the passage of time) wanted out: polls held under both Trump and Biden regularly showed two thirds in favour of a full US withdrawal. It was such supportive public opinion which prompted Trump to begin negotiating with the Taliban in 2019 about the transition leading to the Doha Agreement (that he excluded any representation by the official Afghan government helped undermine its credibility at home, giving confidence to the Taliban and weakening Afghan public faith in the leadership in Kabul, a direct contributor to the last week’s government and military collapse); recent polls showing consistent results convinced Biden that completing the job with a clean break would be welcomed in the US.


However, the badly judged execution of the plan, the lasting images of the awful scenes at Kabul airport, the global headlines castigating the US for cutting and running, the impression of the world’s greatest military power kicked summarily out of Afghanistan by men on mopeds, perching on pick-up trucks, armed with little more than AK47s and RPGs, have the power to do Biden significant damage politically, and to undermine the US’s credibility internationally both with its allies and foes. On its own (and depending on what happens from here), the Afghan debacle might not have damaged Biden by the time the US goes to the polls in November 2022 for the mid-terms; memories are often brutally short. However, with his failure to build a consensus against China in the wake of the pandemic, and being played like a fish by Iran in his pleading to restore the US to the Iranian nuclear containment treaty, alongside his caving into the Russians in the recent Sebastopol spat in the Black Sea, and now a thoroughly botched Afghan exit strategy, are all manna to his political opponents’ growing conviction that as far as foreign policy is concerned, Biden is turning in to one of the worst Presidents in recent history (he’s only been in office 7 months!). Among many other factors these are sure to play a role in determining the balance of power in the House and in particular the Senate in the mid-terms. It is a statement of the obvious that any future terrorist atrocity perpetrated upon the US, and whose genesis is Afghanistan, will see an accusing finger pointed directly at Biden.

UK: unable to force the right approach

Unpopular though it is to say, with its long imperial history in the region and the perspective it brings allied to its acknowledged leading expertise in ‘hearts and minds’ strategic military thinking, the UK’s preferred approach was on the right lines (though for understandable reasons it ignored Harold MacMillan’s maxim: “First rule of politics: never invade Afghanistan”). But the Afghan campaign illustrates the fact all too clearly that regardless of that expertise, with the exception of Special Forces and our nuclear capability we simply do not have enough conventional troops and assets to carry sufficient political clout with America in the final determination literally of who calls the shots. The notion this past week from indignant politicians that we should have taken action unilaterally on the ground in the absence of the Americans is dangerously delusional; no more realistic was the suggestion that we should have created a European coalition to do the same given, with the notable exception of Holland, Denmark and Portugal (and even then all in very limited numbers), the rest of the EU has been largely or wholly missing from action these past two decades, quite useless. But the feeling in London of being let down by the US, not listened to, leaves Biden with much remedial work to do patching up relations with the UK, its cornerstone ally in NATO. It’s an unhappy situation but one which, however unpropitious the circumstances, the UK might be able to leverage with Washington to avoid disasters such as Afghanistan and Iraq happening again.

NATO’s own goal

Russia, China and Iran will all enjoy their moment of hubris about the US and NATO’s humiliation (not least President Putin seeing the tables turned after the Russians were defeated in the 1980s by the Afghan Mujahedeen who were funded and trained by the CIA). Further, the lack of NATO members willing fully to participate in ISAF, even after later terrorist atrocities in Europe, will not be lost on NATO’s potential foes. The cumulative effect of Biden’s various foreign policy failures may embolden these key players to push the boundaries even further than they already are. Afghanistan might sit squarely in central Asia, but the geopolitical ripples of apprehension are likely to be felt as far afield as the Baltic States, Ukraine and Taiwan.

Dealing with the Taliban: stick or twist?

However, it is a mark of the change in appreciation of the Taliban in the past 20 years and its duration that both Moscow and Beijing have been negotiating with it in recent months. President Putin, sensitive to the ethnic and tribal sensibilities in Afghanistan’s Russian satellite neighbours to the north (Uzbekistan, Tajikistan and Turkmenistan) particularly as these fomented the allegiances of the Northern Alliance, has sought assurances that the Taliban will not instil civil unrest in those countries. China has taken a similar approach about the Uighur Muslims of Xinxiang Province which shares a 40-mile border between Afghanistan and China at the end of the Wakhan Corridor. Beijing has also been negotiating with the Taliban for mineral mining concessions in Afghanistan among other interests concerning the strategic possibilities in that country for the New Silk Road. To the west, Shi’ite Iran is closely scrutinising events in Sunni-dominated Afghanistan; as one commentator said, it is not in Tehran’s interests to have an organised, well-drilled government in Afghanistan, one whose religion is as radical as Iran’s but at the opposite end of the Islamic spectrum. Pakistan remains permanently tainted through its willingness to host terrorist organisations permeating the porous Afghan-Pakistani border. Neither Pakistan nor Iran relishes the idea of being swamped by Afghan refugees and having to shoulder the economic cost.

Refugees: no consensus

The refugee crisis presents the most obviously immediate problem. The UK proposal to take 20,000 people over a number of years is being hotly debated in Parliament, the government taking considerable flak from both Opposition and home benches. Turkey refuses to allow any Afghans across its border; Greece, the principal gateway into Europe but already inundated with refugees from the Middle East, is protesting it cannot do more. In Brussels, the President of the EU Parliament has said that Afghan refugees should be shared equally among EU member states; Poland and Hungary are dissenting and refusing to take any; with the migrant crisis of 2015 still fresh in many Germans’ minds, the emerging political split about the Afghan crisis is almost certain to be a factor in the forthcoming German Federal elections next month. To the south, EU accession countries including Albania, North Macedonia and Kosovo, wishing to curry favour with Washington have simply all declared unequivocally that they will willingly accept fleeing Afghans.

Investment perspective: slow burn but significant, however imperceptibly

From an investment standpoint, the immediate impact has been minimal beyond neighbouring emerging market bond yields reacting (to which the Jupiter Merlin Portfolios have no direct exposure).


But it is the slow-burning shifting of the global geopolitical and economic tectonic plates which matters. 35 years ago, China and India were the same size economically with a 4% share of global GDP. India remains at 4%; China is 18%. The US was 27%, it is now 26%; on a like-for-like basis the constituent members of the eurozone before its formation in aggregate represented 24% of global GDP, a figure which has now lost ten points. As the US either deliberately retreats strategically or gives the impression of doing so, and now under Biden shows itself fallible and weak, the contrast with the strategic ambitions of China and the confidence with which it projects itself cannot be more stark. Extrapolating the current rate of progress, China’s economy will exceed that of the US within the next 15 years with all the knock-on effects of the shifting balance of power reflecting one in relative decline, the other in the ascendancy. Important in this is the Chinese agenda to disintermediate the role of the US Dollar as the world’s principal reserve currency.


Further, we are accelerating through the digitisation and towards the decarbonisation of society and economies. The extent to which China, Russia and others control the key raw material resources of the new era and, as importantly, control and manipulate data becomes important. The security of traditional supply chains is being reassessed, a further complicating factor. There will almost certainly be an economic impact arising from all these factors that will be evident across all asset classes, not only bonds and equities but exchange rates, commodity and property prices. This process is constant and as such is often imperceptible. But sometimes there are events which precipitate the rate of change, sometimes even altering the overall course. The pandemic is obviously one. However, it is quite possible that historians, economists and strategic analysts will look back on 2021 in Afghanistan and conclude that this was one of the milestone moments that was of significance in the shifting balance of power and influence between key nations, its significance only being recognisable long after the event itself.


The Jupiter Merlin Portfolios are long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each.  With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions.


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