#341 Misaligned Expectations
What to Expect from the Islamabad Talks, Pakistan's Role in the Talks, and Geography Comes Back to Bite
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Table of Contents
India Policy Watch: Talking Good In Islamabad
Insights on current policy issues in India
—RSJ
Some kind of ceasefire discussion will be going on in Islamabad by the time you read this. Going by what Iran has put as its 10-point demand charter and what might be the views of the US, Israel and its Gulf allies on them, I remain sceptical of any long-term peace settlement emerging from this. It took a couple of years for the Obama administration and a more ‘settled’ Iran to agree on a smaller list of issues (uranium enrichment, inspections, and lifting sanctions) to arrive at the JCPOA, which went through multiple iterations with experts and political interests from both sides weighing in. More importantly, there was no Israel to queer the pitch at that time.
What we have now are Vance, Kushner and Witkoff talking to a battered and more hardline Iran that’s holding the global economy at ransom. This doesn’t inspire any confidence for arriving at a long-term accord in under two weeks. But I remain hopeful of a short-term solution. The consequences of a continued war or blockade of Hormuz beyond April are terrible for the world, especially for India. If saner minds were at work than visible at this moment, then these negotiations in Islamabad could be viewed as round 1 of a series of talks to arrive at long-term peace in West Asia. But these aren’t sane people, so any kind of prognosis is risky. But one can still theorise and hope for some method from both parties.
In this round, the biggest (and possibly the only) goal of the US is to get Iran to open the Strait of Hormuz without it having to send its navy or have boots on the ground in Iran to prise it open forcibly. This is clear based on the reading of the unhinged TruthSocial posts of Trump leading up to Tuesday’s 8 PM deadline that he had set for Iran and the past evidence that the only real Trump disciplining tools are bond markets and crude oil futures. So, for Trump, the best outcome from the talks is to get Iran to open up the Strait of Hormuz without the US conceding much, so he can spin it as some kind of win for his base and move on to other things. The inconvenient fact that the Strait of Hormuz was open prior to the Feb 28 attacks, and this will only take us back there, isn’t going to bother Trump or most of his MAGA base. For them, he’d have played 3D chess again and won.
For Iran, conceding to open the straits of Hormuz and revert to the pre-February 28 scenario shouldn’t be as big a deal as analysts reading Iran are making it out to be. For one, Iran has already shown that it can choke it for six weeks and counting, and the rest of the world can do precious little about it. Something that was once in the realm of war-game scenarios has now been made real by Iran. Therefore, it can concede to open it fully aware that it can choke it at any point in future. Everyone has to learn to live with this risk. In fact, now that some kind of ceasefire is on, the longer it blocks Hormuz from here on, the more it hurts Europe, China, India and Southeast Asia. Why would it want to have practically the entire world as its enemy?
Also, the more it overplays its chokehold, the greater the motivation for the rest of the world to find a long-term solution to derisk itself from the Strait of Hormuz. It will only hurt its leverage. We discussed this in the last edition. It is best for Iran to position these six weeks of global economic blackmail as a one-off that it was forced to deploy because of the existential risk it was pushed into by the actions of the US and Israel. Iran would prefer to be seen as a long-term rational actor pitted against an irrational Trump in this game. So, from a game theory perspective, Iran also should be as eager to open the passage as the US.
However, Iran would pretend to show this as a huge concession and would like to get as many of its 10-point demands accepted by the US in exchange. In reality, it will open the Strait even if not a single one of its demands is met, except for a long-term ceasefire, even if it is without any guarantee. But it has a stronger hand, so it will push for more. This is where it will have to be careful and not be too greedy. My view is that it will prioritise among its 10 points and, in this round of negotiations, satisfy itself with only those that build on its image of being a rational actor.
What could they be? Here’s the list of Iran’s ten demands (not acknowledged explicitly by the US yet):
1 - Commitment to non-aggression
2 - Continuation of Iran’s control over the Strait of Hormuz
3 - Acceptance of uranium enrichment
4 - Lifting of all primary sanctions
5 - Lifting of all secondary sanctions
6 - Termination of all United Nations Security Council resolutions
7 - Termination of all Board of Governors resolutions
8 - Payment of compensation to Iran
9 - Withdrawal of US combat forces from the region
10 - Cessation of the war on all fronts, including against Hezbollah in Lebanon
In my view, after a lot of posturing, Iran will concede on #2 and, in return, will be happy to get #4, #5, #6 and #7. Point #10 is already in the mix as part of the ceasefire, except for attacks on Lebanon. That will get resolved after Israel has bombed Beirut to its heart's content over the weekend.
So, will it get these? I suspect it will get #5, #6 and #7, and on #4, it will ask for the continuation of the suspension of the sanctions on its oil exports as has happened in the last month. Everything else is a bridge too far for the US and its allies, and actually makes no difference to Iran. If the US and Israel start bombing them again (small chance of the US getting involved any time soon), Iran can go back to blocking Hormuz. So, it really doesn’t need #1, #9 and #10. And #3 and #8 have been added as part of the negotiating strategy, only to drop them at the first instance of a deadlock. Even Iran knows they are non-starters.
Those would be the outcomes if, as I said earlier, sane minds were at work. This should mean a fairly quick agreement on this core issue and a successful press conference by next Friday. Trump declares it the best deal in the entire history and is relieved to get out of this Netanyahu mess. He won’t have anything more to do with Iran for some time now, and he will let the Gulf states and the rest of the world deal with Iran with their own bilateral agreements. That’s an endgame I have mentioned in more than one previous edition.
Iran will also show this as a win because, quite frankly, given its battered state, to have the Islamic state survive, have the sanctions lifted and get legitimate oil revenues to flow in, is the best possible deal for it. And for any other eventuality in future, it has the trump card of blocking the Strait of Hormuz up its sleeve. That is a low-risk, high-gain, and less messy option that beats having a nuclear bomb any day. That’s the best-case scenario for the world and India, and it is the only rational choice for Iran. It will be able to sell it internally to the regime and the people.
This should mean a return to full normalisation of traffic through Hormuz by the end of the month. Is that good enough for the world to avoid an oil shock of the kind seen in the past? Or have we crossed that date already, and it is only about damage containment now?
Here’s the simple math on total production loss of crude if we return to normalcy by the end of the month (62 days post Feb 28). The daily flow of crude through Hormuz before the war was about 20 MN barrels a day. The lifting of the sanctions on Iran has meant that it has continued to send its 2 MN barrels a day. The east-west pipeline of Saudi Arabia—which obviates the need to use Hormuz—transports crude from oil-producing eastern wells to the port on western Saudi Arabia on the Red Sea, and is now working at full capacity. That takes care of about 4-5 MN barrels a day. So, the daily production loss right now is about 14 MN barrels a day and total production loss over the 62 days will be about 850 MN barrels. The International Energy Agency (IEA) released about 400 Mn barrels of strategic emergency reserves in March to take care of the supply shortage. So the net production loss would be about 450 MN barrels after netting this off.
Clearly, there’s no such storage capacity among oil-producing Gulf countries, so one has to assume that they have cut back on production dramatically and shut down oil wells in the past two months. For them to revive those wells and get back to full capacity could take about 2-3 months. So, it will take the world until July to reach the regular average daily oil supply as before, at the earliest. Then they will have to deal with 450 MN barrels of production loss seen during the war. This will mean elevated oil prices for most of 2026 and a foregoing about six months of global GDP growth, amounting to about 1.2-1.5 per cent of total global GDP loss. This will require fiscal support in most countries, and it will be a drag on growth for at least 2 years. But that’s a much better outcome than a failed ceasefire and the Strait of Hormuz remaining closed beyond April. We will then be at real risk of a global stagflation.
But given the cards with Iran and the corner that the US has painted itself into, I would like to believe we will have that successful press conference no later than Friday next week, followed by a few insufferable Trump posts on TruthSocial. It will be a small price to pay for our future.
Matsyanyaaya: Pakistan’s Moment Under the Sun
Big fish eating small fish = Foreign Policy in action
—Pranay Kotasthane
Our previous office premises had a round table that stood precariously on its three legs. This rickety table often shook but never collapsed. We christened it Pakistan because of its ability to resist collapsing under its own weight, and prove detractors wrong. The other parallel was that just as the table had three legs, Husain Haqqani, in his iconic book Pakistan: Between Mosque and Military, had argued that Pakistan's state security model also relied on a "tripod": a reliance on religious nationalism, an anti-India sentiment, and dependence on the West (or foreign aid).
Well, April 2026 has thus far been Pakistan’s. Whether it was a postmaster or the architect of the ongoing talks is beside the point. The fact is that it was the only player with the credibility and willingness to play the mediator, and it positioned itself well and early in that role. On April 1, I had written that this was a good strategic move by Pakistan, and this war is one of the rare superordinate threats where our interests align with Pakistan. Within ten days, Islamabad is now the centrestage of the ceasefire negotiations.
There are a few lessons from this turn of events for us in India, and yes, we should have done what Pakistan’s doing, is not one of them.
First, we too often mistake macroeconomic failure with state failure. Macroeconomic failure has disastrous consequences for people, but nation-states are resilient entities that are often able to absorb economic shocks more than we realise. Only a few years ago, Sri Lanka was on the brink of an economic crisis; Pakistan continues to be in one forever, but that doesn’t imply a proportional decline in the country’s military or diplomatic power. Yes, economic power is the most fungible of all powers, but all dimensions of power operate at varying time horizons. Economic power cannot be converted into military and diplomatic power instantaneously, just as military might is the only dimension that can pose an existential threat within a lifetime.
Those who believed in the caricature that Pakistan’s flailing economy implies imminent state failure and incapability have egg on their faces now. Some Indians genuinely believed that Pakistan’s poor economy would have meant a sudden decline in its warfighting and diplomatic capabilities. Or that the only reason why India couldn’t take PoJK in the past was because previous Indian governments were pusillanimous. Or that Balochistan will break away from Pakistan easily. It’s a good lesson to keep in mind: big nation-states are resourceful and resilient. They can spring back in ways you don’t expect. Don’t write them off in all dimensions even if they are tottering on some of them.
Two, not everything has to be a zero-sum game between India and Pakistan. Surely, stopping this insane war benefits India, Pakistan, indeed the whole of Asia and Europe. Just because India didn’t play the role of the mediator doesn’t mean we need to pooh-pooh Pakistan’s role. Similarly, Pakistan punching above its weight on this occasion doesn’t mean the doors are closed for India. All countries involved will still want Indian markets and Indian talent once things settle. We have many more cards at out disposal. Foreign policy is not a finite game, and no player wins all the plays.
Interestingly, those who treat Pakistan’s mediator role with outright contempt actually are making this same “zero-sum” mistake as those who argue that India should have mediated instead of Pakistan. A ceasefire doesn’t even mean an end to the ongoing war. There will be much to do later, so we should keep calm and not see every event through the India-Pakistan equation.
Three, the events during the past year have shown that Pakistan remains a capable military adversary despite its significant economic and social troubles. The military-jihadi complex (MJC) has the first claim on the resources of that country, and it can squeeze out the funds for its requirements, even if the rest of the country suffers. Thus, it would be foolish to discount the MJC’s military capabilities. The dreams of balkanising Pakistan are just as improbable as Pakistani dreams of taking over Kashmir. We need a measured understanding of Pakistan’s capabilities, not some fantastical notions of its decline fed by social media narratives and cricketing failures.
Four, Khawaja Asif’s threat earlier this week that Pakistan will take the fight to Kolkata, and Gen Munir’s earlier comment comparing Pakistan to a dumper truck to India’s Ferrarri, are a good indication of the stakes at play—as the bigger and more prosperous country, we have more to lose in a confrontation with that army-owned State. We need a stance grounded in reality rather than one that’s derived from slickly made movies.
PS: Pakistanis are obsessed with validation from India, and Indians are obsessed with the inadequacies of Pakistan. It’s a toxic relationship.
Global Policy Watch: Geography Comes Back to Bite
Global issues and their impact on India
—Pranay Kotasthane
For most of the past two decades, the word “geopolitics” has been bastardised beyond recognition. We have techno-geopolitics, talent geopolitics, climate geopolitics, data geopolitics, and now, AI geopolitics. I’ve used many of these terms in these pages too. Each prefix promises that the “new” strategic competition would be about new and fancy artefacts. Territory—the actual root of the word, from the Greek geo, meaning earth—was relegated to a twentieth-century concern, something that Cold War generals worried about but that policy wonks had moved beyond.
But this is a decade when we are coming to terms with geography as leverage, all over again. Hormuz is one reminder that the earth never left. Helium is another.
The Economist recently made a point that amongst all searoute chokepoints, the Strait of Hormuz is exceptional in the sense that while disruption to others only leads to costly rerouting, a blockage of Hormuz has the potential to outright block most of the trade passing through it. Geography is sometimes destiny.
Similarly, think about helium for a moment. It is the coolant that keeps wafers at tightly controlled temperatures inside lithography and etch tools. It is pumped through EUV scanners because, unlike air or nitrogen, it does not absorb extreme ultraviolet photons.
As a liquid, helium boils at about 4.2 K, far colder than almost anything else, and at normal pressure it doesn’t freeze at all, i.e., it stays liquid all the way to absolute zero. This means boiling liquid helium can be used as a refrigerant to cool things to just a few degrees above absolute zero. When it boils, it absorbs heat from its surroundings, just like sweat evaporating from our skin, but at absurdly low temperatures. This imakes Helium a must-have in all MRI machines because they use superconducting magnets that need to be kept at ~4K to operate.
But the inconvenient fact is that helium is found on earth only where it has been trapped, over geological time, alongside natural gas deposits with unusually high helium concentrations. Those deposits exist in a handful of places. Qatar alone accounts for roughly a third of global helium supply. Russia was supposed to bring its enormous Amur plant online to diversify supply but sanctions and accidents have made that source unreliable. The US, which once held enough helium in its Federal Helium Reserve to smother any shortage, sold the reserve off last year.
Thus, sometimes the constraints are geographic. Geopolitics is really about the geo. Atmanirbharta cannot solve this. For some dependencies, interdependence is not a problem to be eliminated but a condition to be managed. Diversifying suppliers, building buffers, and investing in substitutes and recycling, are the only real options.
This story has just begun. The world is about to discover many more helium-like chokepoints, and in every one of them the answer will involve trusted partners, layered supply chains, and a full accounting of what the earth will and will not yield. The countries that do this well will quietly thrive. The ones that insist on a cartoon version of self-reliance will pay a premium and then, eventually, pay a much higher one when a single supplier decides to turn the tap.
HomeWork
Reading and listening recommendations on public policy matters
[Podcast] A masterclass in the latest Puliyabaazi on what would it take for modern renewables to make a breakthrough in India, ft. Ajay Shah.
[Post] Check out Brian Potter’s take on Helium on Construction Physics.
[Book] Underground Empire: How America Weaponised the World’s Economy, by Henry Farrell and Abraham Newman, is worth your time.
Excellent analysis Raghu. Agree 100% both sides have incentives to reach a deal. The point that Iran can concede on Hormuz precisely because it has now demonstrated the capability is well made — the threat is the asset, not the blockade itself.
Two additions that may sharpen the frame. First, if Iran can overcome the psychological barrier of relinquishing its nuclear program, the move makes strategic sense. Functional control of the chokepoint serves as a deterrent that would discourage further war rather than invite it — the opposite of what the nuclear program achieved. It is also a revenue generator, where the nuclear program earned only sanctions. The chokepoint is a better umbrella than the bomb.
Second — and this is the dog that didn't bark — twenty years ago, a Hormuz closure would have been met with the full, unrelenting force of the US military right away. It would have been a "whatever it takes" moment. That it wasn't tells us something larger than the war itself. The predicate for the post-1945 order was that the US held the global security umbrella. That the US is no longer inclined to hold it — not because they can't, but because the domestic rationale has eroded. Analysing this war through the lens of the globalization era risks missing the shifting motivations of the US. If their real objective is to even the playing field enough to exit the region, then a much wider range of outcomes becomes acceptable than most analysts assume. The timeline for a durable resolution largely rests on Iran coming to believe that a post-global US has different objectives than the global America it feared — and built a nuclear deterrent against.
Your press conference line is perfect — "Trump declares it the best deal in entire history and is relieved to get out of this Netanyahu mess." I attempted a version of how that press conference might actually sound in a piece earlier this week. Spoiler: the Board of Peace has been rebranded as the Board of Pieces, and sovereignty has entered the platform era.https://rajeshachanta.substack.com/p/catch-26
RSJ, I feel its callous to write of 'Israel bombing Beirut to their heart's content.' Its evident Israel is callous and genocidal in doing that but I found it distasteful that you framed it in such a cavalier manner, as if Beirut is some sand castle the kids get to stomp on.