A Fearful Asymmetry: The Rising Threat of Irregular Warfare

By Dee Smith

Beginning in November 2023, following the attack by Hamas against Israel, groups of Houthi “pirates” in the Red Sea began to step up operations against ships in this crucial waterway that leads to the Suez Canal. The Houthis are a Shia Islamist group based in northern Yemen. Such pirate attacks have been happening in the Red Sea, the Gulf of Aden and the Arabian Sea for many decades, but the agenda now is as much political as piratical. Commercial shipping has been avoiding the region, including the Suez Canal, by making the much longer and more expensive journey around Africa and the Cape of Good Hope. The US has deployed a destroyer and other vessels to counter the Houthi. but has had trouble convincing other powers to join Operation Prosperity Guardian.

Consumers and industry will pay the price for the disruption in supply chains. Last week, 13 nations signed a “final warning” to the Houthi, noting: “Nearly 15 percent of global seaborne trade passes through the Red Sea, including 8 percent of global grain trade, 12 percent of seaborne-traded oil and 8 percent of the world’s liquefied natural gas trade.” The Houthi nevertheless continued their attacks. Last week, for the first time, they used ocean-going drones to attack US Navy and commercial ships.

Thus a relatively small group of operatives —albeit with financial and logistical support from a large nation-state, namely Iran — has managed to disrupt global shipping, create enhanced media awareness for itself, and force the most powerful nation in the world to deploy forces against it at significant financial and military cost.

The reason the Houthi are able to disrupt shipping affecting the entire globe is that they are applying asymmetric warfare techniques to a key strategic location.

What is asymmetric warfare? The classic definition is conflict between forces that are vastly different in terms of military power. It is almost always “irregular” warfare in that the combatants involved on the “enemy” side (the enemy from the perspective of states under attack) are not part of regular national armed forces of nations (although it can also occur among irregular groups, as between the Islamic State and al-Qaida). The goals of asymmetric players are often more to cause shock and confusion than to cause large-scale harm. Bronwen Maddox, head of the British think tank Chatham House, recently recounted a remark that Hamas deputy leader Saleh al-Arouri, who was killed by an Israeli strike last week in Beirut, made to her in 2007: “‘Our job is to keep the Palestinians radicalized’, he said. ‘Most of them would settle in a moment for peace, some deal that will let them get on with their lives. We need to keep them angry.’” Asymmetric attacks happen at unexpected times and in unexpected places, hence the less used term asynchronous warfare and thus asymmetric and asynchronous warfare, as US military and intelligence agencies have long called it.

Asymmetric warfare has been around for centuries and encompasses not just terrorist attacks like that on 9/11 but also  insurgencies, guerrilla warfare, rebellions and so forth. The campaigns against the British that led to the birth of the United States would fall into the category of asymmetric warfare.

Asymmetric warfare has lasted because it can be effective, but two key changes, both products of advanced technology, have made it more so.

First, asymmetric players have been empowered through the increased capacities that new technologies afford to small groups in attacking large states. For example, weaponized drones can be simply repurposed civilian drones, costing at most a few thousand dollars each — while the US Navy might shoot them down with $2 million missiles. The Navy could ramp up existing directed-laser systems, which would be much less costly than missiles over time, but has been reluctant to make the large investments needed. This is an example of how asymmetric players can sometimes prevail against large opponents whose systemic complexity precludes quick and efficient action.

Cyber threats offer a textbook case of the complexity of the asymmetric environment. They can be perpetrated by small groups physically distant from their targets, but they are also used promiscuously by nation states and even sub-contracted to terrorist or criminal groups. It is a very tangled web, difficult to unravel and even more difficult to counter.

It is also well within the capabilities of some asymmetric actors to produce “dirty bombs,” conventional explosives surrounded by or laced with radioactive materials—if they can obtain the radioactive materials, which are difficult but by no means impossible to acquire.

Perhaps the most alarming asymmetric threat is bio-terror: the production and use of biological weapons that could devastate the populations of entire regions. Nation states mostly claim that they are not developing such weapons, but today the field is open to much smaller groups. CRISPR-Cas9 gene editing techniques have become so much more effective and affordable that genetic engineering to produce novel and lethal bio-agents can now, at least in theory, be conducted in a garage on a relatively small budget.

The rise of AI opens up an entirely new arsenal for asymmetric warriors. As those who study the field have noted, however, it has proved impossible to predict how technologies will be misused until they are.

The second major change is that technology has made targets softer. The highly interconnected and tightly coupled world that we have created is far more vulnerable than were simpler and more isolated systems. In other words, technology has to some extent leveled the playing field in favor of weaker asymmetrical players, just as it has made regular armed forces relatively less effective in an increasing range of circumstances. For example, an attack on 16 April 2013 that involved nothing more than AK-47 assault rifles and wire cutters used to cut fiber-optic cables managed to knock out 17 large transformers in 19 minutes, threatening the power supply to Silicon Valley. A blackout was avoided by quickly rerouting power and pulling it from other plants, but the damage was significant and the outcome could have been far worse. The perpetrators have never been found.

Our technologies of communication, such as social media, are so ubiquitous that we often fail to realize how much they have changed the equation. Asymmetric groups learn of one another’s techniques quickly, and they share goals by interacting to further them. For example, the perpetrator of the Christchurch mass shootings on 15 March 2019 said that he decided on a shooting attack specifically because of the effect it would have in the US. Those who study such “lone-wolf” attackers have noticed that they tend to find one another and band together, organizing asymmetric-warfare groups with shared aims and ideologies and becoming much more effective as they do so.

If you are reading this in your office, take a moment to look in your desk. You may have an effective asymmetric weapon at your disposal: a laser pointer of the kind used for PowerPoint presentations. If directed at someone’s eyes, it can be highly disorienting and even cause permanent damage. This is why shining lasers at or into the cockpit of commercial airliners is such a serious crime: it can endanger everyone on the plane by incapacitating the pilot’s vision. And it is a perfect example of how advanced but fairly mundane technology has empowered asymmetric players.

The proliferation of destructive technologies and the vulnerability of large technical systems to disruption have combined to make asymmetric attacks more common and more lethal. What the Houthi example shows is how the range of threats to international trade and investment has grown accordingly.

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A US Slowdown?

While most people were celebrating the holidays, economic pundits published some lengthy self-criticisms focused on why the early 2023 predictions of US recession proved exactly wrong. Understandably, they focused on the traditional recession indicators (like inverted short- and long-term yields) that had failed to indicate. But strong alternative modes of analysis were lacking, and the meek consensus that emerged over the holidays — forecasting some sort of mild slowdown for no particular reason — looked a lot like a punt. SIG’s slightly bolder forecast is for a definite and significant slowdown, based on factors that we believe have been underestimated.

The first and most important is consumer credit-card debt. One widely cited reason for the unexpected resilience of the US economy in 2023 was strong consumer demand. The thought had been that consumers shocked by significant inflation would respond by spending less. Instead, they responded by taking on debt. The average balance per consumer reached a ten-year high. (Canada also experienced a large consumer-credit increase in 2023.) This will have seemed reasonable enough even to poorer consumers because jobs were plentiful and wages rising. Consumer debt had plummeted during Covid, with household balance sheets improving due to thrift, fear, and government stimulus payments that often went into personal savings or to pay off household debt. Besides, inflation expectations can lead poorer consumers to buy now while they have a chance. US consumer inflation expectations were noticeably high — with growing numbers of Democrats adopting Republicans’ gloomy expectations — over 2023 even as their borrowing also grew. At the least, this all points to weakened consumer demand in 2024, removing a key buttress of 2023’s prosperity.

The second underestimated factor is the creation of blocs for foreign direct investment. Along with cross-border mergers and acquisitions, FDI again slowed in many parts of the world. Most famously, China’s inward FDI went negative in the third quarter. Somewhat less famously, inward FDI growth slowed way down in Southeast Asia and India. The reasons are many and vary greatly by country, but the weakening of the Chinese economy is certainly one. Chinese imports from ASEAN countries have been stagnant for years, while its intermediate-goods exports into ASEAN are endangered by the ongoing American-led effort to lessen the dependence of global supply chains on Chinese inputs. Southeast Asian and Indian investment, as well as Chinese, is in each case becoming more inward-focused. Meanwhile, the North American economy is itself becoming more regionalized in production terms as three of the four top inward FDI destinations in the first half of 2023 were Canada, the US and Mexico. (The fourth, at number two, was Brazil.) One reason for this is that US onshoring, near-shoring and friend-shoring — fueled by Biden-administration spending on high-tech and green industrial policy, as well as US defense contractors meeting Ukrainian demand as shaped by US domestic-provider policies and practices — are creating an Americas production bloc that structures a large portion of global FDI. In many ways, this is a tribute to the strength and flexibility of the US economy. But, in the short term at least, the regionalization of investment, given that it is less efficient than globalized investment and production, means higher goods prices. It also means increased competition for US multinationals and exporters at ever higher points in the supply chain. With very high US government and US consumer debt and stable or rising wages alongside low unemployment, the regionalization of direct investment will fuel a US slowdown. US CEOs’ consistent expectations of low capital expenditure in 2024 both support and help ensure such an outcome.

As was proved last year, predictions are a dangerous business. Still, SIG’s argument for investors is that the US’s unexpected performance as a safe haven in 2023 will not be repeated in the new year. 

Preparing for a Dangerous Year

When we began SIG’s blog in June of this year, our goal was to provide original and timely analysis of trends that the mainstream consensus was missing. Clients told us they had much more information about global markets and political trends than they could possibly process. What they were missing was actionable and fresh information that was not merely canned trend-spotting followed by a company recommendation or two. They wanted to go beyond the obvious.

To address that need, we spent a lot of time on Asia this year — traditionally a strong region for SIG and one of enduring interest for our clients. The nature of Southeast Asia’s growing centrality, and the shifting strategic approaches of Japan and South Korea, kept our attention and helped us not get too stuck in the US-China struggle, crucial as it is.

In 2024, we expect both of these focuses to continue, both because US policy on China is unlikely to change much in an election year and because Chinese policy toward Chinese tech multinationals won’t change much either. American and Chinese experiments with varieties of economic nationalism will continue. They are in turn the main drivers of what we have described as Southeast Asian non-alignment, especially digital non-alignment, and of Korean-Japanese rapprochement.

China’s increasing nationalism is notable, although in the last half of 2024 its opposition to the U.S. was modulated by the dire economic conditions it was facing. Xi Jinping’s opposition to the U.S. eased. Nevertheless, China’s long-term goals and strategic opposition to the US in East Asia have not changed, nor have Xi’s designs on Taiwan. He has stated that reunifying China will be his legacy.

We have also looked closely this year at India. Narendra Modi’s extraordinary consolidation of policy power — combining a market orientation with strong state policies and a cultural nationalism of alarming strength — continued in 2023. Modi’s popular support remained very strong, and state elections earlier this month confirmed his BJP party as the political anchor of the 600-million-person Indian electorate. Most importantly, per capita GDP growth has stayed vigorous as the BJP has made massive transfers to low-income groups and steadily empowered the lower Hindu castes. The BJP has apparently succeeded in generating increased demand domestically by strengthening the lower classes through policy. How sustainable this progress is remains to be seen, but the BJP certainly is in pole position going into national elections next April.

In regional terms, our final major focus since June has been the Middle East. The set of initiatives known as the Abraham Accords, alongside a surge in successful Chinese diplomacy in the region, led many to think the Middle East would be stabilizing after the years of violence that followed the rise of Daesh/Islamic State and the suppression of the Arab Spring. Hamas had something else in mind, and mainstream commentary on the Middle East has swung from mildly optimistic to apocalyptic. But the strong drivers of normalization between Israel and key Arab states will not necessarily weaken in 2024 and might well grow stronger. The relatively subdued reaction of these states to Israel’s reaction to the Hamas attack continues to remain notable. Both the OIC/Arab League solidarity on Gaza and the petrostates’ reluctant acceptance at COP28 of a fossil-fuel phaseout suggest a relative political steadiness in Muslim interstate relations and even some sense of common purpose.

Common purpose is what we have looked for in Europe, without great success. True, hostility toward poorer immigrants has become one source of greater solidarity; so has opposition to Russian aggression in Ukraine. Yet both also contain seeds of disunion as political forces in individual states gain power by sharpening themselves against the European consensus. Given general European declines in both productivity and population, the relative power of Poland and other Central European countries has been expanding as they grow more quickly than the Western states. Germany has begun to imagine what a long-term estrangement of oil-rich Russia might mean for the European solidarity on which Germany bases its positioning of itself in the world. At the same time, Germany and, especially, France are trying to adjust to the continued rise in autarkic industrial policies in both the US (EV subsidies, semiconductor chips) and China. About half of the EU’s population is older than 45. In parts of Western and Northern Europe the median age is above 50. All of this puts European productivity under greater pressure and will increase tension between demographically older and younger parts of the continent. Age will be no guarantee of stability. It also creates a tension around immigration from Africa and the Middle East — the only means for many European countries to have an increased number of younger workers.

Since we launched in June, we have put great emphasis on various technology sectors because the peacetime capacity of economies to innovate in technology has become so wrapped up in major-state calculations about war and military competition. Borders are being erected across the Internet in a displaced strategic competition that is lacking in historical analogies to guide us (and that was predicted years ago by SIG’s Scott Malcomson in his book Splinternet). The level of popular and state-level anxiety about technologies that hardly exist yet is extraordinary. US policy now aims squarely at perpetual superiority to China in any technology that might prove to have strategic significance; Chinese policy aims just as squarely at achieving whatever advances it can on the basis of a military-technological-industrial complex bent to establishing breakneck progress if not primacy. The logic has become well established. In 2024 we will stay focused on identifying its effects.

Which brings us to the Americas. An elected right-wing leader had plunged Argentina into political chaos while an elected left-wing leader in Brazil is pushing through long-needed reforms of investment regulation. Mexico will have elections in 2024 and Canada might too, as large majorities of Canadians say Trudeau should move aside. The American superpower will definitely have an election, this time with a desperately low level of predictability. For almost a decade, mainstream analysis has consistently underestimated both Donald Trump and the level of popular alienation from the Democratic Party consensus. The results in November are impossible to predict with accuracy, but it seems certain that the road to get there will be very rocky indeed. Social unrest and violence in the U.S. cannot be ruled out.

There are national elections in 40 countries in 2024, representing more than 40 percent of the population of the world, many in countries where people have lost faith in institutions and incumbent leaders, resulting in a wide tendency to reject them and their parties, further increasing volatility. 

It has been said that 2023 was the year in which business accepted that politics could not be safely ignored, especially the multi-player geopolitics that we have focused on in our blog and our work. The liberal rules-based order sometimes continued in the letter in 2023 but the spirit was gone and won’t soon—if ever—be back. This leaves the world in a kind of systems vacuum, resulting in movement back toward a balance-of-power, sphere-of-influence geopolitics. The unstable and fracturing conditions within and among nations are still not really priced in to markets, as can be seen by how quickly they continue to bounce back from shocks that in the past would have had significantly more long-lasting negative effects, such as the Israel-Hamas war.

2024 will be a pivotal, perhaps decisive year. We look forward to helping our readers and our clients navigate ways to prosper in a very treacherous time. We will take a break next week and look forward to re-engaging with you in the New Year. 

Faith-based geopolitics: A Russian Example

Modern interstate relations are generally thought to have begun with the 17th-century treaties of Prague and Westphalia, which sought to remove religion from among the causes of interstate conflict: cuius regio, eius religio (“whose land, his religion”) was the legal principle, associating state sovereignty with a single dominant faith, and putting an end, however imperfectly, to wars of religion. Modern international relations were built on this segregation of religion from the struggles of states with each other. The resurgence of religion since the demise of aggressive Communist atheism in the 1980s has often been seen as anti-modern, or as a revival of the pre-modern — certainly as far as international relations are concerned. However that may be, religion cannot be ignored by international investors. Shariah compliance and acceptance of Hindutva priorities are two examples. Less obvious is the type of strategic calculation that has led the unlikely figure of Vladimir Putin to embrace Islam as part of his geopolitical practice.

Putin has been viewed as having a significant connection to the Russian Orthodox church since at least 2000, just after he assumed power, when he referred to Orthodoxy as having “largely determined the character of Russian civilization.” He expected the traditional church to speed “the spiritual and moral rebirth of the Fatherland.” After more than two decades in power, Putin has continued to partner with Russian Orthodoxy in his attempts to solidify Russian cultural nationalism, not least in anti-LGBTQ laws (framed as part of Putin’s struggle with a spiritually degraded West) and in his justifications for the invasion of Ukraine, which has been strongly backed by the Orthodox church. Cuius regio, eius religio.

Yet at the same time Putin has sought to leverage the fact that Russia has the largest Muslim population of any European country, assuming Turkey is not seen as European. On the strength of that fact, Russia acquired observer status at the Organization of the Islamic Conference (OIC) in 2005 and is still the only major non-Muslim-majority country to do so. (India was invited but declined.) As a petroleum exporter, Russia is also in constant communication with Middle East petrostates and shares strategic interests with them. These connections make it slightly less peculiar that Orthodox Russia has embarked this year on a two-year experiment with Islamic banking in four Muslim-majority regions: Bashkortostan, Chechnya, Daghestan and Tatarstan. The experiment is being managed by the Russian Central Bank.

Russia has multiple reasons to position itself as friendly to Islam. Russia’s hinterland from the Caucasus to Mongolia is majority-Muslim and its post-Soviet economy has depended on Muslim migrant labor to compensate for domestic demographic decline. In the Middle East, the Kremlin seeks to establish itself as a significant player in the Arab-Muslim world amid the Washington-Beijing confrontation and the Persian Gulf countries’ pursuit of an augmented role on the international stage. In this context, Russia’s stance on the Israeli-Palestinian conflict and its support for Palestinian refugees, many of whom resettled in the North Caucasus under a humanitarian program instituted by Russian authorities, contribute to bolstering Moscow’s image in the Middle East.

Putin frames the ongoing Palestine conflict as a manifestation of US diplomatic failure and proffers Russia as a potential mediator, leveraging its amicable relationships with both Israel and the Palestinians. Putin’s official visits to the United Arab Emirates and Saudi Arabia last week aimed to weaken the Western narrative of Russian isolation over Ukraine. The Islamic-banking initiative is similarly seen as in part a response to Ukraine-related financial sanctions. The visits themselves had ultimately to do with money as much as politics: the UAE and Saudi Arabia can withstand a drop in oil prices, but Putin faces a pressing need for revenue, given the costs of the Ukraine war and their impact on his domestic support.

Since the inception of the Ukraine conflict, the Kremlin has increased its efforts to strengthen relations with the Arab-Muslim world, orchestrating various events within the territorial confines of the Russian Federation, particularly in regions with significant Muslim populations. The Kazan Forum 2023 was a prominent event featuring Moscow’s ties to Arab-Muslim countries, particularly Gulf Cooperation Council members. The focus was on accentuating Russia's role in ensuring a harmonious, multi-confessional, and multicultural society. Moscow is likely to intensify its relations and collaborative initiatives with the Gulf Cooperation Council members in energy, defense and logistics.

The lesson for investors is that 21st century religious revivalism is both powerful and not simple. For many centuries, Russian Orthodoxy was animated by the dream of retaking Istanbul (Constantinople) from the infidel Muslim usurpers Much of the tsar’s 19th century imperial gains were at the cost of Central Asian Muslim rulers, and after the Bolshevik revolution Islamic culture was often suppressed. Yet now the Orthodox paragon Putin is strengthening Russia’s Muslim ties on multiple fronts, domestic as well as international, and at least some Muslim states are responding in kind.

In Southeast Asia, Non-Alignment Is Development Policy

India may have been the pioneer of political non-alignment in the 1960s — proposing that countries should align themselves neither with the West nor the Communist bloc — but 21st century non-alignment is more economic than political and its homeland is Southeast Asia.

Over the summer, Singapore decided to split its decision on who would build the next tranche of data centers on the island: Chinese companies got two contracts (with an assist from Australia’s AirTrunk) and US companies got two. While the US has been trying, with some success, to corral countries into a kind of digital alliance that keeps China out, states in the global economy’s fastest-growing region are refusing to choose. This will prove to be the non-aligned movement that matters for the near future.

Compared to other of the world’s regions, Southeast Asia has had far more experience of both China and the US in the role of major powers: the US since its defeat of Spain in 1898 and especially since 1942, when it entered World War II; China over two millennia, most recently following a policy of Maoist subversion in the 1950s-1970s and commercial expansion and influence from the 1990s to today. Southeast Asia has also had a unique experience of consistent inward investment from other highly developed economies with labor shortages such as Japan, Korea and Taiwan. Indian capital began to look more seriously at the region a few years ago, as has some European and Middle Eastern capital. The gradual redirection of US capital away from the Chinese mainland after 2016 and the slowing of China’s economy strengthened pre-existing trends favoring Southeast Asian growth.

One result is a regional political culture with a deep tradition of not taking sides. The elevation of Chinese-American strategic and economic competition into the digital realm — begun under Trump and greatly extended under Biden — has been met in Southeast Asia by a determination to maintain digital non-alignment. The term itself has been toyed with by Russia and has been more substantively explored by India since its initial banning of Chinese apps in 2020. But Russia has neither tradition nor credibility as a disinterested actor outside its borders and its declining IT sector is increasingly hostage to China, while India’s mini-hegemonic aspirations and hostility toward Islam hinder its acceptance by others as a leader. Southeast Asia walks the walk as well as talking the talk.

Ultimately the US and China have little choice but to go along, because in the digital realm their strategic positions are decisively shaped by their respective private sectors. The politically driven “techlashes” in both the US and China over the past five years were driven by state and popular (in the US) fears of overweening private-tech power, but the tech sector can only be reined in up to a point or it starts to lose its vitality, as may be happening already to some degree in China — and that leads to the sort of strategic weakening that is precisely what the American and Chinese states are most hoping to avoid. For the good of the state, they need their tech sectors to thrive in private markets. The most important of those, for a great many reasons, is Southeast Asia, which is why the 21st century’s distinctive form of non-alignment is being born there.

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