Last week we looked at China, and this week we look at India, the next rising superpower in Asia. I have asked my friend (and fellow Texan) George Friedman of Stratfor to give us his insights on the political implications of what appears to be a closer US-India relationship. Stratfor has been described by folks like Barron's as being a private CIA. I find their daily letters plus his in-depth analysis to be as solid as anything I read. When George writes, I listen. George now thinks we may be seeing opportunities like those in China in 1980. I will be back from Europe next week, but want to thank George for stepping in while I am gone.

By George Friedman

Indian Prime Minister Manmohan Singh was recently in Washington and addressed a joint session of Congress. Most visiting heads of government don't get that privilege, but Singh is no ordinary leader. The Indo-American relationship is emerging as one of the foundations of the global system. For the United States, India -- particularly since 9/11 -- has come to represent a strategic partner in the U.S.-jihadist war: By its very existence as a U.S. ally, it serves to keep the pressure for cooperation very high on rival Pakistan. For India, the United States has come to represent an alternative to its former relationship with the Soviet Union, which helped to guarantee India's regional interests. Thus, Singh's visit, while dealing with a range of the normal minutiae of international relations, represents confirmation that something of fundamental importance has happened.

Unlike many summits, this particular one has had the look, feel and substance of a significant event. Foreign leaders do not usually get to address Congress. The entire tone of the meetings implied a significant turning point. But in this case, the concrete agreements were as important as the symbolism: Significant deals were signed.

The most publicly significant was a deal giving the Indians access to American nuclear technology for civilian uses. India became a nuclear power in 1974, against strong U.S. opposition. The decision to give India nuclear technology -- even for civilian uses -- marks a sea change in American thinking about India's nuclear capability. To be more precise, it marks the culmination of a sea change. Washington used a series of severe, near-nuclear crises between India and Pakistan following the Sept. 11 attacks to leverage Islamabad toward greater cooperation with the United States. It was clear then that the United States was changing its view of India "on the fly." This new agreement represents a public affirmation that Washington regards India's nuclear capabilities as non-threatening to American interests and, indeed, as a potential asset.

In agreeing to increase India's nuclear technology base, albeit only for civilian uses and under international supervision, the United States is affirming that a special relationship exists with India.

At the same time that this public agreement was being reached, official leaks from the Pentagon said that India would begin purchasing up to $5 billion worth of conventional weapons, once Congress approves the deal. This requires an act of Congress because current law on non-proliferation bars the sale of a wide array of military technology to countries that have acquired nuclear weapons -- specifically focusing on any technology that might be useful to a nuclear weapons program. Since the technologies that are potentially useful are amazingly diverse, large swathes of technology are excluded from sale. Should Congress approve the bill, it would place India in a position similar to that of Israel (save that Israel doesn't acknowledge publicly that it has nuclear weapons).

The things being sold to India are also interesting. For example, India will be allowed to purchase Aegis technology, which is designed to protect naval vessels -- and battle groups -- from anti-ship missiles. So far, only Japan has acquired the technology, partly because of its cost. In addition, New Delhi will be able to purchase anti-submarine patrol aircraft. The United States, which until a few years ago regarded the Indian naval build-up -- based on Soviet technology -- as a threat to U.S. control of sea lanes in the Indian Ocean, has now completely reversed its posture. It is selling New Delhi naval technology that will allow the Indians to fulfill one of their key strategic objectives, which is to be able to control regional sea lanes. The United States would not be providing this technology without having achieved a far-reaching strategic agreement with New Delhi.

This, by the way, has the Pakistanis worried. Islamabad clearly understands that its status as Washington's ally in the U.S.-jihadist war will go only so far in terms of duration and dividends for Pakistan. In other words, while India gets a long-term strategic relationship with the United States, Pakistan's relationship is viewed as short-term and tactical.

To understand the major shift taking place between Washington and New Delhi, it is important to understand the geopolitical context that created it. Almost from the beginning, there were tensions between the United States and India. India's formal position was non-alignment between the Soviet Union and the United States. It was one of the founders and leaders of the non-aligned movement. Apart from its formal position, India had fundamental problems with the geopolitical stance of the United States, which during the Cold War was heavily focused on developing Muslim allies.

The primary interest of the United States was the containment of the Soviet Union. This inevitably caused Washington to focus on two predominantly Muslim countries that bordered the Soviet Union: Turkey and Iran. American strategy could not work if either of these nations were not allied with the United States, and Washington did everything it could to assure their alignment, including engineering a coup in Iran in 1953. The focus on Muslim countries extended beyond these two. The Americans did not want their rear and flanks turned by the Soviets; the United States and Britain, therefore, focused on both Syria and Iraq as well as on the Arabian Peninsula. It is important to recall that during the 1950s the United States had rather cool relations with Israel; it was pursuing a pro-Muslim strategy out of geopolitical necessity.

During the 1950s, the Indians were the ones with a Muslim problem. The partition of India into Muslim- and Hindu-majority nations had created Pakistan, which represented India's primary national security concern. In looking at India's geography, it should be noted that in many ways, India is an island. Its northern boundary essentially consists of the Himalayas, impassable for any substantial military force. Its eastern frontier faces tropical jungles. Most of its borders consist of ocean. Only to the west, where Pakistan lies, did there exist a strategic threat. It is true that what is today Bangladesh was part of Pakistan in those years, but it never posed a strategic threat. As the crow flies, the Pakistani border is only a couple of hundred miles from Delhi and Bombay; that was not a trivial concern.

The United States was pursuing the Muslim world. The Indians saw themselves as threatened by the Muslim world. U.S. and Indian interests, already strained by ideology, diverged fundamentally. India needed a counterweight to the United States and found it in the Soviet Union. Though it never became Communist, India became an ally of the Soviets. The Indians built their armed forces on a foundation of Soviet technology, and their highly bureaucratized economy found some commonality with the Soviets.

From a purely strategic point of view, the Indo-Soviet relationship did not mean all that much. Even after the Sino-Soviet split, the direct impact that India or the Soviets could have on each other's strategic situation was severely limited. India was never the military counterweight to China that the Soviets needed -- not because its forces couldn't challenge the Chinese, but because geography prevented the two forces from coming to grips with each other. People speak of Sino-Indian competition -- and there was a war (though not one that could threaten the survival of either nation) between India and China in 1962 in the Himalayas -- but the fact is that the two countries could be ten thousand miles apart for the extent to which geography permits any meaningful interaction. India's isolation limited the significance of its confrontation with the Soviets. The value of the relationship was marginalized by geography.

India therefore became marginal to the international system. Its major point of contact was with Pakistan, with which it had fought a series of wars -- major ones in 1948, 1965 and 1971 -- had serious territorial issues and deep distrust. Pakistan was supported by the United States and China, the two anti-Soviet powers in the 1970s and 1980s. This was partly due to India's relationship with the Soviets and partly due to American interests in the Islamic world.

Marginalization is the key concept for understanding India's position in the world prior to 2001. Geography prevented it from having substantial interaction with the great powers. Its point of contact, Pakistan, was of some importance, but not decisive importance. Prior to becoming a nuclear power, India had only one recourse: naval power. But its economy would not support a full-blooded fleet-building program. Its strength was in its army, but that army could not be projected anywhere.

Its economy was also marginalized. Built on a socialist model that took the worst from Soviet planning and Western markets, the Indian economy isolated itself by laws that severely limited outside investment. Its infrastructure did not develop and, while several key industries -- pharmaceuticals and electronics -- emerged, this never created the fabric of what might be called a national economy. India was a huge, fragmented country, on the margins of the international system. Its friendship with the Soviets and its enmity with the United States were tepid on all sides.

Then came the 9/11 strikes, and the American relationship with the Islamic world was transformed almost overnight. Suddenly, Pakistan became a critical piece of the United States' long-term war plan, and therefore India became an extremely valuable asset. The Indians understood two things. First, that as marginalized as they had been in the Cold War, they had become irrelevant to the international system in the post-Cold War period prior to 9/11. Second, they understood that the U.S.-jihadist war could become India's entry into the broader international system.

U.S.-Indian collaboration began intensely shortly after 9/11. Part of it consisted of a mutual interest in manipulating Pakistan; part of it had broader implications. As the United States began to view the Muslim world as an unreliable and threatening entity, it started to see India in the same light as Israel. It was a potentially powerful ally that, in spite of its hostility to the Islamic world, or perhaps because of it, could be extremely useful. Long, complex negotiations ensued, leading up the present summit. The terms of endearment, so to speak, were defined. A range of issues on which the two sides could collaborate emerged.

A not-so-hidden issue at the summit in Washington was China. Sino-U.S. relations are deteriorating fairly rapidly. There was much speculation about India being an Asian counterweight to China. We have no idea what this means, since geographically China and India occupy two very different Asias. The United States doesn't need a nuclear counterweight to China, and China is very far from becoming a major naval power capable of projecting force outside of its regional waters. By that, we do not mean sailing into these waters, but fighting, winning battles and sailing home. The nuclear technology agreement that Singh obtained in Washington increases the likelihood that China is not going to project force west of Singapore. On the other hand, it was never likely to do so.

There is, however, another dimension to this. For a generation, China has been the place where hot money in search of high returns was destined. It was where the action was. It is no longer that place, except in the minds of the nostalgic and delusional. But India could well be. If one thinks of China in 1980, the notion that its bureaucracy, lack of infrastructure and a culture antithetical to rapid development would yield the economic powerhouse of 2000 would have been unthinkable. It was unthinkable.

India is in China's position of 1980. It has a mind-boggling bureaucracy, poor infrastructure and a culture antithetical to rapid development. At the same time, it has the basic materials that China built on. As the Sino-U.S. relationship deteriorates, India can be a counterweight to China -- not in a military sense, but in an economic sense. If the United States has an economic alternative to China for investment, Washington develops leverage in its talks with Beijing on a host of issues. China, after all, still courts investment -- even as the Chinese buy anything that isn't Chinese.

Another factor underscoring the significance of the shift in Indo-U.S. relations is New Delhi's relationship with Tehran. India's relations with Iran have always been a serious point of contention and concern for the United States. However, due to the situation in Iraq, tensions with New Delhi over this issue are on the decline. The United States and Iran at the moment are developing parallel interests, each with their own reasons to work together to ensure the success of the fledgling Shia-dominated government in Baghdad.

The Indo-American relationship did not develop out of the subjective good will of the leaders. The Sept. 11 attacks created a dynamic that couldn't be resisted, and that created a reality that the Bush-Singh summit confirmed. It doesn't transform the world, but it changes it fundamentally. India will come out of this a very different country, and the United States will look at the Indian Ocean Basin in a very different way.

Your Own Private CIA Briefing

I must admit to being hooked on the research put out by George Friedman and Stratfor. I find it very helpful in my work and it is one of the services I really do read every day. If you need to stay abreast of international events for work, or you are just an information junkie (or like me, both) you should consider subscribing. www.stratfor.com/offers/bmg-050728-001/

Ouzilly and on to London

I finish this week's letter in the French countryside chateau of good friend Bill Bonner. In a place where little changes, where life is slow and good, I am meditating upon the powerful transformational changes that are coming our way in the next few years.

We came down a day late, as Bill and I had to change plans at the last minute. I went to tell the kids that they had to spend one more day in Paris. "Aw, shucks," was the cry, but their faces were all smiles. There is so much to see and do. I went to see Rodin's Museum, and there in the courtyard was The Thinker. It is inspiring, but I find I still think as ploddingly as I did before.

It is quite cool in Ouzilly, which is a few hundred miles south of Paris. A pleasant afternoon rain has taken off the bite of summer. The kids are taking advantage of the slow pace, except for my youngest, Trey (11) who is at once everywhere with Bill's son Edward of the same age. Something like the city mice come to the country. Ponds and chickens and cows and horses and lots of bugs. It is quite idyllic when you come to visit, but maintaining such a place is a lot of work.

Off to London Sunday night for four days, where I will simply have to not look at the prices during meals. Feeding nine at even a simple cafe is an exercise which must assuredly affect the local economy.

I am reading a new book by Ray Kurzweil this trip. He was kind enough to send me a pre-pub copy. I will review it in September when it comes out. Entitled "The Singularity is Near," it describes the coming rapid pace of technological change and how it will affect society. IBM will have a computer in two years which can process as much as 1/10 the human brain, and sometime next decade will have one which has the power of a human brain. Kurzweil (whose credentials as an inventor have few equals) suggests we will see such a computer on our desks (less than $1,000) within 20-25 years. He discusses other changes in bio- and nano-tech. Quite thought-provoking. I, of course, am looking for trends which we can exploit. Change will yield opportunity, but the trick is to find the Microsoft's and to avoid the Osborne and the Wang's.

Have a great week, and take some time to slow down soon. I am sure I am going to need some rest after this vacation.

Your always believing that things will change for the better analyst,