Force Majeure, Coming Soon to a Theater Near You

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Sometimes things pretty much go seamlessly, processes unfold and matters happen according to protocol. At other times, though, things don’t go according to that protocol – they go awry, or they are inadvertently consequential, or they are both. Often these notable events appear to be seminal, or catalyzing, only in retrospect. And so, they matter.

The historian, the political scientist, even the novelist, for that matter, try to parse meaning and import from these events, some much clearer than others. One wonders if the ham-fisted US pullout from Afghanistan represents such an event. If it does, then bond indentures, contractual language and other underwriting prospectus boilerplate may begin feeling the stresses emanating from that event’s ramifying consequences.

The nice people at Wikipedia define the important term force majeure as a contractual concept that, “essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, epidemic or sudden legal changes prevents one or both parties from fulfilling their obligations under the contract.”

At MMD, we place a key emphasis on understanding country institutions, on how well they function or not. An institution, to recap, is not a building, say like the US Supreme Court building, it is an agreed rule, code, or law that a country’s citizens abide by in reference to their daily activity. When the public consents and compliance with a country institution is broad and largely assumed, society in that country generally fares well. Country institutional quality is a good litmus test for country stability and likely solvency.

On the international stage, institutions indeed have a place and guide behavior – for those who comply with them. But on the international stage – that is, the geopolitical order – we like to think about measures that gauge national state behavior among their fellow sovereigns. Do certain measures or concepts illustrate how well states interact and cooperate with each other or not?  Our view is that, for simplicity’s sake, four measures or concepts can provide a thumbnail sketch of where the international order is – i.e., how stable, conflict prone, cooperative, mutually beneficial or not the geopolitical environment may be.

We try to determine the present quality of global confidence, deterrence, transparency and reciprocity. In effect, if conditions for each of these concepts are salutary, then the international environment is a more stable and harmonious one.

In a separate working paper and presentation, we highlight aspects of fragility presently for each of these conditions, and would be happy to discuss in further detail.  The Biden-engineered imbroglio and pullout from Afghanistan prompts this commentary to address two conditions, specifically: confidence and deterrence. How may they have been altered? And, what could be the influence on risk conditions going forward?

Let’s take each of these conditions in turn, and further, in reference to the force majeure issue. If we consider the concept of confidence, then the Biden administration steps may indeed be undermining. As noted, the US pullout was done quite suddenly, without adequate consultation with NATO allies with troop deployments in Afghanistan. The fact that US actions appear to our allies as being unilateral and sudden undermines confidence – international actors, NATO acceding members are no longer as confident that “the system” is working, that international institutions and agreements are viable.

What the Biden administration had done in one fell stroke was vitiate the norms that NATO members would generally follow. NATO is a consultative body. Through his actions, Biden ignored that practice, showing NATO to be more of a hollow institution in reality. The ensuing risk is growing paucity of confidence in other international institutions and agreements, as confidence in compliance and execution may be more questionable.

This means that international cooperation might be more apt to grind and stall since confidence and action flow-through among states may be more halting and questionable. Read this to mean that there is perhaps now a greater danger of states “dropping the ball” and “showing up late”, when concerted effort and communication are of the essence.

So too, with deterrence, the Biden administration pullout may be signaling less potent agency from the United States and therefore less credible deterrence. This sets the tone for greater state “adventurism” among our rivals; where, as a consequence, the process of re-affirming deterrence and order may be very painful.

So, what does this mean for the international investor and lender? It means, quite possibly, that force majeure language might be invoked more often and more heartily, again, as state adventurism grows, deterrence is more threadbare, and international buy-in to methods and practice that have worked heretofore grows attenuated. Let’s hope it won’t be that bad.

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