Mehsud’s Death Risks U.S.-Pakistan Thaw in Sharif Test

Photographer: S.S MIRZA/AFP/Getty Images

A protester from United Citizen Action (UCA), right, holds a burning U.S. flag as others shout anti-U.S. slogans during a protest against the killing of Taliban leader Hakimullah Mehsud in a U.S. drone attack in Pakistani tribal region, in Multan on Nov. 2, 2013. Close

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Photographer: S.S MIRZA/AFP/Getty Images

A protester from United Citizen Action (UCA), right, holds a burning U.S. flag as others shout anti-U.S. slogans during a protest against the killing of Taliban leader Hakimullah Mehsud in a U.S. drone attack in Pakistani tribal region, in Multan on Nov. 2, 2013.

A U.S. drone strike that killed the leader of the Pakistani Taliban risks reversing a thaw between the nations two weeks after Prime Minister Nawaz Sharif cited improved ties to woo investment on a visit to Washington.

Pakistan will review “every aspect” of cooperation with the U.S. following the killing of Hakimullah Mehsud on Nov. 1 in North Waziristan, which violated an agreement to refrain from targeting the group during peace talks, Interior Minister Chaudhry Nisar Ali Khan told reporters two days ago. Imran Khan, whose party controls the militancy ravaged northwest, threatened to block NATO supply routes in the region.

Sharif, who won a May election after pledging to hold peace talks with the Taliban, faces his greatest challenge since becoming premier for the third time as he considers his response to the U.S. amid a campaign to stabilize the $231 billion economy. Chronic energy shortages and the Taliban insurgency have hamstrung the nation, which in September secured a $6.6 billion bailout from the International Monetary Fund.

Pakistan can’t afford to break its relationship with the U.S. when the economy is in such a dreadful shape,” Muhammad Waseem, a political science professor at the Lahore University of Management Sciences, said in a phone interview. “At the same time, this attack is a big blow to his peace move. We will see some hardening of his attitude toward the U.S., but that will not translate into policy actions. In the short run, he will not want to be seen as a weak leader.”

Photographer: Thir Khan/AFP/Getty Images

Pakistani soldiers stand guard near a public school in Miranshah, the main town in North Waziristan district on Nov. 2, 2013. Close

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Photographer: Thir Khan/AFP/Getty Images

Pakistani soldiers stand guard near a public school in Miranshah, the main town in North Waziristan district on Nov. 2, 2013.

Stocks Decline

The benchmark KSE100 index fell 1.9 percent, the most in three weeks, at 10:02 a.m. local time.

“Mehsud’s killing and the consequences of that are creating pressure in the market,” Yawar uz Zaman, research analyst at Alternate Research in Karachi, said by phone.

Sharif will hold a cabinet meeting today to review the situation after the drone attack, state-run Pakistan Television reported. The Taliban ruled out peace talks with the government after the killing of its chief, GEO television reported yesterday, citing spokesman Shahidullah Shahid.

The U.S. plans to provide more than $300 million in aid to fund power, road and education projects in Pakistan as part of the release of $1.6 billion in mostly military assistance that was held up by Congress when relations soured.

Afghanistan Exit

With Pakistan’s regional influence central to assuring a smooth U.S. military exit from neighboring Afghanistan, the two nations were at a turning point in a relationship strained by events of the past three years, including the operation that killed Osama bin Laden in Pakistan and the death of 24 Pakistani troops in a U.S. airstrike near the Afghan border.

Photographer: Matthew Lloyd/Getty Images for 9th World Islamic Economic Forum

Prime Minister Nawaz Sharif, who won a May election after pledging to hold peace talks with the Taliban, faces his greatest challenge since becoming premier for the third time as he considers his response to the U.S. amid a campaign to stabilize the $231 billion economy. Close

Prime Minister Nawaz Sharif, who won a May election after pledging to hold peace talks... Read More

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Photographer: Matthew Lloyd/Getty Images for 9th World Islamic Economic Forum

Prime Minister Nawaz Sharif, who won a May election after pledging to hold peace talks with the Taliban, faces his greatest challenge since becoming premier for the third time as he considers his response to the U.S. amid a campaign to stabilize the $231 billion economy.

Pakistan’s Foreign Ministry summoned U.S. ambassador Richard Olson on Nov. 2 to protest the drone strike that killed Mehsud. The interior minister said the U.S. had “interfered” with the peace process.

“This is a temporary reaction mainly targeting the domestic audience,” said Hasan Askari Rizvi, a Lahore-based independent security analyst who formerly taught at Columbia University in New York. “I don’t think the military will allow to turn this into a complete breakdown, especially when the Afghan end-game is so near and Pakistan needs U.S. help to secure the IMF money.”

New Leader

Top Taliban commanders will continue to hold meetings over the next few days to try to agree on a new leader, the Associated Press reported Nov. 2. Asmatullah Shaheen, who heads the Taliban’s executive council, was appointed interim leader, the Dawn newspaper reported today.

Thousands of families fled Miranshah, the main town in North Waziristan, and surrounding villages after the political administration decided to impose a curfew, Dawn reported yesterday.

Pakistani Taliban, a loose alliance of different militant groups, emerged after the U.S. invasion of Afghanistan in 2001. Influenced by the Afghan Taliban supreme leader Mullah Mohammad Omar’s Islamic ideology, Pakistani factions want the government to end its alliance with U.S. forces fighting in neighboring Afghanistan and introduce their interpretation of Sharia law. They have killed more than 1,200 civilians, soldiers and police this year in more than 800 attacks, including 85 suicide and bombings, according to government data.

Indicted in U.S.

Mehsud was indicted in the U.S. for his alleged role in a suicide bombing that killed seven Central Intelligence Agency employees in Afghanistan in 2009.

His death may worsen Pakistan’s internal strife if Taliban groups escalate their bombing campaign in retaliation and cricketer-turned-politician Khan uses his street power to block NATO routes, Waseem said.

“We won’t let these supplies pass even if we have to sacrifice our government” in the province, Khan, who strongly opposes the U.S. drone campaign, said two days ago at a news conference in Lahore.

Pakistan closed Afghan supply routes from its Karachi port in November 2011 in retaliation against a U.S. airstrike that killed its soldiers instead of intended militant targets. They were reopened months later after the U.S. formally apologized over the killings.

The North Atlantic Treaty Organization, which will end its combat role in Afghanistan in 2014, needs Pakistan’s routes to supply its forces and remove equipment as they withdraw.

“I don’t think Pakistan will take that path again,” said Waseem, referring to the closing of the routes. “After all, Taliban are the enemy of the state and no side in this conflict wants to be seen standing on their side.”

<a id=``ContactSectionStart''/>--With assistance from {Daniel Ten Kate} in New Delhi. Editors: {Naween A. Mangi}, {Sunil Jagtiani}

To contact the reporter on this story: Haris Anwar in Islamabad at hanwar2@bloomberg.net

To contact the editor responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net

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