The killing of 26 people near Pahalgam in Indian-administered Kashmir on 22 April has produced the most serious India-Pakistan crisis in years. Gunmen attacked tourists in the Baisaran meadow, turning a place associated with Kashmir’s recovering tourism industry into the site of one of India’s deadliest attacks on civilians in recent years. Indian authorities have blamed militants they say have links to Pakistan-based groups, while Pakistan has denied involvement and called for an independent investigation. New Delhi has responded with measures extending far beyond ordinary counterterrorism: India has placed the Indus Waters Treaty in abeyance, closed the main Attari-Wagah land crossing, downgraded diplomatic relations and cancelled or restricted visas for Pakistani nationals. Islamabad has retaliated by closing its airspace to Indian airlines, suspending trade and warning that interference with water allocated to Pakistan would be treated as an “act of war”. Military firing has also been reported across the Line of Control. The attack therefore has already moved from terrorism into interstate coercion. The strategic problem is that the people who carried out the massacre do not need to defeat India militarily to achieve political effects. If they can provoke India and Pakistan into a larger confrontation, terrorism converts a relatively small armed organisation’s violence into decisions made by two nuclear-armed states.
This is the fundamental logic of provocation terrorism. A militant group attacks civilians partly to produce fear and casualties, but potentially also to induce the targeted government to respond in ways that polarise populations, damage diplomatic relationships or expand recruitment opportunities. The organisation’s leverage therefore comes from controlling the first move while hoping governments provide the second. This does not mean India should avoid responding because militants might prefer escalation. Doing nothing can create its own moral hazard by reducing the expected cost of future attacks. The challenge is designing a response that imposes costs on the people and networks responsible while minimising the political benefits they receive from wider instability. Counterterrorism succeeds when the state controls the escalation pathway rather than allowing the attacker to choose it indirectly.
The attack is especially damaging because Kashmir’s tourism recovery had become an economic indicator of relative normalisation. Visitor numbers had risen substantially in recent years, creating employment across hotels, transport, restaurants, handicrafts and local services. Tourism has unusually large local multipliers because a visitor’s expenditure travels through many small businesses rather than remaining inside one capital-intensive sector. An attack deliberately targeting tourists therefore attacks more than individuals. It changes expectations about the safety of an entire destination. A hotel can remain physically untouched while losing bookings. A taxi can remain intact while losing customers. Terrorism therefore destroys expectational capital without needing to destroy physical capital.
This is economically efficient from the attacker’s perspective in the worst possible sense. A relatively inexpensive operation can impose losses many times larger than its direct physical damage because households and businesses update behaviour according to perceived risk. Governments consequently need to restore security without amplifying the signal that ordinary life has become impossible. If tourism collapses for years, militants receive an economic effect far beyond the initial attack.
The political response is complicated by the history of India-Pakistan relations. India has long accused Pakistan of tolerating or supporting militant organisations operating against Indian targets, including groups implicated in attacks such as Mumbai in 2008 and Pulwama in 2019. Pakistan denies supporting terrorism against India and argues that Kashmir is fundamentally a political dispute involving Kashmiri self-determination. These competing narratives matter because attribution determines the legitimate target of retaliation. If an armed organisation acts independently, the appropriate response is counterterrorism. If state institutions knowingly support the organisation, interstate coercion becomes more strategically relevant.
This is why evidence and attribution matter even when political suspicion is strong. Intelligence agencies can possess information that governments cannot publish without compromising sources. That creates a difficult legitimacy problem: states may be highly confident privately while foreign governments and citizens see only assertions. The stronger the contemplated retaliation, the greater the value of presenting independently verifiable evidence where possible. Precision in attribution strengthens international support and reduces the space for Pakistan to characterise Indian action simply as aggression.
The crisis becomes particularly interesting because India has chosen the Indus Waters Treaty as one instrument of pressure. Signed in 1960 and brokered by the World Bank, the treaty allocates use of the Indus river system between the two countries and has survived wars, military crises and decades of political hostility. Its durability made it one of the most striking examples of institutional cooperation between adversaries. Water continued flowing under agreed rules even while soldiers fought elsewhere.
That separation was strategically valuable.
It effectively removed one existential resource from the ordinary escalation ladder.
India’s decision to place the treaty in abeyance therefore changes more than water policy. It weakens a long-standing issue firewall between geopolitical conflict and resource security.
Pakistan’s sensitivity is understandable because the Indus basin is fundamental to its agriculture and economy. Much of Pakistan’s irrigated agriculture depends on the river system, and agriculture itself remains a major employer and source of rural livelihoods. Water therefore is not comparable with restricting tourist visas or closing one trade route. It touches food security and long-term economic viability.
This gives India leverage.
It also makes the instrument dangerous.
Economic coercion works when the target values the threatened asset enough to change behaviour. But as the value approaches existential importance, coercion can produce escalation rather than compliance. A government can concede over a tariff. It finds it much harder to concede under a threat perceived as endangering national water security.
This is the coercion-resistance paradox.
The more painful the threat, the greater its leverage.
The more existential the threat appears, the greater the political incentive to resist it.
There are also physical limits to India’s immediate water leverage. Rivers cannot simply be switched off through diplomatic declaration. Storage capacity, infrastructure, hydrology and treaty engineering determine what can actually be changed. This is another reminder that formal policy power and material capacity are different. A government can suspend cooperation immediately. Altering river flows significantly requires infrastructure and time.
The information component may matter sooner. The treaty created mechanisms for exchanging hydrological data and coordinating certain projects. Suspending those processes increases uncertainty even before water volumes change materially. For farmers and governments dependent on predictable river systems, information itself has economic value.
Again, institutions reduce risk partly by making adversaries predictable.
Destroying the institution therefore creates costs before any physical resource is withheld.
Pakistan’s closure of its airspace to Indian airlines demonstrates another form of asymmetric economic retaliation. Indian carriers flying westwards may need longer routes, increasing fuel use, crew time and operating costs. Pakistan loses overflight fees but can impose costs on a much larger Indian aviation market. Geography therefore becomes leverage.
This is the same chokepoint economics seen in the Red Sea.
A country does not need a larger economy to impose meaningful costs if it controls strategically useful geography.
But these measures remain relatively contained compared with military retaliation.
That possibility now hangs over the crisis because India established a precedent after Uri in 2016 and Pulwama in 2019 of responding to major militant attacks with publicly acknowledged military action across the Line of Control or inside Pakistan. The Balakot strikes after Pulwama were particularly significant because Indian aircraft struck inside Pakistan proper, followed by Pakistani retaliation and aerial combat.
The crisis ultimately remained contained.
That history can create two opposite lessons.
The optimistic lesson is that India and Pakistan discovered a limited military space below nuclear escalation.
The dangerous lesson is that because escalation stopped last time, leaders may assume it will stop next time too.
This is risk normalisation.
A threshold crossed successfully once becomes easier to cross again.
But each crisis contains different information, domestic politics and battlefield accidents.
A pilot is captured.
A missile hits the wrong target.
Civilian casualties exceed expectations.
One side interprets a strike as preparation for something larger.
Escalation can move faster than political leaders intended.
Nuclear weapons make this simultaneously safer and more dangerous. They make total war extraordinarily costly, creating strong incentives for restraint. Yet that same expectation can create room for lower-level confrontation because each side assumes the other will avoid crossing the nuclear threshold.
This is the stability-instability paradox.
Strategic nuclear deterrence can coexist with more frequent limited conflict below the nuclear level.
India and Pakistan have demonstrated versions of this for decades.
The challenge is that nobody knows precisely where the upper boundary of “limited” lies during an actual crisis.
This is why a military response should be evaluated according to a clear objective rather than emotional proportionality.
What exactly should retaliation accomplish?
Kill identified perpetrators?
Destroy training infrastructure?
Change Pakistani state incentives?
Restore domestic deterrence?
Demonstrate political resolve?
These objectives require different instruments.
A strike can succeed tactically while failing strategically if the destroyed organisation regenerates quickly or Pakistan responds symmetrically.
Conversely, intelligence cooperation, financial disruption and arrests can appear less dramatic while reducing militant capacity more durably.
The public visibility of retaliation therefore should not become the measure of effectiveness.
Deterrence is behavioural, not theatrical.
A government succeeds if future attacks become less likely.
The number of television images showing explosions is secondary.
Domestic politics makes restraint difficult because the victims were civilians targeted while on holiday, generating enormous public anger. Democratic governments need to respond to that anger, and citizens reasonably expect the state to protect them and punish perpetrators. Yet the state possesses information and coercive capacity precisely so that punishment can be more discriminating than public emotion.
This is one of the purposes of institutions.
Anger identifies that something requires response. Strategy determines what response improves security.
The distinction is essential in communal politics too. The attackers reportedly separated or identified victims in ways that have intensified the religious dimension of the massacre. That creates a serious risk that anger towards militants becomes hostility towards Muslims more broadly, including Indian Muslims who have no responsibility for the attack.
That would represent an enormous strategic victory for extremists.
Militant organisations thrive on polarisation because communal mistrust expands recruitment narratives on both sides. If terrorism persuades Hindus that Muslims collectively are suspect and persuades Muslims that the Indian state or society sees them collectively as responsible, the attacker has transformed a small violent organisation into a much wider social conflict.
This is why communal restraint is national-security policy, not merely social tolerance.
India’s strongest response is one that isolates the perpetrators from the vastly larger population whose identity they claim to represent.
The same principle applies to Kashmiris. A terrorist attack occurring in Kashmir does not make Kashmir’s civilian population collectively responsible. Tourism itself connected local livelihoods with visitors from elsewhere in India. Protecting those relationships undermines the militant objective of making Kashmir permanently exceptional and insecure.
The government’s security response therefore needs to be intensive but discriminating.
Intelligence.
Investigation.
Border security.
Financial tracking.
Targeted arrests based on evidence.
Protection of vulnerable locations.
Those measures can coexist with preserving ordinary economic and civic life.
A blanket environment of suspicion would increase the social cost of the attack further.
The international environment gives India substantial diplomatic leverage because terrorism against civilians is difficult for Pakistan to defend politically, even while Islamabad rejects Indian allegations of involvement. India should use that advantage. Sharing credible intelligence with partners and building pressure around specific organisations can create financial and diplomatic costs without immediately escalating to interstate military conflict.
This is where the Financial Action Task Force (FATF) model is relevant. Pakistan previously spent years on the FATF grey list, facing pressure to strengthen controls against terrorist financing. Financial monitoring can alter the operating environment for militant organisations more persistently than destroying one physical camp if financing networks are difficult to rebuild.
Again, the strongest response may combine instruments.
Military deterrence where necessary.
Financial pressure.
Diplomatic isolation of specific organisations.
Intelligence operations.
Domestic security.
The question should not be which tool appears strongest.
It should be which portfolio of tools changes incentives most effectively at the lowest escalation cost.
China will also matter because it is Pakistan’s closest major strategic partner while maintaining an important economic relationship with India. Beijing has incentives to prevent major conflict because instability threatens Chinese investments in Pakistan and undermines regional economic activity. Gulf states possess relationships with both countries and could provide quiet diplomatic channels.
This is where mediation can be useful even if India rejects formal third-party mediation over Kashmir.
There is a difference between mediating the underlying territorial dispute and facilitating crisis communication.
The first raises sovereignty concerns.
The second can prevent misunderstanding.
Nuclear rivals benefit from channels allowing each side to clarify what a military movement means before the other assumes the worst.
Hotlines exist for exactly this reason.
Communication is not concession.
It is risk management.
The broader economic divergence between India and Pakistan should itself create incentives for restraint. India’s economy is now many times larger than Pakistan’s and is seeking sustained high growth, manufacturing investment and greater integration into global supply chains. A prolonged military confrontation therefore carries an opportunity cost. Capital values stability. Tourism values stability. Infrastructure investment values stability.
Pakistan, facing much greater fiscal and external vulnerability, also has strong reasons to avoid major war.
This creates a potentially stabilising peace dividend asymmetry.
Both countries lose from war.
Pakistan can afford the loss even less.
But economic rationality does not automatically dominate national-security politics.
States repeatedly accept enormous economic costs over territory, sovereignty and deterrence.
Ukraine demonstrates that clearly.
The correct conclusion is not that trade makes war impossible.
It raises the price.
The most important strategic question therefore is whether India can exploit its growing economic and diplomatic advantage without repeatedly allowing militant attacks to pull it back into a security equilibrium defined by Pakistan.
India’s long-term power increasingly comes from economic scale, technology, international partnerships and institutional capacity.
Pakistan-based militancy can impose tragedy and disruption.
It cannot match those structural sources of power.
An overreaction that damages investment, communal stability or India’s international standing therefore risks allowing a weaker adversarial network to influence how a stronger state allocates its attention.
This is the strategic opportunity-cost problem of terrorism.
Every week a government spends managing an externally provoked crisis is a week political attention is diverted from growth, infrastructure, education and technological competition.
Security still has to come first when citizens are attacked.
But successful security policy eventually returns politics to ordinary development rather than allowing violence to define it permanently.
The Indus Waters Treaty illustrates what is at stake. For more than six decades, India and Pakistan maintained one narrow institution of cooperation through wars and repeated terrorist attacks. Suspending it sends an exceptionally strong signal that New Delhi considers the current attack qualitatively serious.
That may create useful leverage.
It also removes one piece of insulation between political conflict and basic resource security.
The decision should therefore be treated as strategic bargaining power rather than symbolic anger.
If treaty restoration can be exchanged for verifiable Pakistani action against militant networks, suspension creates leverage.
If the treaty simply disappears permanently while militant behaviour remains unchanged, both countries lose an institution without necessarily gaining security.
That is the correct additionality test:
what changed because the coercive measure existed?
The same standard should apply to whatever happens next.
If India conducts military action, does militant capability fall sustainably?
If diplomatic pressure increases, does Pakistan alter enforcement?
If visas and trade are restricted, do those costs produce behavioural change?
Policy success cannot be measured merely by demonstrating that India was willing to impose punishment.
Punishment is an instrument.
Security is the objective.
The massacre at Pahalgam demands accountability.
The victims and their families deserve that.
But the state has a second responsibility that individual grief does not: preventing twenty-six murders from becoming the first event in a chain that eventually threatens millions.
India and Pakistan possess nuclear weapons, large militaries and a history of crises that repeatedly approached dangerous thresholds.
The gunmen who entered Baisaran possessed none of that power.
Their strategic opportunity lies in making the states use theirs.
That is why the strongest response is not necessarily the largest one.
It is the response that ensures the perpetrators lose control over what happens next.
India needs to punish terrorism without allowing terrorism to choose India’s strategy.
Pakistan needs to demonstrate credibly that its territory will not provide space for organisations attacking Indian civilians.
And both governments need to remember that deterrence fails completely if the process of restoring it creates a war neither intended to fight.
The coming days will show whether this remains a counterterrorism crisis or becomes an interstate one.
That distinction is now the most important thing in South Asia.
