Nepal, a landlocked and poor Himalayan nation, is wedged between two nuclear-armed Asian giants each exerting its influence. Nepal’s flawed democratic experiment since the early 1990s had produced a near-constant state of political upheaval. A decade-long Maoist insurgency led to the toppling of the country’s monarchy in a regicidal coup d'état, ethnic fault lines have deepened, and Communists have risen to power. In the turmoil Nepal has turned into a playground for foreign influences, and Nepal’s porous 1,700 km border with India remains a boon for both Pakistani and Chinese intelligence.

Before modernity, Nepal was feared. A rich, independent country with historical geopolitical influence that was totally lost. Could Nepal regain its geopolitical power one day? What would it mean to be an autonomous power, for example like the similarly mountainous Switzerland? Today, as it can no longer function as an autonomous Kingdom with self-sustaining resources, Nepal has no possibility for any geo-strategic aims other than whether it should belong to China or to India. With an economy on par with Zimbabwe, Nepal has become a total failure.

From the Nepali point of view, the country could not be a province of India, but it also could not manage in the same way as Bhutan in preserving its fragile separate identity by closing its border and keeping a smaller population to feed. Nepalis had no need to lose their identity as Hindu, and they didn’t follow a path of Communism like the USSR in which religion was destroyed, but still they lost their country. In terms of its geopolitical influence, Nepal is an illusion: an identity with no country.

The following video by Stratfor explains Nepal's geographic challenge as a landlocked country surrounded by global powers.

Nepal-India relations

Nepal’s symbiotic relationship with India is based on cultural affinity, overlapping linguistic and ethnic identities, and an open border through which passage is possible without documentation. India is Nepal’s top economic partner in terms of trade, investments, technical cooperation and aid.

Nonetheless, India has never been regarded by Nepal as a completely benign power. After China’s annexation of Tibet eliminated the outer buffer, Nepal has served as the inner buffer between India and China. Political instability within Nepal has impacted upon the security of India, but India’s missteps have exacerbated problems and ceded strategic space to outside powers. Sympathy during Nepal’s 2008 election from India’s Left-wing for Nepal’s Maoists strengthened their hand and helped to usher them into government.

The violent crisis of 2015 over the formation of Nepal’s constitution led to shortages of fuel and essential goods. India was blamed by Nepalese nationalists and communists, including Prime Minister Khadga Prasad Oli, a former guerrilla. Nepal’s government accused India of unofficially blockading essential supplies, believing it to be in pursuit of control over Nepal’s water resources in the politically vulnerable Madhesh region.

Nepal risks becoming a failed state, which will have major trans-Himalayan implications. For India, this poses a serious security challenge. Nepal has become a conduit into India for illicit arms, narcotics and counterfeit currency, and the Nepalese government has objected to India increasing the deployment of its border police force, Sashastra Seema Bal. Despite Nepal’s critical importance, Indian Prime Minister Narendra Modi’s 2014 visit (the first by an Indian prime minister in 17 years), came after China had strategically penetrated Nepal.

Nepal-China Relations

China has deepened its engagement with Nepal across the social, political and economic spectrum, through an effective combination of soft power and economic diplomacy, much to the chagrin of India in its competition for influence.

Chinese President Xi Jinping has proposed strengthening of cooperation in road inter-connectivity, infrastructure, hydro power development, modernisation of agriculture, science and technology. China has long envisioned a trans-Himalayan railway connecting its own formidable rail infrastructure on the Tibetan plateau to Kathmandu and beyond, even talking of tunnelling under Mount Everest for this purpose. China is involved in a feasibility study for the construction of a Kathmandu-Pokhara railway, and is building an international airport in Pokhara. Chinese telecom companies have established major data centres in Nepal.

All Nepalese districts bordering China have received special concessions on grazing land and the supply of humanitarian and developmental aid from Beijing. MPs from these districts have been invited to China, and all Nepalese political parties regularly send delegations to the Chinese Communist Party.

As part of China’s hugely successful efforts in harnessing Buddhism in its soft power strategy, China has extended support to Nepal to develop Lumbini, the birthplace of the Buddha very close to the Indo-Nepal border. Representatives of Chinese government institutions such as the State Administration for Religious Affairs and Buddhist Association of China, as well as NGOs such as the Asia Pacific Exchange Foundation have worked diligently with Nepalese officials to transform the town into a sprawling tourism destination modelled on Mecca. At one stage, proposals included a panoramic tower packed with electronic equipment several hundred meters from the ground with an unsurpassed view across the Indian border.

Beijing has significantly increased its annual aid to Nepal, and following the devastating 7.9 magnitude earthquake in April 2015, China has been the second largest donor to the reconstruction programs.

Relations with Nepal are crucial because of its large exile Tibetan population. Beijing remains apprehensive that Nepal, which has a 1,400 km border with the Tibet Autonomous Region (TAR), could be used as a springboard by “hostile powers” (i.e. the U.S.) for fomenting unrest inside Tibet. In respect of Beijing’s largesse and soft power outreach, Nepal’s government has become so attuned to Chinese concerns that anti-China protests are now banned in Kathmandu. With a government increasingly unfriendly to India, India now vies with China for influence in what was a security preserve for half a century.

Islamic Jihad

Pakistan’s Inter-Services Intelligence (ISI) agency, in cooperation with groups such as the Islamic State and Bangladesh’s Islamist party Jamaat-e-Islami, has been working to destabilise the region by spreading terror networks and organised crime. According to Western intelligence, Muslims from Nepal have been recruited and trained in camps in west Asia and Afghanistan. The demand by Muslims in Nepal for special status, the increase in Gulf-state funded madrassas, and the spread of Saudi-backed radical networks pose a serious challenge to Nepali sovereignty. These elements seek a black economy in Nepal that will limit development and investment and foment further social unrest.