The world is facing the spectre of economic recession. The global economic crisis, having its origins in the sub-prime crisis in the US, is threatening to unravel the world's financial structure. According to the Bank of England, the global credit loss will be US$2.8 trillion and governments are intervening to resuscitate their respective financial structures through instruments like bank guarantees, capital infusion, partial ownership and taking over of institutions. The initial belief that risks would only be restricted to the US is turning out to be untrue. Even the emerging markets are beginning to feel the heat. The much-touted idea of "decoupling" between developed and emerging economies has not been correct. Emerging markets like China, India, Brazil and Russia are also severely affected. The threat is not only to the financial viability of banks, insurance companies and hedge funds, but lies also in restricted capital flows to industries, dampening employment generation, lowered consumer spending, and reduced economic activity, heralding recession.

At the core of the crisis is the US that constitutes around 20 per cent of the world GDP. It is irrational to think that it will not have consequences for other states, as the US is the main market for many of them. Presently, the world leaders are engaged in analyzing and limiting the dangers due to the slowdown. The financial breakdown will have strategic consequences, even if they are deferred. The US as the sole superpower, and primarily affected by the economic downturn, may increasingly favor isolationist policies. Its "imperial overstretch" will be difficult to maintain. Even earlier, voices were being heard that the US was overextending itself in Iraq and Afghanistan. The pressure to abandon its operations in these regions will be tremendous. Economic compulsions may force the US to make deals which are counterproductive for international strategic stability. For instance, the US is increasingly pitching for a deal with the Taliban, since it realizes that victory in Afghanistan will be difficult. This deal will embolden jihadi elements in Pakistan and Afghanistan. Saudi Arabia is a key proponent of this idea that will see its geopolitical situation improving. Any deal with these extremist elements will have grave consequences for the strategic stability of South Asia.

The most far-reaching effect of the present economic crisis is that the strong element of US "soft power" has been discredited. US grand strategy was premised on enmeshing states in the Washington consensus through the free market mechanism. It is too early to find an alternative, but we cannot miss the signs of disintegration of the Washington consensus. States are intervening in the market, which was once believed to be inviolable sacred space. The power of the US to dictate rules for international economic engagement has diminished. It is inevitable that other states will step in to fill the vacuum. Countries like Russia, Venezuela, and Iran that were posturing against the US, will increasingly notice their power diminishing as the price of oil products decline. Hence, it is inevitable that the international strategic architecture will change and, consequently, the US position in it.

American options of following a muscular foreign policy will diminish, both multilaterally and unilaterally. Its strategic posture will change from being an over-involved super-power to an "offshore" superpower, adopting more accommodative foreign policy choices. It will increasingly aim at "off-shore balancing" of the emerging international order, where it will rely on local actors to maintain regional balances of power. Its military policies will be less proactive and will aim at short "cut and run" tactics rather than sustained military operations.

Theoretically, the US's position as the "single most powerful state" in the world will not change, but the will and capacity to dictate to the world will be compromised, making way for a more diffuse multi-polar world. The withdrawing superpower will diminish the constraints placed on extremist elements in Afghanistan and Pakistan. Coupled with this is the Pakistani state's incapacity to negotiate with jihadi elements within, which pose an existential threat to it. Pakistan's economy is in dire straits, with help from even close friends like China not forthcoming. Pakistan's state and society faces imminent collapse. The country most affected in the process will be India, which will find its regional context becoming more significant. India will be confronted with a global situation, both economic and strategic, that will be unpredictable. The challenges that India faces are daunting; it has to deal with its regional complexities and pitch for a larger role in the Asia-Pacific region, which will be contested by China. It appears that the state most likely to gain from the "post-American world" is China, since it not only has the necessary economic wherewithal but also a geostrategic vision.

The global economic crisis is bound to produce major strategic consequence for international politics, wherein the position of key players in the strategic architecture will be renegotiated.