1 September 2026
Executive Summary
A dispute between two nuclear-armed neighbours has produced an important lesson for businesses developing major infrastructure across politically sensitive borders.
The Permanent Court of Arbitration has ruled that India must continue observing its obligations under the Indus Waters Treaty with Pakistan and has ordered restrictions on work relating to the Ratle hydroelectric project pending a decision by a World Bank-appointed neutral expert.
India placed the treaty in abeyance in April 2025 following a deadly attack in Kashmir.
India identified two of the three attackers as Pakistani; Islamabad denied involvement.
The 1960 treaty is strategically important because the river system it governs supports water supply to approximately 80% of Pakistan’s farms.
India rejects the arbitration process and says it does not recognise the tribunal’s jurisdiction.
The commercial lesson goes far beyond South Asia:
An infrastructure project can be technically viable and fully funded while its operating parameters remain constrained by an international agreement signed decades earlier.
UK Impact
British investors, engineers, banks and insurers are extensively involved in global:
- Hydropower.
- Renewable energy.
- Water infrastructure.
- Mining.
- Transport.
- Cross-border energy projects.
Many such projects depend upon rights established through:
- Treaties.
- Concessions.
- Bilateral agreements.
- Water-sharing arrangements.
- Cross-border licences.
Political relationships can deteriorate far faster than the infrastructure’s operating life.
A power project designed for 30 or 40 years could therefore experience several completely different geopolitical environments.
Global Impact
The Indus Waters Treaty has survived extraordinary political tension since 1960, including wars between India and Pakistan.
That history made India’s decision to place it in abeyance particularly significant.
The dispute demonstrates how strategic infrastructure can become incorporated into geopolitical confrontation.
Water assets are particularly sensitive because the same river can simultaneously support:
- Drinking water.
- Agriculture.
- Electricity generation.
- Flood management.
- Industry.
Changes made upstream can therefore have consequences far beyond the project itself.
The court’s ruling does not necessarily eliminate the political risk either.
India has explicitly rejected the tribunal’s authority, meaning the legal and political positions remain in conflict.
Our View
Businesses involved in long-duration infrastructure projects should treat international agreements as operational dependencies.
Due diligence should ask:
- Which treaties affect this project?
- Could a government attempt to suspend or place them in abeyance?
- What happens if another state disputes that action?
- Who has jurisdiction over the dispute?
- Is arbitration enforceable?
- Could construction be halted during proceedings?
- Does political-risk insurance address treaty-related government action?
- Are lenders protected if operating rights change?
- Are water or energy rights transferable?
- Do contracts survive political rupture between neighbouring states?
- Could upstream decisions affect downstream customers?
- Has the financial model stress-tested political restrictions on operations?
Infrastructure often looks permanent.
The legal framework supporting it may not be.
Long-term projects therefore require long-term geopolitical due diligence — not just technical due diligence at financial close.
Risk Indicator: ELEVATED – INFRASTRUCTURE, POLITICAL & LEGAL RISK
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The information contained within these Market Alerts is provided for general market awareness and informational purposes only. It does not constitute financial, legal, investment, regulatory or insurance advice. Whilst every effort has been made to ensure accuracy at the time of publication using multiple reputable and independently verified sources, geopolitical events, legislation, regulation and market conditions may change rapidly. Readers should obtain appropriate professional advice before acting upon any information contained herein.
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