Killing boosts Obama’s budget clout

The death of Osama bin Laden improved President Obama’s re-election prospects and strengthened his hand in negotiations with congressional Republicans, raising hopes in financial markets that it will be easier to cut defense spending and make progress tackling the budget deficit in coming weeks.

“Politically, it’s clearly a huge boost for the president’s re-election,” said Chris Krueger, analyst at MF Global’s Washington Research Group.

“Pundits are already calling for an end to the global war on terror” and winding down the war in Afghanistan as well as Iraq, he said. Members of Congress are even questioning the $20 billion in annual aid provided to Pakistan, where bin Laden was found hiding in a garrison town under the nose of Pakistan’s military.

The death of the world’s most wanted terrorist raises the possibility of a “peace dividend” from winding down wars and security operations that by some estimates have cost as much as $3 trillion in the past 10 years. At a minimum, it strengthens Mr. Obama’s call for significant cuts in defense spending as part of a bipartisan deficit reduction deal, analysts said.

“This opens the door for a withdrawal of U.S. troops from Afghanistan,” said Jeffrey Kleintop, chief market strategist at LPL Financial. “With bin Laden dead, the mission in Afghanistan to defeat al Qaeda could be considered complete.”

The war on terror in the past 10 years has consumed a “tremendous amount” of money and effort, he noted.

“From a U.S. spending perspective, this comes at a good time,” he said. “It allows defense spending to be debated in the context of a withdrawal of troops from both Iraq and now Afghanistan.”

Mr. Kleintop said he also hoped it will “give Congress — if only briefly — a reason to unite in a sense of national pride and address domestic issues such as the debt ceiling,” which is expected to be the vehicle for passing an agreement under negotiation by the White House and congressional leaders to slash budget deficits.

Administration officials stressed that they are not planning any precipitous pullout of Afghanistan or disengagement from Pakistan but rather are sticking to their schedule of gradual withdrawal of troops and aid. Still, many market watchers said the longer-term impact could be more profound

“Bin Laden’s death is highly significant within the context of domestic U.S. politics,” said James Brazier, analyst at IHS Global Insight.

“The operation will boost Obama’s drooping popularity and give him a springboard from which to launch his 2012 re-election campaign,” he said. The success of the mission is “an endorsement of Obama’s approach to external security” and “allows Obama to portray his wider military ’surge’ in Afghanistan as a success.”

With the president enjoying a bounce in public opinion polls, “it also gives Obama more strategic leeway in Afghanistan, minimizing any political damage from his plans to withdraw some troops from Afghanistan in July,” Mr. Brazier said.

But Max Boot, a senior fellow at the Council on Foreign Relations, cautioned against assuming the demise of bin Laden will mean significantly lower war spending.

“With Bin Laden dead, many Americans may decide that the threat from al-Qaeda is also gone and that we can afford to draw down in Afghanistan. Not so,” he said.

“A comprehensive counterinsurgency campaign in Afghanistan is still vital to prevent that country from falling to Osama bin Laden’s fellow travelers,” including the radical Islamist group the Taliban, he said.

“Given how unstable Pakistan remains, it is imperative that we have bases nearby, and no location is as convenient or secure as Afghanistan.”