Existential Imperatives, Diplomatic Ruptures, and the Agency of Small States: The Case of Bhutan

Abstract
As a small Himalayan Kingdom sandwiched between India and China, Bhutan has so far managed to carefully embrace a protective dependence on India in external affairs while avoiding establishing diplomatic ties with permanent members of the United Nations Security Council. Yet the country has been increasingly under domestic and international pressures, including a high unemployment rate, ecological uncertainties, vast emigration, and a significant part of what it considers to be its territory being de facto under Chinese control. Against this background, and drawing on the literature concerning the agency of small states, this issue brief identifies three practices of diplomatic rupture that the small country has adopted in recent years, namely (1) the existential tying of its future to economic initiatives – the Gelephu Mindfulness City and crypto mining (2) the gradual delinking from India’s guardianship, and (3) the careful opening towards greater diplomatic engagement with one of the five permanent members of the UNSC (P5). These new patterns of outward engagement feed into a broader effort led by the tiny country to exercise agency in order to survive amid increasing regional and global headwinds.

Keywords: Bhutanese diplomacy; small state agency; Himalayan borderlands; P5 diplomacy; Gelephu Mindfulness City

A small Himalayan Kingdom caught between the two Asian giants, Bhutan has so far managed to carefully embrace a protective dependence on India in its external affairs while avoiding establishing diplomatic ties with permanent members of the United Nations Security Council. The country is, however, increasingly under pressure domestically and internationally.

On the domestic level, Bhutan has suffered from economic slowdowns and high unemployment rates in the last decade; it has been estimated that one out of four young urbanites is jobless in 2024 (The Bhutanese 2025). On top of this, ecological uncertainties have had vast repercussions. The accelerated melting of glaciers in Bhutan – with a loss of around 24% of their surface area between 1980 and 2010 – is fueling major ecological uncertainty marked by hydrological instability and the growing risk of GLOFs (glacial lake outburst floods). These melting glaciers and other climate-induced extremes, by increased frequency and intensity, are endangering high-altitude communities and mitigating socio-economic progress (Asian Development Bank 2014; Bajracharya et al 2017; Wangchuk and Tsubaki 2024). These self-feeding internal problems have contributed partly to Bhutan’s vast emigration rates. According to official data shared by the Foreign Affairs and External Trade Minister in the Gyelyong Tshogdu (National Assembly of Bhutan), more than 42,800 Bhutanese live abroad, mainly in Australia (around 17,000), India (13,800) and Kuwait (4,000) (Bhutan Broadcasting Service 2023).

At the international level, Bhutan’s border areas are contested, with 825 km² (roughly 2% of its claimed territory allegedly under Chinese control (Barnett 2024). Nevertheless, on 14 October  2021, Bhutan and China signed a Memorandum of Understanding (MoU) setting out a three-stage roadmap for “expediting” border negotiations, and they continue to engage regularly (Ministry of Foreign Affairs of the People’s Republic of China 2021, Ministry of National Defense of the People’s Republic of China 2025). Since the launch of the talks in 1984, concrete progress has remained limited, however (Mehta 2024). The absence of a border agreement, combined with Bhutan’s non-official recognition of China as a diplomatic partner through its border negotiations creates constant pressure on Thimphu.

Against the backdrop of these internal and external pressures, this issue brief identifies three practices of diplomatic rupture that the small country has adopted in recent years to survive amid internal and regional headwinds.

Before getting to the heart of the matter, it needs to be indicated that this article will draw on the complementary theoretical visions of Paul Streeten (1999) and Nitasha Kaul (2022). In fact, their contributions offer mutually enriching perspectives on small states, ranging from general economic constraints to the specifics of their action in international relations. Streeten defined small states by their limited population: less than 10 million for small states and less than 5 million for very small states; with a population of around 800,000, Bhutan fits squarely in the latter group. He theorizes that small states are structurally disadvantaged by less economic diversification, greater exposure to trade risks and a restricted ability to exploit economies of scale while bearing a proportionately greater defence burden. However, many small states have managed to achieve strong economic growth by exploiting the absence of a dominant agricultural sector, focusing on labour-intensive exports, and taking advantage of greater administrative flexibility (with less red tape) and social cohesion to promote adaptation. He notably states,

“Progress always involves change and change is bound to harm some groups. They will attempt to resist it. In small countries this resistance is likely to be less, and the harm more acceptable, or more readily compensated for, because national solidarity is stronger” (Streeten 1999, 200).

To mitigate their vulnerabilities, Streeten suggests that small states adopt prudent policies such as flexible planning, foreign exchange reserve building and strategic resource management.

Kaul (2022), meanwhile, has drawn on the specific case of Bhutan and challenges the dominant tendency in the study of International Relations to analyze small states primarily through the prism of their relations with the great powers, in this case, India and China. She argues theoretically that this approach neglects these states’ own “agency”. To understand Bhutan’s actions, Kaul proposes to go beyond classical determinants of Bhutanese foreign policy. She introduces the notions of “bridging of attributional distances” (Bhutan’s effort to diversify its partners beyond its immediate neighbours) and “learning from experience” (its strategic adaptation by drawing inspiration from other nations such as Nepal) as important theoretical strands underlying its active role and intrinsic motivations in the conduct of its foreign policy.

Existential Imperatives

Economic doldrums and a difficult security environment led King Jigme Khesar Namgyel Wangchuck to launch the Gelephu Mindfulness City (GMC) in 2023.  The King or Druk Gyalpo, as the main proponent of the project, has tied the success of the project to the very survival of the country. In the launch speech, he stressed, “We are a small landlocked country wedged between large and powerful neighbours, living in an era of rapid and unpredictable global changes. If our efforts are lacklustre, our future will be in peril” (Gelephu Mindfulness City 2023). Located on the Indian border, this 1,000 km² carbon-neutral city, crossed by rivers, will house educational facilities, a spiritual centre, ecological industries and an international airport. Conceived as a crossroads between South and Southeast Asia, it aims to make Bhutan a new-generation and “vibrant economic hub” (Gelephu Mindfulness City 2023).

This project reflects a major breakthrough – whereas the country had conceived the Gross National Happiness (GNH) index to distance itself from GDP and purely material indicators, the royal discourse now asserts that economic prosperity is inseparable from national survival. This sort of “Singaporization” of the Bhutanese narrative – embodied by an assumed desire to attract capital and talent to survive as a tiny country – thus anchors a new Bhutanese approach to development. The King has made it clear that this special economic zone will be “one of a kind”, combining commercial attractiveness, environmental sustainability and a spiritual anchor in Buddhism. Building on the metaphor “when you are thirsty, you do not jump into the river”, the King has emphasized the progressive approach of the administrative zone, favouring gradual expansion rather than an immediate extension to the whole country.

Importantly, the Gelephu project is accompanied by a technological shift that profoundly questions Bhutan’s ecological nature and rewrites part of its identity. By positioning itself as the world’s fifth-largest crypto mining country, the kingdom is embarking on a new path that risks eroding its image as an environment-friendly state. Taking advantage of its seasonal hydroelectric surpluses, a clear economic comparative advantage, Bhutan has chosen to invest heavily in digital cryptocurrency mining. To understand the scale of the change, Bitcoins represented 27.9% of Bhutan’s estimated Gross Domestic Product in 2023. It is, in fact, particularly notable that Bhutan’s bitcoin holdings are more than twice those of El Salvador, a country that built its image on bitcoins, while Bhutan has only one-tenth of El Salvador’s population (Sergeenkov 2024). It came as no surprise thus, that in January 2025, the GMC also announced the integration of digital currencies such as Bitcoin (BTC), Ethereum (ETH) and Binance Coin (BNB) into its business model (Gelephu Mindfulness City 2025). This choice is part of a strategy of economic diversification, in the face of excessive dependence on unreliable revenues from seasonal hydroelectricity production, agriculture and tourism.

Yet, this energy-intensive sector is in direct conflict with Bhutanese traditional and religious identity. While the country has long conveyed the image of a spiritual and ecological sanctuary, which has benefitted from its reputation immensely on the international scene, this development reflects an awkward adaptation to new global and regional economic realities. In fact, the choice of Druk Holding and Investments Ltd, which began incorporating cryptocurrencies into its portfolio in 2019, was kept under the radar for several years. Only recently, thanks to investigations by Forbes and Arkham Intelligence, as well as the project’s need for foreign investment, has this activity been revealed, and consequently, incorporated into official narratives (Martin and Sarah 2023; Arkham Intelligence 2024). Interestingly, Bhutan teamed up in 2022 with Singaporean firm Bitdeer to create a huge 600 MW mine in Gedu, which could consume more electricity than the entire country (Martin and Emerson 2023). Those elements testify to Bhutan’s attempt to reconcile contradictory imperatives – facing up to economic challenges while preserving the fundamental spirit of its identity, which is based largely on ecological and spiritual values. It also feeds into Streeten logic’s that small states may take advantage of greater administrative flexibility and social cohesion to adapt and achieve economic success. This redefinition of Bhutan’s organic philosophy proceeds concomitantly with a subtle but gradual detachment from Indian tutelage.

Careful Emancipation

The study of the Bhutanese agency, beyond the traditional prisms centred on India and China, is a good indicator of the capacity of small states to act in international relations. As a landlocked state, Bhutan is characterised by a singular trajectory of gradual, cautious internationalisation, underpinned by a set of remarkably stable domestic institutions compared to other Himalayan entities such as the former Sikkim kingdom and Nepal. Against this background, it would seem that Bhutan’s diplomacy is cautiously but increasingly emancipating itself from India’s influence.

Since the abrogation in 2007 of the clause in the 1949 treaty requiring Thimphu to seek New Delhi’s “guidance” in matters of foreign policy, the kingdom has gradually widened its room for manoeuvre. The revised treaty explicitly states in the very beginning that both countries are “reaffirming their respect for each other’s independence, sovereignty and territorial integrity” (MEA 2007).  Although the King regularly visits India and the country remains dependent on Indian economic and security support, as illustrated by the Doklam crisis in 2017 (between India and China in Bhutanese territory), Thimphu has multiplied signs of careful emancipation. For example, following the invasion of Ukraine in February 2022, Bhutan “broke ranks” (Acharya 2023: 9) with India and joined the majority of countries in the United Nations General Assembly (UNGA) in calling for respecting Ukrainian sovereignty, independence and territorial integrity, a clear condemnation of Russian aggression.

Learning from the mistakes made by neighbouring Nepal, Bhutanese elites have been observing Nepal’s strategy of playing the Chinese card against India, which resulted in blockades from India (1989-1990 and in 2015) and persistent internal instability (Mitra and Thaliyakkattil 2018). Bhutan, on the other hand, has been careful to not provoke China, has committed to a ‘one China’ policy, and favours silent de-escalation, as it did during the Doklam crisis in 2017. In the context of long-standing border negotiations with China, the fact that Bhutan’s Ministry of Foreign Affairs and External Trade referred to Tibet as the “Xizang Autonomous Region” in a press release on 17 March 2025, using official Chinese terminology, has not gone unnoticed among observers – it is a linguistic alignment that signals a clear diplomatic rapprochement with Beijing (MEA Bhutan 2025).

In the meantime, the country still has considerable room for manoeuvre in asserting its presence on the international stage and is, therefore, cautiously expanding its diplomatic options. Indeed, the country’s elites still remember the bitter failure of its attempt to join the UN Security Council for the 2013-2014 session, for which it obtained only 20 votes out of 193. The country has thus strengthened its ties with other small monarchies, Buddhist states or countries sharing its ecological values such as Japan, Singapore and Thailand, the latter two being the major source of investments in Bhutan after India (Bhutanese Ministry of Industry, Commerce & Employment 2024). This engagement is based also on shared attributes (smallness, spirituality, environmentalism) than merely realignment on big power dynamics and alliances (Kaul 2022). Bhutan seems to avoid positioning itself in a bilateral confrontation between India and China, in which it would lose out in any case, and prefers instead to consolidate a network of partners likely to guarantee its relative autonomy.

Opening the Door

A third notable inflexion in Bhutanese diplomacy concerns the still timid but perceptible opening towards diplomatic recognition of certain permanent members of the Security Council. Any diplomatic recognition of the permanent members of the Security Council would be a significant decision, as it would set a major precedent in its diplomatic practice. Until recently, entering into formal diplomatic relations with the P-5 (i.e. the United States, China, Russia, France and the United Kingdom) constituted a structuring “taboo” (Mathou 2013: 307), motivated both by Cold War era considerations of neutrality and a desire not to antagonize India. However, this diplomatic isolation has been increasingly challenged, with some of the early signs dating back to 2008, when then Prime Minister Jigmi Y. Thinley, in an interview with the Council on Foreign Relations, stated that the absence of diplomatic relations with the permanent members deserved to be re-examined in light of global changes underway (Thinley 2008). This statement marked a clear opening of the door towards UNSC members.

The establishment of diplomatic relations with Germany on the 25 November 2020, at the time a temporary member for two years of the UNSC and a relatively important Western power, marked a further step towards opening Bhutan up to recognition by major powers who are members of the UNSC. In November 2024, the official “working dinner” between King Jigme Khesar Namgyel Wangchuck and President Emmanuel Macron in Paris, described as a “historic meeting” by the Elysée Palace (French Presidency 2024), constituted the first official meeting between the heads of state of both countries and signaled a step closer to the establishment of official ties.

Bhutan’s careful opening of the door has several functions. On the one hand, it widens Bhutan’s negotiating margins in its boundary discussions with China, as Beijing is clearly keen to be the first member of the Security Council to establish diplomatic relations with Bhutan (Xinhua 2023) and to open concomitantly a diplomatic mission in Thimphu. In fact, Beijing is reportedly making the conclusion of any border agreement, whose negotiations are “advancing’ (Chinese Ministry of National Defense 2025), conditional on the prior establishment of trade and diplomatic relations (Ramachandran 2018). On the other hand, this diplomatic reorientation reflects Thimphu’s desire to move beyond the binary alternative of its big neighbours, by opening up to diversified partnerships with countries which could support economically and politically the GMC project, which so far is mostly supported by India (and by Singapore and the United Arab Emirates to a lesser extent). Still, Bhutan walks a tightrope – the main stumbling block for Bhutan in recognizing another permanent member of the UN Security Council before China lies in the risk that Beijing would interpret this as a stigmatizing and unfavorable diplomatic signal, likely to compromise the climate of trust necessary for bilateral discussions, particularly those concerning their boundary dispute.

Conclusion

Bhutan is gradually moving away from the mythicized image of a “Shangri La” state, withdrawn into its spirituality while being protected by a benevolent guardianship provided by India. Faced with existential challenges – demographic, economic, territorial – it is undertaking a discreet but important recalibration of its own image and international positioning. By investing in economic connectivity projects, extensively mining and integration of Bitcoin into its economy, gradually freeing itself from Indian tutelage and opening the door to diplomatic relationships with UNSC members, Bhutan is carving out an interesting form of ‘agency that allows it to maneuver through the currents of great power narratives, rather than being simply dragged under them.

This recalibration invites us to look beyond Manichean readings of the Himalayan region centred on Sino-Indian dichotomies. As Nitasha Kaul writes, “nuanced studies of the political dynamics of the Himalayan region are imperative to challenge the simplistic pictures of great power agency and strategy, which can benefit from novel insights into the role of small states, beyond the ideas of buffers” (Kaul 2022: 329). Indeed, further studies on Bhutan are needed to shed light on how tiny, geographically constrained states can navigate the hardships of international relations.

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About the Author:  Aymeric Vo Quang is a PhD candidate in Political Science at INALCO in Paris. His doctoral research engages with Indian foreign policy and the Himalayas, approached through historical and political analysis of strategic culture and ideological narratives. Prior to starting his doctoral studies, Aymeric was posted for two years at the French Embassy in India. He holds three bachelor’s degrees in politics and law from Sciences Po, the University of Hong Kong (HKU) and the University of Loraine and two master’s degrees in public policy from Sciences Po and the National University of Singapore (NUS). He can be reached at [email protected].