Nepal stakes claim on the Indian territory of Lipulekh Pass: Is there an invisible US hand behind the dispute
The dispute over the Lipulekh Pass has lately heated up, with Nepal asserting territorial claims amid important geopolitical undercurrents involving the United States and regional dynamics with India, China, and Bangladesh.
Evidence implies that Nepal’s recent escalation of the Lipulekh dispute is influenced by US goals, such as foreign aid manipulations and concurrent diplomatic-economic engagement.
The Lipulekh Dispute Background
Lipulekh Pass is located in a tri-junction region claimed by Nepal and India. Nepal incorporates Lipulekh, as well as the nearby Kalapani and Limpiyadhura territories, into its official maps and constitution, claiming them in accordance with the Treaty of Sugauli’s designation of the Kali River as the frontier.
India disputes this claim, claiming that the river originates downstream and hence this land belongs to Uttarakhand.
India and China have a historic bilateral commercial arrangement involving Lipulekh, which was recently renewed against Nepal’s objections, resulting in a diplomatic conflict. India contends that Nepal’s claims lack a historical and factual basis, seeking dialogue while maintaining control over the land.
This problem resurfaced in August 2025, when India declared the restart of commerce through Lipulekh with China. Nepal objected angrily on the same day, publicly bolstering its territorial claims.
India’s immediate rebuttal emphasized that Nepal’s claims are contrived and baseless. The Lipulekh route, which connects India and China along their contentious Himalayan border, is strategically important.
US Influence through aid and diplomatic channels
In addition to Nepal’s assertiveness about the Lipulekh issue, the United States has been prominently involved through diplomatic engagement and financial aid.
In early 2025, the United States suspended major USAID-funded development initiatives in Nepal, including important health, agriculture, and education programs worth tens of millions of dollars.
This 90-day freeze was imposed following President Trump’s return to office, affecting a variety of humanitarian programs and non-governmental organizations operating in Nepal.
Although the Millennium Challenge Corporation (MCC) projects worth hundreds of millions of dollars remained unaffected, the pause represented a strategic lever. Later, funding continued, emphasizing the conditionality of US aid as a diplomatic tool.
The strategic economic alliance that was developing in the same month as the Lipulekh escalation loomed over these developments.The Borderless Banking Service, a ground-breaking project by U.S.-based fintech business Xuno in collaboration with Nepal’s Siddhartha Bank, was recently launched, and U.S. Ambassador Dean R.
Thompson was there. With the help of this cutting-edge technology, which links American banks with Nepal directly, Nepalis residing in the US can create accounts in Nepal without having to fly, and they can choose from safer and more economical remittance methods.
The program, which strengthens U.S.-Nepal connections and supports Nepali communities worldwide, is making digital banking “truly border-less,” according to Ambassador Thompson.
Along with outlining possible avenues for future collaboration, he expressed hope that U.S. fintech companies and Nepali banks may work together more closely in the areas of cybersecurity and fintech, strengthening their bilateral economic connections.
Together with NMB Bank, Nepal executed a historic $60 million green bond agreement with US-affiliated organizations International Finance Corporation (IFC), British International Investment (BII), and MetLife in April 2025.
This agreement intends to support Nepal’s private sector growth and sustainable development, particularly in the areas of green technologies and job creation.
Coordination with regional diplomacy
A delegation from the Nepal Foreign Trade Association met with Bangladesh’s envoy to discuss ways to improve bilateral trade and economic relations on 28th August 2025 a day after when Bangladesh Ambassador to Nepal met Sujeev Shakya, Chair of the Nepal Economic Forum, Nepal’s leading policy think tank. This demonstrates Kathmandu’s active posture in the South Asian economic climate for greater regional connectivity notwithstanding its border issue.
Additionally, during this same period, Peking University academic delegations travelled to Bangladesh and Nepal to deepen cooperation on the Belt and Road initiative. This indicates China’s continued strategic cultural and economic influence in the region, which subtly influences Nepal’s actions in relation to the US and India.
Conclusion
These events’ timing and interaction clearly show that Nepal’s assertive position on the Lipulekh territorial issue is influenced by the US. Washington influences Nepal’s political and diplomatic stance by using development funds as leverage to halt and then resume USAID initiatives.
This influence is spreading into economic diplomacy, creating dependence through financial channels, as demonstrated by the Borderless Banking Service and green bond investment transaction.
Simultaneously, Nepal’s regional diplomatic engagements with Bangladesh and China suggest a well-planned effort to diversify its strategic ties, aimed in part to balance Indian and Chinese regional dominance.
The US appears to be using this diplomatic space to strengthen its presence in Nepal, driving the latter toward aggressive stances on India-related problems such as Lipulekh.
In contrast to Nepal’s increasing outside assistance, which may have been facilitated or encouraged by US diplomatic and economic engagement, India places a strong focus on settling boundary disputes through bilateral discussion.
By using Nepal’s territorial claims as part of a larger geopolitical struggle involving the US, China, and India, this triangulation exacerbates tensions in the border region.
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