ISLAMABAD (Reuters) - Pakistan is shrugging off proposed U.S. aid cuts but frets that Washington could take more drastic measures to deter what it sees as the South Asian nation’s support for Taliban militants causing chaos in neighboring Afghanistan.

Pakistan's new finance ministry chief Miftah Ismail speaks with a Reuters correspondent during an interview in Islamabad, Pakistan December 28, 2017. Picture taken December 28, 2017. REUTERS/Faisal Mahmood

Washington plans to imminently slash “security assistance” to Pakistan, U.S. congressional aides told Reuters on Wednesday, although the type, scale and length of the cuts was unclear. A day earlier, the White House said it would suspend about $255 million in already delayed military assistance.

Tense ties between the uneasy allies nosedived on Jan. 1 when President Donald Trump lashed out on Twitter against Islamabad’s “lies and deceit” despite $33 billion in aid and the White House warned of “specific actions” to pressurize Pakistan.

A staunch U.S. Cold War ally and key player in the U.S.-backed invasion of Afghanistan after the Sept. 11, 2001 attacks on the United States, Pakistan has watched warily as Washington has in recent years pivoted towards its arch-foe India.

Over the past decade, U.S. threats to cut aid have been part and parcel of its frustrating relationship with Pakistan, a nation also seen as vital to the peace process in Afghanistan.

“Aid cuts will not hurt us,” Miftah Ismail, Pakistan’s de facto finance minister, told Reuters.

“That’s not the leverage they have, because it is something they have reduced drastically over the years.”

Pakistan received about $1 billion in U.S. assistance in 2016, down from a peak of about 3.5 billion in 2011, Pakistani and U.S. officials say.

About $550 million of the 2016 total came from the Coalition Support Fund (CSF), a U.S. Defence Department program to reimburse allies for the costs of supporting counter-terrorist and counter-insurgency operations. Pakistan was the largest recipient of such funds.

The remaining $450 million was a mix of military assistance and funds for international non-government bodies (NGOs) and other development programs, Pakistan’s finance ministry says.

Analysts say there are limits to how much the U.S. can fracture relations, since Pakistan cannot be isolated or completely sidelined, because of its proximity to, and influence in, Afghanistan.

“There is really no way forward for the United States in Afghanistan without Pakistan playing some kind of cooperative and collaborative role,” said Huma Yusuf, a Wilson Center Global Fellow.

PART OF SOLUTION

Islamabad worries that the United States, seeking to exert greater pressure on its ally, could in future train its crosshairs on Pakistan’s fragile economy and impose some sort of financial sanctions.

Pakistani officials warn economic damage would weaken the country, proving counterproductive in Washington’s battle against Islamist militant groups in South Asia.

“I can’t imagine how the U.S. financially or militarily hurts us and their own war effort doesn’t get hurt,” said Ismail, adding that it was impossible to find a solution to the Afghan conflict “without Pakistan being part of it”.

Last year, U.S. officials said the options being discussed to push Pakistan to change its behavior included targeted sanctions of officials with ties to militant groups waging an insurgency in Afghanistan.

The U.S. officials have also suggested the Pentagon may ramp up drone strikes, driving Pakistani media to speculate if such air attacks would be widened beyond areas bordering Afghanistan.

Islamabad could “review its cooperation if it is not appreciated”, its United Nations representative, Maleeha Lodhi, told media this week, which many interpreted as a reference to the vital transport route ferrying supplies to U.S. troops in Afghanistan through Pakistan’s territory.

Pakistan remains committed to friendly relations with the United States, its powerful army chief, Qamar Javed Bajwa, told Capital TV on Wednesday, but warned Washington against “coercion”, and vowed not to “compromise on our self-respect”.

Pakistan supported the Afghan Taliban in the 1990s as a foil to Indian influence in Afghanistan, and analysts say its military and security services maintained ties long after the Taliban regime was toppled in 2001.

Today the Afghan Taliban and the Haqqani network militants are effectively an arm of Pakistan’s foreign policy, U.S. officials say. Pakistan staunchly denies using proxies.

Ties with the United States are likely to stay fraught as Pakistan’s strategic calculus remains unchanged, said Raoof Hassan, executive director of the Islamabad-based Regional Peace Institute.

“As long as Pakistan continues to consider the Afghan Taliban as a strategic asset, which it can use some time in the future to become more relevant and influential in Kabul, there is no meeting point,” he said.

“The positions are diametrically opposite.”