Chokepoints and sanctions: How finance has turned into a weapon of war

Neither Iran nor Russia has been deterred by US economic sanctions, and the US itself faces limits on escalation to avoid harming its own interests, argues Edward Fishman in Chokepoints

Chokepoints: American Power in the Age of Economic Warfare 

by Edward Fishman

Published by Penguin

538 pages ₹2,469

  Edward Fishman’s voluminous 538-page book entitled Chokepoints  has coincidentally reached our bookshops just as Iran is effectively leveraging its domination of one such chokepoint, the Strait of Hormuz, in its unequal military contestation with the United States and Israel. The Hormuz Strait conforms to the definition of a chokepoint as “a vital crossroads, a place where civilizations trade and jostle for power, where empires rise and fall.” In ancient history, the Bosphorus, the narrow sea passage connecting the Black Sea littoral with the Aegean Sea, was policed by the powerful Athenian naval fleet. It allowed Athens to obtain grain and other commodities from Ukraine and the Balkans. Its rival, Sparta, won the Peloponnesian War in the 5th century BC by defeating the Athenian fleet and closing the Bosphorus to its ships, thereby starving it into submission.

 

Mr Fishman, a former senior sanctions officer in the US administration, tells the story of the economic and technological chokepoints of the post-Cold War era of rapid globalisation. Mastery over these has enabled the exercise of power without recourse to the messy use of violent and kinetic instruments.  But Iran is currently a compelling exception. Geography matters and old-style clash of arms may still be necessary to force an adversary into submission.

 

Economic warfare is the “economic means by which damage is imposed on other countries or the threat of damage used to bring pressure on them.” Bombing a bank is an act of conventional war but sanctioning an adversary’s bank by preventing its access to the international financial market is an act of economic war. Mr Fishman draws attention to the meteoric rise of foreign exchange markets. In 1950, foreign exchange trading was minimal but today the volume is $7 trillion a day and is 80 times the value of daily global trade flows. Ninety per cent of these foreign exchange transactions involve the US dollar. This gives the US control over a financial chokepoint of unparalleled strategic value.

 

The weaponisation of global finance was systematised, and a specialised bureaucracy was put in place to implement it. This became more elaborate after the 9/11 terrorist attack against the Twin Towers in New York in 2001, which uncovered a complex financial trail enabling the operation. This also led to secondary sanctions to prevent any deflection or bypassing of sanctions by foreign banks and financial institutions. The SWIFT inter-bank messaging system, based in Brussels, was also corralled into the sanctions regime. It would have to deny any participant bank access to its system at the command of the US Treasury. The dominance of the dollar enables American extra-territorial jurisdiction. Ours is an era of finance weaponised through a mere ledger entry rather than through the threatened lethality of a loaded gun.  This progression is covered in detail in the book.

 

While economic warfare is a potent instrument for influencing the behaviour of other countries, friend and foe alike, it has its limits. Neither Iran nor Russia has been deterred from pursuing policies considered inimical by the US. The US itself has a threshold beyond which it cannot escalate further, as doing so would hurt its own interests in an interdependent global economy. US interest in keeping oil prices low limits the severity of sanctions it is ready to impose on key oil producers like Russia.

 

Interdependence, particularly China’s full integration into the global economy, imposed limits that led to the next phase of economic warfare: Its technological dimension.  The author says the intent is not merely to change behaviour but to “downsize China’s role in the world economy, inflicting economic damage on China as an end in itself.” Technology denial is powerful because technology has become the chief driver of economic growth. The focus of this contestation has been high-end semiconductors and artificial intelligence. But the US does not dominate this domain to the same extent that it dominates currency and financial markets.

 

The book refers to India in the context of US pressures to persuade countries to reduce and eventually stop buying Iranian oil and later Russian oil in the aftermath of the Ukraine War. The author claims that India did trim its oil purchases in deference to the US but that “it would never publicly admit that it was complying with US sanctions”. It would portray its decisions as dictated by its energy security choices alone. It is Donald Trump’s insistence that India make a public display of its acquiescence to US demands that poses a challenge.

 

The author points to the fragmentation of the global economy in response to the acute vulnerabilities exposed by the weaponisation of interdependence. There is a trade-off between economic interdependence and economic security in an age of heightened geopolitical competition. Economic warfare and its technological dimension have also not diminished the possibilities of bloody and destructive kinetic warfare as we are witnessing in the ongoing Iran war.

 

Chokepoints is a valuable insider view of the evolution of economic warfare, though it is debatable whether this renders recourse to kinetic war less likely, as the author implies.

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The reviewer is a former foreign secretary