The Power of Economic Warfare: Edward Fishman on Chokepoints, Sanctions & Strategy

McAlvany Weekly Commentary

Former State Dept. official Edward Fishman breaks down the rise of economic statecraft How modern warfare is waged by “guerrillas in gray suits” — not soldiers on battlefields Why controlling chokepoints and financial systems may prevent military escalation This week, we’re joined by Edward Fishman, Author of Chokepoints: American Power in the Age of Economic Warfare, to unpack how the world’s most critical conflicts are now being fought with financial systems, sanctions, and supply chain control — not conventional weapons. Drawing from his experience as a former State Department official and top sanctions expert, Fishman explains how nations like the U.S. wield economic tools to shape global power without firing a shot. We discuss the evolution of warfare into the financial realm, how “guerrillas in gray suits” are replacing boots on the ground, and why chokepoints — from sea lanes to semiconductor supply chains — are the new battlegrounds of international influence. ▶ Learn more about Edward Fishman’s new book, Chokepoints: American Power in the Age of Economic Warfare, here: https://www.penguinrandomhouse.com/books/726149/chokepoints-by-edward-fishman/ "I do think that we are moving toward an unraveling of economic interdependence because I do think that ultimately states will take significant steps to reclaim their sense of economic security. And I worry that instead of a clean break that some have been hypothesizing, where you'll have a US-led block and a Chinese-led block in some near image of the Cold War, that you could have something that was much more chaotic, in which every nation is for itself, where the US almost sleepwalks into a quasi-form of autarchy, and we have much slower economic growth, higher inflation, and worst of all, an incentive for military conquest and imperialism. That's the thing I fear the most." —Edward Fishman * * * Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. I'm really looking forward, Dave, to the author of Chokepoints, Edward Fishman. A good friend of ours says, "When goods, currencies, and services don't cross borders, armies, missiles, and drones do." That is the reality of Chokepoints, and the military side is what we're trying to avoid. Economic warfare is what keeps us out of a lot of those military news events. David: Edward says that to up its game America should start investing in people. And he looks at an interdisciplinary melange. Economic warfare, in his view, requires an interdisciplinary toolkit, legal acumen, diplomatic skill, regional expertise, economic creativity, and lo and behold, guess what? His bio, that's almost how it reads. He teaches at Columbia University's School of International and Public Affairs, the Senior Research Scholar at the Center on Global Economic Policy, previously served at the US State Department, the Pentagon, and the Treasury Department, and now routinely writes for the New York Times, Wall Street Journal, the Washington Post, Foreign Affairs. Great to have him. Edward Fishman, welcome. The timing of this interview is appropriate, and the writing of your book Chokepoints: American Power in the Age of Economic Warfare most timely. You've given us an excellent look into the historical and contemporary interactions of US policymakers with Iran, Russia, and China. And with that fresh perspective, I think we can better appreciate what unfolds in the months and years ahead. So again, welcome to the Commentary. Edward: Thanks so much for having me on today. David: The Bosporus in ancient times and modern times, the Strait of Hormuz, even in recent weeks, Malacca and many others are geographical choke points. Historically, they've been strategic for whoever controlled them. Control the flow of food, energy, or commerce, and you're a power player. Today's choke points include a longer list, with finance and technology near the top. Give us the big picture transformation from what was conventional to what could now be considered economic warfare. Edward: I think economic warfare has existed for as long as history. You go back and look at Ancient Greece. At the eve of the Peloponnesian War, the 27-year war between Athens and Sparta that ultimately brought down the Athenian Empire, it started with an Athenian embargo on Megara, a neighboring city state that had allied with one of Athens's enemies. And even in the Napoleonic Wars in the early 19th century, you had Napoleon implement what was known as the Continental System, which was an embargo on Britain at the time. So you've seen economic warfare really in every single chapter of history. The thing that has changed so much is that historically economic warfare was really an offshoot of military force. Sieges, naval blockades, you needed to actually use physical force to block another country's access to the international trading system, to being able to access the financial system. What happened in the 1990s when countries like China and Russia and other former Soviet states entered the global financial system, the dollar-based financial system, when they entered global supply chains, what you got was the creation of these invisible choke points like the dollar, like semiconductor technologies, parts of energy supply chains that governments could manipulate just by changing their domestic laws. In the case of the United States, the US president can, with the stroke of a pen, cut off any other foreign company or individual from accessing the dollar. So what happened, really, at the turn of the 21st century is we saw a change, a revolution in economic warfare where deploying really hard-hitting economic weapons became much easier, much less risky than it always had been throughout history. David: Interdependence is a theme that you develop particularly towards the end of the book. And looking at globalization, today's battlefield is different, and so too are some of the players on the front lines, lawyers, diplomats, economists, even some retired bond traders. Without a highly interdependent world economy, these characters wouldn't wield the power that they do. Maybe you could explore for us the amplification of economic warfare as a result of globalization. Edward: I think probably the best way to illustrate this is with a concrete example. If you go back even as recently as the 1990s, right before the beginning of what I call the age of economic warfare, the most prominent case of sanctions in the 1990s was when the United Nations imposed an embargo on Saddam Hussein's Iraq. They imposed this embargo within a couple of days of Saddam Hussein's annexation of Kuwait in August of 1990. And the embargo stayed in place all the way up until 2003 when George W. Bush had the second, even bigger, invasion of Iraq. And the primary goal of that embargo was to stop Iraq from selling oil on the global marketplace. Well, in order to actually do that, in order to stop Iraq from selling oil, the United States and 20 other countries had to have a multinational naval force patrol the Persian Gulf 24/7 and send commandos to inspect ships whenever they thought that Iraq might be selling oil in contravention of the embargo. So even as recently as the '90s and early 2000s, to impose an oil embargo, you needed to deploy naval force. But what happened was, with the interdependence of the international financial system, the interdependence of oil markets, of shipping markets— When you look at the oil embargoes that were imposed on Iran in the lead up to the nuclear deal in the 2010s, the US didn't have backing from the UN for an oil embargo, and they didn't deploy a single naval vessel to do it. All they did was, and this was under the Obama administration, was threaten banks in places like China, Turkey, and India, and say, "If you keep buying Iranian oil, if you keep paying for Iranian oil, processing payments for Iranian oil, then you will be cut off from the US financial system." So because of that financial interdependence that really kicks into high gear in the '90s and is really crystallized in the 2000s, you get the US being able to use this non-military form of economic warfare. And the Iran oil sanctions of the 2010s were even more successful and more impactful than the Iraq oil sanctions of the 1990s, and it didn't involve a single US naval vessel. David: Well, and you've got an even slightly nuanced version of that with not 20 countries and warships looking and inspecting, harnessing of self-interest in the most recent iteration with Russia, but making sure that you get the insurance companies in the UK, for instance, to get on board with not covering ships that carry Russian oil unless they meet a certain expectation, price caps, and things like that. So the insurance industry weaponized, that's a newer iteration. Edward: That's exactly right. It's not just the dollar-based financial system that can serve as a choke point. Really, the way that I define a choke point is it's part of the global economy in which one country has a dominant position, and there are few, if any, substitutes. You talk about maritime insurance, 95% of all oil cargoes are insured by the London-based International P&I Club. So you do have, really, this choke point over the global oil market that was leveraged to try to cap the price of Russian oil. And the thing that is true, though, also about choke points is they're not immutable. Once you start weaponizing them, you do create an incentive for other countries to build workarounds and to basically mitigate the impact of that choke point. So in the case of maritime insurance, over time, the Russians have successfully found alternatives, although I think that when you have a big maritime accident, some sort of a spill or something like that,