Book Discussion on Chokepoints: American Power in the Age of Economic Warfare
Below are my notes on Chokepoints: American Power in the Age of Economic Warfare by Edward Fishman, who served in the Departments of State, Treasury, and Defense under the Obama administration, and witnessed firsthand many of the policy debates behind American economic warfare in the past two decades.
This is a bit different from other books I’ve covered—first, insofar as it only talks obliquely about warfare; second, in that it’s not a detached analysis, but written by someone who was active in shaping the policies described and who makes no pretense to political neutrality. What interests me is less the policy debates themselves than the longer-term implications of weaponizing the financial system and the fracture lines that will shape the patterns of conflict in the next few decades.
Synopsis
Chokepoints explores the idea that 21st-century conflicts can be won purely through economic warfare. This goes back to the Peloponnesian War, when the Spartans won by cutting off Athenian grain supply via the Hellespont—a key geographic chokepoint. Modern-day chokepoints are no longer physical points on the map, but key points in the global financial system that the US controls.
Part One: Building the Chokepoints This section gives a brief history of economic warfare and the origin of the modern financial system.
Notable failures of economic warfare through the 20th century:
Napoleon’s Continental System
Failure of sanctions in the runup to WWII
Impossibility of sanctions in the bifurcated Cold War world
Dollar as the world reserve currency and creation of the petrodollar, which became an invisible chokepoint
Early failures to weaponize the dollar in the 1990s.
Use of the dollar after 9/11 to cut off Al Qaeda financing
Part Two: Iran and the Bomb This covers US economic policy against Iran, from 2006 through the signing of 2015.
Belief, expressed by George W. Bush and others, that sanctions had reduced leverage over Iran.
Stuart Levey, Treasury’s Undersecretary for Terrorism and Financial Intelligence, sees the potential for blocking sanctions: not just forbidding US entities from doing business with Iranian banks, but preventing Iranian banks from accessing US financial infrastructure that allows exchange in dollars.
Levey goes on tour to build support for these measures. Shows European and other bank executives how their institutions were being used as a medium for Iran to access US financial system.
Obama keeps Levey on in 2009 as a stick while he attempts to negotiate a deal.
After talks break down, Congress passes sanctions on Iran’s central bank in December 2011 against White House opposition. But worries about spiking energy prices in the wake of the Global Financial Crisis allow changes in implementation:
Major oil importers allowed to keep purchasing Iranian oil so long as they reduce it by a fixed amount over time.
Oil revenues must be held in escrow accounts that Iran can only use to purchase non-sanctioned imports
Iran facing hyperinflation by summer 2012. Within 2 years, Iranian exports fall by half, just as lots of US shale oil starts coming to market, stabilizing global prices.
Bad economy forces election of moderate Rouhani in 2013, who signs comprehensive nuclear deal with US, China, France, Germany, UK, and Russia in 2015.
Part Three: Russia’s Imperial Land Grab US policy response to Russia’s 2014 invasion of Crimea and the Donbas.
Events leading up to Euromaidan, Yanukovych’s ouster, and Russian annexation of Crimea.
Debates in the White House about how to respond: despite success of ongoing sanctions against Iran, Russia is a much larger economy and more integrated into world system. Initial response limited to narrow sanctions against firms close to Putin’s inner circle.
Dan Fried, State Department’s coordinator for sanctions policy, begins traveling to Europe to scope out possible sanction—European countries heavily dependent on Russian oil and gas.
Russia’s biggest producers—Rosneft and Gazprom—and biggest banks, such as Sberbank, judged too large for blocking sanctions. Instead, they would be cut off from US capital markets, making it harder to refinance debt, capital improvements, etc.
EU reluctant to act until MH-17 shootdown by Donbas rebels in July 2014, at which point they agree to large sectoral sanctions.
Role of Elvira Nabiullina, head of Russia’s central bank, attempts to defend the ruble amidst falling oil prices and Western capital flight—declines over 50% until Minsk II ceasefire in February 2015.
No major escalation of sanctions policy after that point:
Deal that summer to continue building Nord Stream 2 pipeline to Germany.
Russia evades sanctions, importing parts for powerplants in Crimea.
Currency defense and falling oil prices nevertheless strain Russian economy
Part Four: China’s Bid for Technological Mastery The pivot in US policy circles, beginning with Trump, from treating China as an economic partner to seeing it as a geopolitical rival.
Concerns over Huawei’s contracts to build 5G infrastructure in European countries, given links with Chinese military, IP theft, wider worries about Chinese ambitions.
Sanctions
Trump’s trade policy starting in 2017: running tension between economic priorities—and reliance on China as a trade partner—and geopolitical tension
Reflected a rift within the cabinet, between Treasury on the one hand, Commerce, Defense, State on the other.
This tension manifested itself in attempts to sanction ZTE, China’s second-largest telecoms equipment manufacturer, which was found trying to acquire US tech to resell to Iran.
After ZTE didn’t abide by an initial settlement, the Commerce Department imposed export controls preventing it from buying any US-made products in April 2018.
Following month, Xi Jinping persuaded Trump to lift restrictions leading toward a trade agreement.
Amidst the trade war prompted by Trump’s tariffs in summer 2018, increased focus on China’s push to develop its domestic semiconductor industry. Following earlier case of IP theft by Fujian Jinhua, Commerce Department added it to the Entity List, requiring US companies to obtain a license before selling anything to it.
First moves against Huawei: December 2018, during G20 summit, Huawei CFO (and daughter of founder) Meng Wanzhou arrested in Vancouver airport on sealed US arrest warrant for sanctions evasion.
Dilemma for policymakers: Huawei then responsible for $11 billion of $120 billion US sales to China
Internal debate: Commerce, Energy, Defense, State wanted to add Huawei to Entity List, Treasury opposed.
Final decision lay with Trump, who was pursuing trade deal. After hitting an impasse, he imposed Huawei sanctions in May 2019.
Xi began making retaliatory threats to cut off exports of rare-earth minerals
US firms began finding loopholes
Consideration given to invoking the Foreign Direct Product Rule, which could impose US export controls on any products containing US intellectual property, no matter where in the world it’s manufactured—technological equivalent of blocking sanctions.
In fallout from COVID, FDPR is imposed on Huawei in May 2020
Within 2 weeks, UK bars Huawei components from its 5G network; other countries soon follow suit.
In December, chip manufacturer SMIC added to Entity List; export controls imposed on drone manufacturer DJI, other companies.
Part Five: Russia’s Invasion of Ukraine This covers the policy debates in the period leading up to the Russian invasion through the end of 2022. It looks particularly at the role of Daleep Singh, the Deputy National Security Advisor for International Economics.
Turn back toward Russia early in Biden’s term
April 2021: executive order preventing US banks from lending to Russian government.
During Russian buildup, attempts to get EU prepare sanctions packages.
Singh works with Treasury to prepare plan to target Russia’s largest banks while avoiding the energy sector
Fundamental concern: tradeoff between deterrence and doing damage to the wider economy, especially in aftermath of COVID.
US & EU agree that even a limited Russian incursion into Ukraine will trigger sanctions: combination of sanctions against top Russian banks plus export controls
Upon invasion in Feb 2022, “Day Zero” blocking sanctions imposed on VTB, Russia’s second-biggest bank—concerns that Germany wouldn’t agree had been ironed out in advance.
Oil prices top $100/barrel
G7 begins considering sanctions on Russia’s central bank and kicking it out of SWIFT
Many Russian reserves still held overseas, which since 2015 had been diversified away from the dollar into euros in the expectation of a breakdown in US-European cooperation.
Worries about sanctions effect on dollar’s dominance, mitigated by Canadian, British, Japanese, and European participation
Ruble slides from 75/USD at beginning of year to above 100 within days of sanctions
Oil/gas sales remain a sticking point
Several Western energy companies walk away from investments in Gazprom & Rosneft. Some European dockworkers refuse to unload Russian cargoes.
In wake of this and Russian actions, oil prices jump over $120/barrel. US drawdowns on Strategic Petroleum Reserve to stabilize prices.
After India replaces European purchases of Russian oil/gas, price cap idea is floated.
Attempt to reduce volume sold by Russia would risk spiking prices; instead, Western companies would be banned from carrying/insuring deliveries above a certain price—making it impossible to get shipments through the Turkish straits.
Delicate balance: if the price cap is set too low, Russia might cut off deliveries altogether, causing massive price spike. Cap of $60/barrel eventually agreed.
Part Six: The World Economic Rupture This section looks at Biden’s actions against Chinese companies, and considers how continued economic warfare might divide the world into two or more economic blocs.
Biden continues Trump’s policy on export controls, focusing on restricting China’s chipmaking capabilities.
Pressure on ASML, the Dutch lithography machine producer, to restrict sale of machines needed for manufacturing most advanced chips.
August 2022: Commerce orders Nvidia to stop selling GPUs to Alibaba and Tencent.
March 2023: Netherlands & Japan put export controls on ASML and Tokyo Electron, respectively.
In retaliation, China bans export of gallium and germanium, essential for chips, solar panels, etc.
Prospects of breaking US/Western-dominated economic chokepoints:
BRICS meeting amidst escalating tensions, heralded by some as a potential rival bloc.
Chinese attempts to create own equivalent to SWIFT, deeper capital markets, and a digital currency to rival the dollar.
Another way it might try to break chokepoints: create chokepoints of its own, e.g. around clean-energy tech (which is gallium-dependent)
Fundamental tradeoff between strategic and economic priorities. Assumptions of globalization upended as countries try to weaponize economic infrastructure.
The “Impossible Trinity”—policymakers can have at most two of the three: economic interdependence, economic security, geopolitical competition.
Discussion
Chokepoints is a detailed yet readable narrative of the past 20 years of US economic warfare, told from the perspective of several key individuals across four administrations. It gives a good sense of the specific mechanisms that these policymakers devised, as well as the specific tradeoffs they had to weigh in the moment—unlike in kinetic warfare, the weapons of economic warfare cannot be listed in a fixed order of battle, but are sometimes forged in the heat of the moment.
My only major complaint is that the book didn’t spend more time discussing the larger strategic calculations behind these policies. Although a case like Iran was fairly cut-and-dry—impose maximum pressure until the government comes to the negotiating table—what were the calculations with Russia once deterrence failed? Did policymakers have a model for how certain sanctions should create tangible effects on the battlefield? Or perhaps not sanctions alone, but in conjunction with other measures? Or was the strategy designed simply to inflict maximum economic pain in advance of eventual negotiations? These questions loom behind all discussion of sanctions policy. Although—considering Fishman’s warning in the final section about the possible consequences of escalating economic warfare—this silence may be pointed.
Changing Patterns of Conflict
To touch briefly on the grand geopolitical and economic focus of the book, it supports the argument that the world has become more unipolar over the past two decades, not less: since 2006, the US has gotten most of the world’s advanced economies on board with an unprecedented weaponization of the global economic system. Meanwhile, for all China’s quiet aid to Russia, it has stopped short of providing lethal aid (at least as far as we know), and all other countries in BRICS actively comply with banking sanctions against Russia. However, as Fishman underlines in the last section, leveraging global financial chokepoints incentivizes countries to route around those chokepoints, meaning things can’t continue on like this indefinitely.
This gets to the part that really interested me: how financial and technological leverage determine which wars break out in the coming decades. In a multipolar world, wars occur at the seams between larger blocs. Yet so far in the 21st century, it is comparatively rare that the two sides in a war are supported by opposing geopolitical blocs—wars such as Ukraine, and to a lesser extent Syria, are the exception, not the rule. More common are wars like Libya or Nagorno-Karabakh, which did not directly touch on core US interests and where both sides are friendly to America; or Iraq, where a US-aligned coalition attacked a diplomatically-isolated country.
Even if the world remains fundamentally unipolar, then, supply-chain diplomacy may create smaller de facto blocs. Access to weaponry remains one of the fundamental prerequisites for a state’s war-making capability, and increasingly complex weapons supply chains will continue to stretch across multiple countries. It is obvious how this creates potential chokepoints for the end user; less obvious is how those chokepoints incentivize broad alignments—such as Azerbaijan, Turkey, and Israel in the Nagorno-Karabakh War—that have both the industrial capacity to fight a war and the collective diplomatic clout to prevent outside interference. And, given the outsized advantage that a secure supply of outside weaponry can generate, a world with more chokepoints may paradoxically incentivize more wars.
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