Chokepoints

1. Economic Warfare: The New Global Battlefield

This is economic warfare. It is how America fights its most important geopolitical battles today.

A new kind of war. Economic warfare has evolved from ancient trade embargoes to sophisticated, non-violent tactics, becoming America's primary tool for addressing global security challenges. Unlike conventional military force, economic weapons leverage global interdependence, allowing the U.S. to exert immense pressure without direct military engagement. This shift is driven by the interconnectedness of the modern world economy, where actions by U.S. officials can create far-reaching ripples.

Historical limitations. Historically, economic warfare often failed due to the need for formidable naval power or broad international consensus, which was difficult to sustain. Examples like Pericles's Megarian Decree, Napoleon's Continental System, and the League of Nations' failures against Italy and Japan demonstrated these limitations. The UN embargo on Iraq in the 1990s, while effective in some ways, was costly, required a naval blockade, and ultimately didn't prevent war, leading to skepticism about economic tools.

Globalization's paradox. The paradox of globalization is that while it fostered unprecedented economic integration, it also created new vulnerabilities. The very systems designed for efficiency and profit became "chokepoints" that could be exploited for political ends. This realization, particularly after 9/11, transformed economic tools from symbolic gestures into potent instruments of statecraft, enabling America to "win without fighting" in ways previously unimaginable.

2. The Dollar's Unseen Power: America's Ultimate Chokepoint

The U.S. government is the gatekeeper at each point along this invisible infrastructure.

The dollar's dominance. The U.S. dollar underpins the global economy, serving as the default currency for international trade, finance, and foreign exchange. This pervasive role, solidified by the post-WWII Bretton Woods system and later by the petrodollar recycling agreement with Saudi Arabia, grants the U.S. unparalleled leverage. Most international transactions, even between non-U.S. entities, involve the dollar, often clearing through U.S.-based financial institutions.

Weaponized finance. This dominance means that access to the dollar and the U.S. financial system is a necessity for global commerce. With a simple executive order, the U.S. president can deny foreign firms access to this "invisible infrastructure." Banks worldwide, regardless of their headquarters, comply with U.S. sanctions to avoid severe penalties, effectively becoming "reliable infantrymen on the front line of U.S. sanctions enforcement."

Globalization's unintended chokepoints. The architects of globalization, like Alan Greenspan and Walter Wriston, inadvertently created these chokepoints. Their focus on free markets and interconnected systems led to a centralized financial network that, while efficient, became susceptible to political exploitation. This transformation allowed the U.S. to wield economic weapons with reduced cost and amplified impact, even against powerful adversaries, without needing military force or UN consensus.

3. Iran: The Proving Ground for Financial Warfare

One bank at a time, Washington would condition the international financial system to reject all business with Iran—not because governments required it but because banks deemed it the right risk-based business decision.

A new strategy emerges. After 9/11, Stuart Levey at the Treasury Department challenged the notion that sanctions against Iran were ineffective. Recognizing Iran's deep ties to the global economy, he devised a strategy to directly target foreign banks and companies, leveraging their aversion to legal and reputational risk. This "whisper campaign" aimed to persuade them to voluntarily cut ties with Iran, even without explicit government mandates or UN resolutions.

Targeting financial networks. Levey and his team, including Adam Szubin, systematically exposed Iran's deceptive financial practices, such as "stripping" transaction data, and imposed "blocking sanctions" on major Iranian banks. These measures, combined with the threat of secondary sanctions under the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), effectively severed Iran's access to the U.S. financial system and the dollar, including crucial "U-turn transactions."

Oil as the last bastion. Despite initial successes, Iran's oil revenues continued to fund its nuclear program. Congressional pressure led to the Menendez-Kirk amendment, which targeted Iran's Central Bank and its oil sales. Treasury developed a "gradual oil reduction strategy," offering waivers to countries that significantly cut imports, and later mandated escrow accounts for oil payments, effectively denying Tehran access to its petrodollars. This economic squeeze led to:

• The rial's collapse
• Soaring inflation and unemployment
• Widespread social unrest
• The election of Hassan Rouhani, who campaigned on sanctions relief.
  This pressure ultimately paved the way for the 2015 nuclear deal (JCPOA), demonstrating the unprecedented power of weaponized finance.

4. Russia (2014): The Scalpel and the Cost of Caution

The sanctions were intended to change Putin’s calculus—to convince him that a larger invasion of Ukraine was not worth the costs, and to coax him into peace negotiations with Poroshenko.

A different adversary. Russia's 2014 annexation of Crimea presented a new challenge: a nuclear superpower deeply integrated into the global economy, especially with Europe. Unlike Iran, a full-scale economic war risked severe collateral damage to Western economies and alliances. The Obama administration, wary of unintended consequences and prioritizing transatlantic unity, opted for a "scalpel-like" approach rather than a "sledgehammer."

Targeted precision. Daleep Singh at Treasury, alongside Dan Fried at the State Department, developed "sectoral sanctions" that:

• Barred Russia's largest state-owned banks and energy companies (like Rosneft) from Western capital markets, limiting their ability to raise new debt and equity.
• Prohibited the sale of advanced technology for offshore oil drilling and fracking, aiming to constrain Russia's future energy production.
  These measures were designed to inflict palpable, yet controlled, pain on Russia's economy without causing immediate systemic shock or disrupting European energy supplies.

Mixed results and costly caution. While the sanctions, exacerbated by falling oil prices, sent Russia's economy into a tailspin (ruble devaluation, capital flight, recession), they failed to reverse Putin's actions in Ukraine. The West's cautious, incremental approach allowed Russia time to adapt and insulate its economy. This included:

• Developing alternative financial systems (SPFS, Mir).
• Diversifying foreign exchange reserves away from the dollar.
• Deepening economic ties with China.
  The reluctance to "go big" immediately after Crimea ultimately reinforced Putin's belief that the West was unwilling to bear the burden of a high-intensity economic standoff, setting a dangerous precedent.

5. China: The Tech Chokepoint and the Great Decoupling

If America lost its technological leadership, little else would matter.

The new frontier: technology. The Trump administration, particularly under Matt Pottinger, recognized that China's economic aggression was fundamentally a challenge to U.S. technological leadership. Beijing's "Made in China 2025" initiative aimed for self-sufficiency in critical technologies, threatening to displace American firms and undermine U.S. military dominance. This shifted the focus of economic warfare from financial chokepoints to technological ones.

Early tests and lessons. Initial attempts to counter China, such as tariffs and the failed "nationalizing 5G" proposal, proved insufficient. However, the Commerce Department's "denial order" against ZTE, which crippled the Chinese telecom giant by cutting off its access to U.S. technology, revealed a powerful new weapon. This demonstrated that control over critical American technology could be as lethal as control over the dollar, even if Trump's subsequent reversal on ZTE highlighted political inconsistencies.

Huawei and the FDPR. The campaign against Huawei became the centerpiece of this new approach. Despite initial loopholes and allied reluctance, the Foreign Direct Product Rule (FDPR) was deployed, banning any company worldwide from selling chips to Huawei if those chips were made using U.S. technology. This forced global chipmakers like TSMC to choose between the U.S. and Huawei, effectively crippling Huawei's smartphone business and significantly impacting its 5G ambitions. This marked a shift from behavior change to permanent economic attrition, aiming to downsize China's role in the global tech economy.

6. Russia (2022): Deterrence Failed, Attrition Began

Compared with all this, the sanctions felt inadequate. In relation to their principal goal—preventing a Russian invasion in the first place—they were a resounding failure.

A failure of deterrence. Despite months of intelligence warnings and public threats of "swift and severe consequences" from the Biden administration and its allies, Russia launched a full-scale invasion of Ukraine in February 2022. Putin, underestimating Western resolve and believing his economy was "sanctions-proof," proceeded with his imperial ambitions, demonstrating that the threat of economic pain alone was insufficient to deter him.

Unprecedented financial shock. In response, the West unleashed its most potent economic weapons:

• Central Bank Immobilization: The G7 froze over $300 billion of Russia's foreign exchange reserves, rendering Putin's war chest largely useless for defending the ruble or financing the war.
• Blocking Sanctions: Major Russian banks like VTB were cut off from the dollar and the international financial system.
• High-Tech Export Controls: The FDPR was applied to Russia, severing its access to critical semiconductors and other advanced technologies, impacting its military-industrial complex and civilian industries.
  This "shock and awe" approach, initially resisted by some, was galvanized by the brutality of the invasion and Ukraine's unexpected resilience.

The energy carve-out. A critical exception was made for Russia's energy sector, with "General License 8" exempting oil and gas payments from financial sanctions. This was driven by fears of spiking global oil prices and exacerbating inflation in Western economies. While this allowed Russia to continue earning billions from energy exports, it also highlighted a major vulnerability in the sanctions regime, prompting a later push for a price cap.

7. The Price Cap: A Novel Weapon in the Oil Market

The aim was to “use sanctions to make oil cheaper,” as Gacki put it, a notion that sounded too good to be true.

Addressing the energy dilemma. Despite severe financial and tech sanctions, Russia's oil revenues surged due to high global prices and the energy carve-out. To cut Moscow's war funding without reducing global supply, Treasury officials, including Andrea Gacki and Peter Harrell, developed the "price cap" mechanism. This innovative approach aimed to:

• Allow Russian oil to flow to market, preventing price spikes.
• Reduce the revenue Russia earned per barrel.

A service providers' cartel. The price cap was implemented by leveraging the West's dominance in maritime services. The G7 agreed to:

• Ban their companies from providing shipping, insurance, and financing for Russian oil sold above a set price ($60/barrel).
• Waive this ban if the oil was sold below the cap.
  This effectively created a "service providers' cartel," forcing buyers like India and Turkey to negotiate lower prices with Russia to access essential Western services. The policy aimed to maintain supply while reducing Russia's profits, a complex "Rubik's Cube" of economic statecraft.

Early success and long-term impact. Despite initial skepticism and overcompliance from some actors (like Turkey at the Bosphorus), the price cap, combined with other market forces, led to a significant drop in Russian oil prices and revenues. This demonstrated the West's ability to exert leverage over a major commodity market. The policy, however, also contributed to the "partitioning" of the global oil market, with Russian oil now flowing through a parallel supply chain at a discounted price, marking the end of a truly unified global oil market.

8. The World Economic Rupture: Globalization's Unraveling

The trade-offs facing policymakers in Washington, Beijing, Brussels, and Moscow can be thought of as an impossible trinity consisting of economic interdependence, economic security, and geopolitical competition. Any two of these can coexist but not all three.

The security dilemma of interdependence. The Age of Economic Warfare has exposed a fundamental tension: intense geopolitical competition cannot coexist with deep economic interdependence and a desire for economic security. As the U.S. and its rivals weaponize economic ties, governments worldwide are scrambling to reduce vulnerabilities, leading to a "security dilemma" where one state's defensive measures are perceived as offensive by others.

De-risking, not decoupling. The Biden administration, while continuing Trump's tech restrictions on China, advocates for "de-risking and diversifying" rather than full "decoupling." This involves:

• "Friendshoring" supply chains to trusted allies.
• Massive domestic investments in critical technologies (e.g., semiconductors, clean energy) through acts like the CHIPS and Science Act.
• Targeted export controls on "small yards" of foundational technologies with "high fences" to prevent military applications.
  However, China's retaliatory measures (e.g., gallium and germanium export restrictions) and its efforts to build self-sufficient tech ecosystems (e.g., Huawei's Mate 60 Pro chip) demonstrate the challenges and the risk of escalating economic conflict.

The future of chokepoints. While the dollar's dominance remains strong, the weaponization of finance has spurred efforts by Russia and China to build alternative systems (e.g., e-CNY, SPFS) and reduce dollar dependence. New chokepoints are also emerging in critical sectors like clean energy, where China currently dominates mineral processing. The future of economic warfare will require:

• Investing in interdisciplinary "economic war councils" and talent.
• Proactive planning and allied coordination.
• Accepting the necessity of "sacrifice" and preparing populations for economic costs.
  The era of unfettered globalization is over, replaced by a fragmented world where economic security is paramount, and the choice between interdependence, security, and competition will define the coming decades.