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Chapter 1: What are the new battlegrounds in the 21st century?
What if the decisive battles of the 21st century aren't fought on battlefields, but in banks, supply chains, and payment systems? Today, power can be projected by freezing assets, cutting off chips, or rerouting trade flows, moves that can wound a rival nation without a single shot. If economic networks have become the new terrain of conflict, where does real power now lie?
And how secure are we in a world where the systems we depend on can be turned into weapons overnight? Hi, everyone. I'm Lynn Thoman, and this is Three Takeaways. On Three Takeaways, I talk with some of the world's best thinkers, business leaders, writers, politicians, newsmakers, and scientists.
Each episode ends with three key takeaways to help us understand the world and maybe even ourselves a little better. Today, I'm excited to be joined by Eddie Fishman, a scholar at Columbia University School of International and Public Affairs and author of Choke Points, American Power in the Age of Economic Warfare. He previously served at the U.S.
State Department, helping design and implement sanctions and export controls. Eddie, welcome to Three Takeaways.
Chapter 2: How can economic networks serve as modern choke points?
Thanks so much for having me, Lynn. It is my pleasure. What is a choke point in real life? And can you give a vivid example? Historically speaking, choke points have been geographic features, like the Bosphorus or the Strait of Hormuz, this narrow strait where 20% of the global oil supply flows through every single day.
And being able to cut off another country's access to one of those choke points, usually through military force, has always been a potent lever of statecraft.
But what has happened in the last few decades in the wake of hyper-globalization, when the entire world entered the dollar-based financial system and transnational technology supply chains, is you've had the creation of these invisible choke points, like the U.S. dollar, where 90% of all foreign exchange transactions have the dollar on one side or the other.
And so what that means is, even when two countries are trading with each other, neither of which are the U.S. So for instance, a Saudi company and an Indian company trading with each other, that transaction almost certainly is going to go through the dollar.
You're actually going to have two foreign exchange transactions that go through the dollar, one from rupees to dollars and then another from dollars to Saudi rials. And so what that has done is it's enabled the U.S. government, by virtue of controlling this fundamental choke point, the U.S. dollar, to impose hard-hitting economic pain on virtually any company or even country around the world.
You say that economic power can rival military force. Where do we see that today? You used to have to use military force to impose substantial economic pain on another country. The canonical case of economic sanctions in the 90s was the UN embargo against Saddam Hussein's Iraq. The embargo went into effect in August of 1990, just a few days after Saddam Hussein invaded and annexed Kuwait.
And it lasted all the way up until 2003. So it was in place for 13 years. The goal of that embargo was to stop Iraq from selling oil on the global marketplace. The way that that was implemented was through a multinational naval blockade.
So for that entire 13-year period, you had naval vessels commanded by an American admiral patrolling the Persian Gulf 24-7, inspecting every single Iraqi tanker coming in and out of an Iraqi port. That's what economic warfare looked like in the 90s. Today, it's very different.
So when the US went about trying to stop Iran from selling oil in the 2010s, right before the Iran nuclear deal, there wasn't a single naval vessel deployed. Simply, it was the US government going around to banks and oil refineries in countries like China, India, and Turkey, and threatening them with being cut off from the US dollar unless they reduced their oil purchases from Iran.
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Chapter 3: What is a choke point and how does it affect global economics?
They could only be used to buy refrigerators or food from China. It couldn't be used to finance terrorist groups like Hamas and Hezbollah. And the reason this was so ingenious was that it did two things. One was it sent a signal to drillers in places like Texas and Pennsylvania and Oklahoma that in the next six months, there's going to be demands that's not served by Iranian oil.
So they needed to actually increase their production. And so this, in many ways, wound up accelerating the shale revolution in the United States, which happened in the mid 2010s. And then on the second part, normally you think about sanctions as this really adversarial thing.
situation where you're threatening a Chinese company with either you're with us or against us, either you're doing business with Iran or the United States, but not both. In this circumstance, because you are forcing them to actually pay for their own Iranian oil in escrow accounts, it could only be used to buy goods from China.
It actually gave an incentive for companies in China to comply because it meant that Iran, if anything, was going to boost their imports from China. So it provided both a stick and a carrot and wound up providing substantial leverage to negotiators to get the Iran nuclear deal. So interesting. The sticks are so much more common than the carrots. Yes, it is true.
And I think in some ways, this has been the biggest deficiency in American economic statecraft, that in the 21st century, the United States has become very adept at imposing substantial economic pressure on other countries. The United States has done it to Iran, to Russia, and even China. We've become less good, though, at providing economic incentives.
You have to go back all the way to the 1940s or the Marshall Plan to think of the United States really using economic carrots in a strategic and effective way. And I think that's been one of our big problems, frankly, of U.S. foreign policy in the 21st century.
Before Russia's invasion of Ukraine, President Biden famously threatened that if Russia did invade Ukraine, the country would pay a steep price. But Russia invaded anyway. Have sanctions and other economic warfare measures worked against Russia?
The Biden administration did have a unusually favorable historical opportunity where the intelligence community, months before Russia invaded Ukraine, provided early warning that this invasion was going to happen.
So it gave the Biden administration several months to try to deter Putin, putting out the threat of the most severe sanctions that have ever been imposed to try to change Putin's mind about the wisdom of invading. Ultimately, when Putin invaded, deterrence failed. That strategy clearly failed.
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Chapter 4: How did the U.S. use economic power against Iraq and Iran?
They opted in to using U.S. technologies because of the value they provided, but also the comfort that they wouldn't be frivolously weaponized against them. And I think what that means is it's not never to use economic power to advance geopolitical objectives. I think sometimes you have to. If you're confronting an imperialist power like Russia, you do have to.
But you don't want to use it frivolously. Because if you do use it frivolously, you do wind up risking that you're actually undermining the sources of American economic power itself. And what are the three takeaways you'd like to leave the audience with today? First is that we are living in an age of economic warfare.
Sanctions, tariffs, export controls, they're now the primary way that countries compete with each other. And this is going to be the case for almost certainly the coming decades. The second takeaway would be that this geopolitical phenomenon of the age of economic warfare has actually now gotten to the point that it's reshaping the global economy itself.
We are seeing this phenomenon of geoeconomic fragmentation, in which the financial system, energy markets, and supply chains are fracturing along geopolitical lines. This is not a choice. It's a reality. And I think it's incumbent upon business leaders and the government to accept that and to think of ways to channel it in a profitable direction.
The third takeaway would be that given how important this phenomenon is of economic warfare and geoeconomic fragmentation for our businesses, for our governments, for our national security, really for our everyday lives, it's incumbent upon us to educate ourselves about it.
It's important for our democratic discourse, for people to feel like they have the requisite knowledge to pipe up and actually weigh in in the democratic process about how the United States is using its economic power around the world. Eddie, thank you so much. Thank you for our conversation today. And I very much enjoyed Choke Points. Lynn, thank you so much. I really enjoyed our conversation.
If you're enjoying the podcast, and I really hope you are, please review us on Apple Podcasts or Spotify or wherever you get your podcasts. It really helps get the word out. If you're interested, you can also sign up for the 3 Takeaways newsletter at 3takeaways.com, where you can also listen to previous episodes. You can also follow us on LinkedIn, X, Instagram, and Facebook.
I'm Lynn Toman, and this is Three Takeaways. Thanks for listening.
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