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 The Weaponization of Economy: A Strategic Foreign Policy Tool  

Srijan Sharma Writes today’s economics is weaponized and the intention of weaponization is to attain foreign policy and strategic goals in various geopolitical landscapes. Parallelly, alternatives and escaping or withstanding mechanisms are in making especially in the backdrop of the Russia Ukraine conflict.

Introduction

In today’s geopolitical landscape which is conflict ridden and great powers, such P-5 countries especially United States are maximizing and protecting their interests in these conflict-ridden landscapes or in different geographies of the world. Most of them engage diplomatically and militarily or through indirect means such as staging proxy wars. However, there is one more emerging weapon and a battlespace that is economy. In contemporary times economic calculus of great powers is being weaponized not for fulfilling the economic goals but for foreign policy and strategic goals. If we look into the history, the economic weaponization initially started during World Wars to counter Germany’s expansionist and aggressive actions when British and French made efforts to isolate Germany from the global economy Britain and France blockaded Germany and its allies, seeking to starve their economies of resources.

The League of Nations: A Systemic Start of Sanctions

Post World War-I League of Nations was formed to ensure peace and stability in the global landscape. With the onset of the League of Nations, a systemic start of economic weaponization or sanctions got its origin in world affairs. League of Nations had devised three sets of sanctions- Verbal, Economic, and Physical. Verbal sanctions include warnings, economic sanctions included financially hammering the aggressor through isolation and cutting the trade with the members of the League of Nations further pushing the aggressor state towards bankruptcy so that the people in that state would take out their anger on their government forcing them to accept the League’s decision, the last one was physical sanctions which involved sending troops but this sect of sanctions never seen active because League did not have a military force at its disposal and no member of the League had to provide one under the terms of joining. The League imposed sanctions on Italy but later on, it proved to be ineffective because of a lack of support. In some places, it worked like one instance the threat of action under Article 16 of the LoN charter deterred Yugoslavia from going to war against Albania, and Greece from military action against Bulgaria. However, in some places, it wasn’t effective and lacked support, especially from the United States.

The US Mastering The Art of Sanctions: A Strategic Deterrence, Coercion and Retribution

The United States of America is a state who have mastered the art of sanctions and usually deploys it for attaining strategic foreign policy goals or to counter the threats. It can also be said that US  often uses the economy as a weapon to threaten and deter smaller or weaker states from getting influenced by rivals or in other geopolitical zones which is can complicate the objectives or strategic goals of great powers. Therefore it won’t be wrong to say that a weaponized economy is now becoming a yardstick of strategic measure or a strategic deterrence in the foreign policy calculus of the US and great powers wherein these powers especially swing this yardstick as per their convenience or whenever they feel that their strategic goals or space is threatened in different geographies of the world.  There is one more ray that emanates out of this weaponization of economy i.e. the trade weaponization which targets the trade and balance of trade between the nations. In summation, it can be said that it is emerging as a trade and economic warfare concept that subsumes the non-kinetic operations. In the present evolving geopolitical space the aim of economic warfare or weaponization has now become more coercive and retributive.  Iran, and Cuba are some examples of coercion and deterrence where the US’s economic warfare axis had a coercive and deterrent approach.

Turkey: A Fractured Retributive Process

Turkey faced retribution from US when Turkey acquired S-400 Missiles from Russia. Turkey lobbied a waiver and being a NATO ally the expectations of getting a waiver were not ignored, however, US in an act of retribution imposed sanctions under CATSAA. This retribution process has led to the closeness of Russia and Turkey relations, especially in the trade sector and at one instance Turkey saved Belarus a close ally of Russia from NATO’s heat by using veto power. This move implied that Turkey undermined NATO by indirectly supporting Russia. At another instance, Turkey is trying to mend its ties with Europe and US. Here, the most important point is that US in retribution tactics imposed sanctions but that sanction had led Turkey to fall towards the enemy’s camp. In the present conflict, it has been said that Turkey is now accommodating Russian oligarchs and covertly helping Russia to repair its sanction hit economy. Therefore, it can be said that retributive sanctions can bring a fracture in diplomatic and bilateral relations. We can clearly see that Turkey is gradually turning its head more vigorously toward Russia even in the present conflict,  Tukey abstained from the UN against Russia. This evidence is enough to show that Turkey being fixed in the western camp is hallowing its own camp’s efforts against the enemy’s camp. Further, it also becomes clear that sanctions sometimes do not push a country towards bringing change in behavior rather it pushes or invites more hostile behavior eventually fracturing the sanctions’ effect.

Dollar Dominance and Weaponization: A Backfire Move?

Today, about two-thirds of all dollars in circulation are outside the United States, with a similar proportion reflected in global trade and investment contracts. Interestingly, oil and mineral markets are almost wholly operated in dollars, which leaves Iran (and many others) particularly vulnerable to dollar weaponization. None of the other main currencies comes close to the scale and scope of the dollar. The weaponization of the dollar system can be destructive to any state directly targeted, and hugely damaging to world trade and economic processes. The master of sanctions in this global landscape- United States has always used the dollar as a weapon to financially hit the developing countries or developed countries. However, since the present conflict, the set of US sanctions has enormously increased on Russia and many are now arguing that the move of sanctions on Russia could now backfire. This is even said by IMF, eventually, it would harm US dollar primacy as now most of the nations will be forced to develop their own alternative market and economic system.

China’s Currency Rising and Becoming Alternative

It won’t be surprising to say that China is on verge of rising in the economic field and posting a serious threat to the Dollar. As for China, the renminbi is still in eighth place in terms of foreign exchange market turnover. But it rose in August to fifth place in SWIFT payments, If we look to some past instances of alternation of markets due to the weaponization of the dollar, Russia shifted its reserves out of dollars in 2018 and is selling its oil in non-dollar currencies. Likewise, Europe or China may succeed in developing alternative payment mechanisms that would allow Iran to sell some of its oil. That might in turn undermine the dollar’s role in the long run. Similarly, an alternative economic construct is being made out from the hands of Russia-China in the backdrop of the present Ukraine crisis because one cannot deny the heavy dependence of Europe on Russia for natural gas and Oil. Therefore, the threat perception of the dollar is considerably high, and in the present situation, the outcomes of sanctions spearheaded by the US are most likely to give dry results. However, in the strategic and economic community, another perception is gripping that Oil politics played by the US by opening its own oil reserves to contain Europe under its ring and control the negative spillover of sanctions that would have arisen if Europe completely shifted itself towards Russia due to heavy dependence. Moreover, this oil reserves move of US might help the dollar to resist some of the adverse economical impacts discussed above.

Is there Any Escape To Sanctions? Russia’s Alternatives.

Often its been argued by many that the power of sanctions today is gradually failing or decreasing because of the increasingly globalized market. If one economic or trade sector is affected by the sanctions affected country tends to turn its course towards other developing and emerging markets such as South Korea, India, and China. Affected countries chalk out alternative markets and these alternative markets help the affected countries in economic rescue efforts and not letting the total collapse of the economic structure. Similarly, Russia is also running on the same pattern, Russia has no choice but to seek alternative markets of reliable partners such as India and China. Presently India and China are playing a major role in keeping the Russian market breathing in a time of stringent economic and trade restrictions. The same story is the same with Myanmar, the Myanmar Military establishment is surviving due to the Chinese economic support. Therefore, if we speak on alternatives or escape mechanisms to sanctions it is always be searching for alternative and reliable economic partners in the geopolitical landscape.  This solution is not always an effective one with small or weaker states because they struggle to find alternatives and long-term partners. The African States is one such example when US withdrew the AGOGA Act which gave trade benefits to African states the African states are now in a tough position to balance the economy and tackle the conflict problems within the states. Now this problem is arising due to African states still struggling to enter the mainstream and globalized competition and hence lack alternatives to economic and trade imbalances. In summation, it can be said that sanctions are not the ultimate weapon, and nowadays if a country has good alternatives the power of sanctions can be countered in an effective way.

Conclusion

We can conclude that today’s economics is weaponized and the intention of weaponization is to attain foreign policy and strategic goals in various geopolitical landscapes. The mechanism in which this weapon functions two dimensional, one for strategic deterrence and one for devastating and paralyzing one’s trade and economy. The weaponization has also flared the concept of trade and economic warfare between nations. This economic weapon in form of sanctions is often used unilaterally or by institutions to enforce discipline and compliance with international laws. However, what is now debated and argued is that weather this economic weapon is proved to be ineffective with strong nations or nations who are partnered or allies with powerful nations. The answer is Yes because with emerging alternative economic and trade markets, nations often change their course for time being to alternative markets, and these alternative markets in cashing dual advantage and benefits embrace these affected nations with full affection. However, one cannot fully rely on this notion because geopolitics is a dynamic space and anything can be forced upon in the name of sanctions. However, there is counter opinion is gradually rising on the surface that alternative economics and economic power centers or axis are in construction in today’s geopolitical space and given the threat to Dollar prominence it can be said that the relevance of sanctions or weaponization of economics’ or its effect as strategic foreign policy tool might come under question in coming time.

 

 

 

 

 

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