This article was originally published by the International Security Observer on December 17, 2014.
The concept of economic warfare has been traditionally used for addressing the complementary economic tactics of armed conflict. In the near future it could represent a way of conducting war per se.
The balance of forces amongst states is no longer only measured by assessing the strength of conventional armed forces. The years since 1990 are often defined as the “geo-economics’ era”. Following the end of the Cold War, the economic domain has become the main criterion of measuring the state’s power, at both the regional and global level.[i] The current trend sees the balance of forces measured by economic indicators rather than by military capabilities. Hence, the confrontation amongst competitors in a certain region is often played by exploiting the points of weakness and dependencies of the opponent/s as well as putting in place financial measures aimed at damaging it or limiting its influence rather than threatening it with military means. In short, geopolitics seem to be experiencing a renaissance, heavily impacting–at times dominating–the realm of international relations due to a decrease in the likelihood of full-scale military escalations.
In effect, without the constraints of a defined world order, risks of local military escalations have become great at the point that full-scale military actions are very few while more limited interventions and/or wars by proxy have increased.
Natural resources, energy, manufactures, bonds and many other flows of goods and services are used today as tools for pursuing international political goals.[ii] The most recent example is the crisis in Ukraine, where Russian gas supplies and direct investment played a primary role before the military option was put in place.
Sanctions and economic measures are classic examples of economic warfare. Such means have proved effective when coupled with a traditional military campaign, such as the Falklands War or the first Gulf War. Instead, when implemented alone, they have shown their limits.[iii] Why is this?
First, sanctions such as embargos, quotas, and the freezing of funds are really effective when implemented by a large number of countries. For instance, following a U.N. Resolution under Chapter VI of the Charter (pacific settlement of disputes) the international community is supposed to be able to influence those countries that refuse to comply with the international customary law.[iv] Yet, the effectiveness of sanctions and economic measures tends to decrease over time, as the targeted countries find “escamotages” and alternatives to the denied economic activities.
Another critical matter for the economic measures is their efficacy on political elites. Often a population is affected by the impact of sanctions more than the political cadre they were conceived for. This is particularly true for authoritarian regimes or dictatorships, where popular discontent might not be enough to overthrow the ruling political group.[v] For example, tough economic sanctions have proven insufficient in delegitimizing or even stimulate the overthrowing of the regime. Iran’s 2009 Green Revolution that sought to overthrow what many perceived to be an illegitimate government was motivated in part by economic turmoil as a result of economic sanctions. However, in the end, the regime prevailed and quashed the protests.[vi]
Finally, as a consequence of economic globalization, contemporary sanctions and economic measures often work like a boomerang, harming the same countries that implemented them.[vii] A recent example is the embargo the United States and the European Union issued against Russia. The rebounds of the economic sanctions impacted negatively on Germany, Italy, France and others which were used to having strong business with Moscow before the crisis.[viii]
Nonetheless, if on the one hand classic economic measures have proved inadequate in recent times, a new array of economic tools has risen and can be used by both state and non-state actors against state or non-state enemies. The new array of economic tools is redefining the concept and practice of economic warfare. The most relevant features of such a renaissance lie in cyberspace and finance.
Nowadays, the cyber threat is real and serious. Available capabilities include advanced malwares able to cause huge damages to the economic domain of the targeted country, hitting targets like banks, energy supply networks, communication, and can be used to steal industrial secrets. Additionally, these kinds of attacks negatively impact the insurance costs for those companies who suffer from such attacks.[ix] For instance, according to the Willis Fortune 500 Cyber Disclosure Report 2013, more than half of major U.S. firms suffered from cyber espionage activities but only 6% of them could afford cyber insurance because of the rising costs.[x] Just to give an idea of how much the phenomenon is growing, in 2008, premiums paid for cyber risks accounted for 195 million USD. Following the increasing number of data breaches, in 2012 they had grown up to 1 billion USD.[xi]
Economic measures borrowed from financial markets can be threatening as well. Using them in offensive ways, it becomes possible to besiege currencies and monetary systems or even modify the price of goods and services of particular relevance for the state or the group of states targeted.[xii] For instance, the price of one or more imported goods could be artificially raised or collapsed in order to influence countries which economy is based on mono-productions or have limited product differentiation. Developed countries could be hit sensitively as well by exploiting their reliance on financial markets, their actual economic weakness and the surprise effect based on the lack of credible early warning capabilities.[xiii]
In addition, information through social media has become a driver of the financial markets. The dependence of markets on flows of information from the social media can turn into a further vulnerability to some economic warfare techniques. For instance, when the Associated Press’ Twitter account was hacked with a tweet saying that a bomb had injured President Obama, stock markets underwent sudden and strong movements that negatively impacted several firms.[xiv]Another tactic is represented by the “bear raid,” through which a financial operator, after creating an artificial decrease of the price of the vital good(s) of the targeted states or entity, purchases a certain portion of the market suitable for its political goals, thereby disrupting the economic domain of the targeted country or entity. In this sense, sovereign funds are growing economic entities to control, as they could become coercive means utilized against an economic system.[xv]
In addition to these means, two other economic measures are being resumed from the past and refreshed with new technological capabilities: preclusive purchasing and the interdiction of trade and communication lines. The first is an old technique, but today does not fully fit its old definition. In short, a state or a coalition would purchase resources or goods to deny it to the enemy, rather than because of a real need. Traditionally it was applied to natural resources but today it would be impossible implementing it effectively. Rather, the renewed concept of preclusive purchasing applies to the industrial domain. For instance, state appointees or strategic companies purchase highly competitive companies and firms – or establish favourable partnerships – and later they deprive them of the most advanced know-how and products that will be transferred elsewhere. This tactic is difficult to distinguish from normal purchasing of companies or joint ventures. Yet, some suspicious cases can be considered symbolic of the capability of government-backed firms to seize valuable strategic assets in the target state and bring them home in order to harm or reduce the enemy’s technological advantage. The following two cases illustrate major strategies of know-how grabbing/preclusive purchasing:
- Lockeed-Martin created a joint venture with Russian company Yakolev in 1992, and purchased the patents of several plants belonging to the STOVL aircraft Yak-141, later used for projecting the actual F-35B (STOVL).[xvi]
- Qingdao Haili Helicopters from China purchased Brantly International, beginning with a joint venture in 2007, and moved its know-how to China to help develop the local V750 VTUAV (Vertical Take-off Unmanned Aerial Vehicle). In a similar attempt to obtain U.S. drone technology, China’s Hunan Sunward Science and Technology hired Dennis Fetters, in 2010, to bring his know-how coming from Revolution Helicopter (which failed) into the development of the SVU-200 VTUAV.[xvii]
The interdiction of the trade lines or communication lines as an economic measure (not to be read as military strategy) has something in common with the preclusive purchasing. In this case transportation companies and holders of international trade hubs are acquired by the appointees that later begin harshening the regulatory framework and raising transportation costs in order to negatively affect the trade flow of the targeted country. The impact of this measure on the target is proportional to its reliance on international trade as a source of income. Island countries can be particularly vulnerable to this economic measure.[xviii]
Therefore, today we can redefine “economic warfare” as the coordinated and/or cohesive enforcement (full spectrum) of these tools and strategies. In other words, in theory, some strategic goals that in the past required military action could be today – and in the future – reached with alternative tactics, often borrowed from the economic realm. The more comprehensive such tactics will be, the more economic warfare will evolve as a way of fighting per se. In fact, contemporary capabilities in the field are theoretically sufficient to create an alternative strategy to the use of force for obtaining political goals without using traditional firepower.
Some geopolitical regions might be particularly subject to economic warfare scenarios. For instance, in the Asia-Pacific theatre the economic interdependence amongst the states in the region is so deep that economic warfare tactics would be effective as alternatives to a symmetric conflict, which would have disastrous outcomes for all.[xix] In cases like this, greater economic integration is not the reason why countries would not use economic warfare. On the contrary, because of the arms race occurring in the region, alternative economic tactics might prove more affordable than traditional power politics. In fact, the most interesting feature of this kind of alternative confrontation is the possibility of taking the enemy by surprise or to wage a low level conflict, even covertly, which would allow Asian countries to face each other without using force or incurring the damages associated with conventional military campaigns.[xx] Nonetheless, it is also true that in these cases each stakeholder would have to take into account that, because of interdependency, some economic attacks would have rebounds (or negative influences) on its own economic realm. The overall impact of such rebounds is still difficult to assess and this makes each stakeholder interested in tactics of economic warfare, yet cautious of their potential ramifications.
Nevertheless, a conflict fought exclusively in the economic domain is just a theoretical perspective and has never occurred yet. Some of the techniques above have already been used – sometimes clearly, other times less so – in several international crises. Yet, as of today, for reasons that go from difficulties in forecasting long term consequences of “pure” economic attacks, to the lack of adequate defence against eventual counter-attacks, no international actor has established a doctrinal, well-structured approach to economic warfare. There is no codified praxis nor tested doctrine.[xxi] Furthermore, at the state level, the command and control structure for conducting economic conflict is inadequate. It has not been clearly established who should carry out offensive economic attacks: The armed forces? Economic ministries? Dedicated agencies? These questions have been tackled in Economic Warfare: Risks and Responses, a report by Cross Consulting Services. Issued by the U.S. Department of Defense within its Irregular Warfare Support Program (IWSP), the report provides an overview on the economic crisis taking into account economic attacks or suspicious activities that might have contributed to worsen the crisis, including several organized attacks to the U.S. economic realm. However, Dr. Freeman had to state in advance 35 assumptions to make the whole report cohesive and credible.[xxii] These kinds of assumptions will remain necessary unless the topic is explored further.
Hence, the lack of recognised organic doctrines and codes for waging an economic war makes it hard to study the phenomenon and, as a consequence, establish compelling policy options for decision makers who might need to deal–or cope–with the issue of economic warfare. Conversely, the toolbox of economic warfare techniques is evolving and the number of available tactics is increasing. Worse still, states (or even the international community) have not yet chosen which institutional bodies should be in charge of economic defence, intelligence, and countering measures, leaving room for malicious stakeholders to take the initiative in the field.
Marco Giulio Barone is a contributor at the International Security Observer (ISO) and a Contributing Analyst and subject matter expert at Wikistrat, Counter-Terrorism and East Asia divisions.
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[i] Some may argue that this process was already started in the early 1970s with the re-definition of “security” through the processes of “widening” and “deepening”. For instance, the energy crisis in the 1970s already produced a wide literature on widening the concept of security to the economic and energy fields. Yet in this article, to better take into account the change the end of the Cold War brought to the world order, we will talk about the “geo-economic era” as referred to in: Luttwak, E., “From geopolitics to geo-economics”, National Interest n.20, 1990, pp.17-24.
[ii] Lynn-Jones, S., and Miller, S., The Cold War and After: Prospects for Peace, MIT Press, 1993, p.312
See also Erdmann, F., A New Era of Geo-economics: Assessing the Interplay of Economic and Political Risk, IISS Seminar – Fourth Lesson, 23-25 May 2012, pp.1-6, http://www.iiss.org/-/media/Images/Events/conferences%20from%20import/seminars/papers/64349.pdf
[iii] Drury, A., and Park, J., Mids, economic sanctions, and trade: the effect of economic coercion on military disputes, paper prepared for presentation at the annual meetings of the International Studies Association, March 18, 2004, Montreal, Canada, pp. 4-5.
[iv] The states which have developed excessive dependence on one or anyway few external subjects represent an exception to this statement. In this case, however, the main policy option for putting under pressure these states is based on political blackmailing or menaces. In a few cases only economic measures are to be implemented, as the state under pressure well knows the inacceptable consequences of their implementation for it.
[v] Mastanduno, M., Economic Statecraft, Interdependence and National Security: Agendas for Research in Power and the Purse: Economic Statecraft, Interdependence and National Security , Routledge, 2014, pp-294-300
[vi] Maloney, S., Saved by the deal – How Rouhani won the negotiations and saved the regime, Foreign Affais, November 27, 2013, p.67
[vii] Mastanduno, M., ibidem
[viii] Schepp, M. and Schmergal, C., The Boomerang effect – Sanctions on Russia hit German economy hard, Spiegel International, July 21, 2014
See also: Pfeiffer, T., Factbox: The effect of Russia sanctions on European companies, Reuters, August 7, 2014
http://www.reuters.com/article/2014/08/07/us-ukraine-crisis-companies-idUSKBN0G70OR20140807
See also: Ministry of finance – Finland, The economic effects of the EU’s Russia sanctions and Russia’s counter-sanctions, Press conference, August 27, 2014. Available at:
[ix] Baker, S., State-Sponsored Cyber Espionage, in Economic Warfare Subversion: Anticipating the Threats – A Capitol Hill briefing, American Center for Democracy, pp. 32-37
See also: The Economic Impact of Cybercrime and Cyber Espionage, Center for Strategic and International Studies, July 2013 http://www.mcafee.com/sg/resources/reports/rp-economic-impact-cybercrime.pdf
[x] Canadian Insurance Top Brokers, More than half of US Fortune 500 firms would face “serious harm” from a cyber attack, June 11, 2013. Available at:
[xi]Insurance News, Global cyber risk premiums near $1 billion, October 15. 2012
http://www.insurancenews.com.au/local/global-cyber-risk-premiums-near-1-billion
[xii] For instance, in 2012, the U.S. asked SWIFT (Society for Worldwide Interbank Financial Telecommunication ) to ban Iran from its payment systems with the final aim of facouring the depreciation of the Rial and thus disrupting Iranian commerce. For additional details refer to: http://www.reuters.com/article/2012/03/15/us-nuclear-iran-idUSBRE82E15M20120315
[xiii] Frankel, J., A New Era of Geo-economics: Assessing the Interplay of Economic and Political Risk, IISS Seminar – Fifth Lesson, 23-25 May 2012, pp.5-6
[xiv] See, for example, Lee, B., Associated Press Twitter Account Hacked in Market-Moving Attack, Bloomberg, April 24, 2013
[xv] Heath, D., Financial Warfare: Policy, Practice and Vulnerabilities in U.S. Finance , in Economic Warfare Subversion: Anticipating the Threats – A Capitol Hill briefing, American Center for Democracy, pp. 26-31
This piece of analysis brings some examples of bear raid that occurred in the last five years at U.S. expenses, such as the one that occurred in 2007, aimed at disrupting the price of oil.
[xvi] Details available at: http://in.rbth.com/blogs/2013/06/07/f-35b_born_in_the_ussr_25935.html
[xvii] Details available on Gianvanni, P., UAV Cinesi, in RID – Rivista Italiana Difesa, N.2/2014, pp.44-45
[xviii] For instance the so called “String of Pearls” strategy (now known as maritime silk road) could help China putting pressure on countries such as the Philippines, Vietnam, Cambodia, Singapore, Indonesia, and Malaysia, which have to deal with the “Malacca dilemma”. For reference see:
Barone, M.G., Gwadar port, the latest of the Chinese pearls, International Security Observer, May 28, 2013
http://securityobserver.org/gwadar-port-the-latest-of-the-chinese-pearls/
See also: Bonsignore, E., La “Gara Navale” nei Mari della Cina, RID – Rivista Italiana Difesa, N.8/2014, pp. 58-69
[xix] See for instance: Barone, M.G., et alii, Insights from the Wiki — Korean Conflict Pathways: “Regional Economic Warfare”, May 7, 2013 – available at
http://www.wikistrat.com/insights-from-the-wiki-korean-conflict-pathways-regional-economic-warfare/
[xx] Barone, M.G., et alii, ibid.
[xxi] Freeman, K., Economic Warfare: Risks and Responses, Cross Consulting and Services, LLC, June 2009, pp. 97-100
[xxii] Freeman, K., Ibid.
One reply on “The Missing Doctrine of Economic Warfare”
Guess the Tallin manual (ARS) answers several of your questions about Cyberspace warfare responsibilities and juridical definitions.