Geopolitical Suicide by a Thousand Cuts: Economic Interdependence Edition

Henry Farrell and Abraham Newman have been doing important work on what they call “weaponized interdependence“:

Globalization has transformed the dynamics of security. In Rosa Brooks’ (2016) evocative description, over the last two decades war ‘became everything’ thanks to interdependence. Flows of finance, information and goods across borders both create new risks for states, and new tools to alternatively exploit or mitigate those risks. The result is a world in which states are increasingly willing to employ “all measures short of war” (Wright 2017), including not just sanctions, but “lawfare” (Kittrie 2016), networks of non-state actors (Slaughter 2017) and “geonomic instruments” (Blackwill and Harris 2016) to achieve their own objectives and frustrate those of their adversaries. States’ capacities to use these tools varies not only according to their internal capacities (Norris 2016), but their external circumstances.

Probably the most obvious way in which states have weaponized interdependence concerns the global internet. Although designed as an “open” system, authoritarian states have developed measures to control its political effects.

China has the “Great Firewall” and uses extensive monitoring and interdiction to control the flow of online information. Russia, at least for now, lacks infrastructural bottlenecks that allow it to block information going in and coming out. Instead, through trial and error Moscow developed a repertoire of techniques for demobilizing online political mobilization. As Jackie Kerr argues, these include:

[N]ew forms of pro-regime content mass-production and narrative manipulation as well as the limited use of plausibly deniable cyberattacks and hacking play critical roles in efforts to undermine and marginalize the voices of opposition movements and leaders, while also shaping broader public opinion without a sense of dramatic restriction. The leveraging of youth organizations (such as Nashi), third-party botnets, independent hackers, contracted video-producers, and proregime bloggers in coordinated actions provides a further degree of deniability of government involvement. Bots, trolls, leaks of compromising or manipulated content, distributed denial of service (DDoS) attacks causing temporary “technical failures,” and other difficult-to-attribute techniques are combined with occasional legal prosecutions or site-blockages for exemplary offenders under vague laws and mass digital surveillance, creating an overall online environment which still appears relatively unrestricted – with the ability to produce and access wide varieties of content, including content critical of the government – but in which the government exerts significantly more control over the overall development of content and narratives (Deibert & Rohozinski, 2010; Fedor & Fredheim, 2017; Kerr, 2016, 2018; Ragan, 2012; Subbotovska, 2015).

Some of these techniques, of course, Moscow eventually turned on western democracies—thus exploiting the asymmetries created by a more controlled online ecosystem (in Russia) and the much more open ones found in countries like the United States.

But the United States has a whole host of asymmetric interdependencies that it uses to influence world politics. As Farrell and Newman argue in a recent National Interest article, SWIFT provides an important tool of this type.

Financial institutions wanted to communicate with other financial institutions so that they could send and receive money. This led them to abandon inefficient institution-to-institution communications and to converge on a common solution: the financial messaging system maintained by the Society for Worldwide Interbank Financial Telecommunication (SWIFT) consortium, based in Belgium. Similarly, banks wanted to make transactions in the globally dominant currency, the U.S. dollar. This led them to rely on the U.S. dollar clearing system, which is dominated by a small number of American institutions.

However, Washington is now overplaying its hand and risks undermining its own tools, including SWIFT.

From the beginning, the Trump administration made it clear that it was opposed to the JCPOA deal under which Iran had foresworn its nuclear ambitions in exchange for a return to the SWIFT system and relief from secondary sanctions. In May 2018, the administration announced that it was withdrawing from the deal and in August it reintroduced secondary sanctions. Treasury Secretary Steven Mnuchin reportedly fought Iran hawks in the administration to try to prevent the reimposition of sanctions on SWIFT. He lost, and in public comments on November 2 made it clear that the United States intended to “aggressively” exert financial pressure on Iran, so that it would subject SWIFT to sanctions if it provided messaging services to designated Iranian banks.

Unlike Obama, Donald Trump did not use careful diplomacy to build international support for these measures against Iran. Instead, he imposed them by fiat, to the consternation of European allies, who remained committed to the JCPOA. The United States now threatened to impose draconian penalties on its allies’ firms if they continued to work inside the terms of an international agreement that the United States itself had negotiated. The EU invoked a blocking statute, which effectively made it illegal for European firms to comply with U.S. sanctions, but without any significant consequences. SWIFT, for example, avoided the statute by never formally stating that it was complying with U.S. sanctions; instead explaining that it was regrettably suspending relations with Iranian banks “in the interest of the stability and integrity of the wider global financial system.”

European allies responded to these unilateral steps by announcing a new Special Purpose Vehicle (SPV), called INSTEX, at the end of January. The SPV supports trade between Europe and Iran outside the conventional financial system through a complex arrangement of matching transactions. Although the system is initially supposed to facilitate humanitarian trade, it could readily be used for other transactions between Iran and Europe.

The piece is on the longer side, but it sheds critical light on the various forms of structural power created by economic interdependence, and how, even in this arena, America may be squandering its advantage.