The event was also a pointed message to Russia. McDonald’s restaurants in Russia — including the iconic Pushkin Square location in Moscow, where thousands of Russians had lined up for a first taste of capitalism in 1990 — have been closed since last year’s all-out invasion, though many have reopened under the new name Vkusno I Tochka. (“Delicious, period.”)
Longtime readers of foreign-policy commentary also couldn’t help but be reminded of journalist Thomas Friedman’s famous “Golden Arches Theory,” which held that “No two countries that both have a McDonald’s have ever fought a war against each other.” The theory had already been disproven several times — including once previously by Vladimir Putin, when Russia invaded Georgia in 2008 — but the war in Ukraine has driven a biodegradable plastic fork through its heart.
The Golden Arches Theory was a clever variant on the idea of the “capitalist peace,” that as countries’ economies become more entwined and interdependent thanks to trade and globalization, armed conflict between them would become more costly and less likely.
But far from preventing war, global capitalism is just as much a combat zone as the trenches of Donbas. For all the atavistic aspects of the war — tanks, trenches, infantry charges — it is also clearly the forerunner of a new era of economic warfare. A series of timely new books released this fall attempt to trace the landscape of this new battlefield.
The now 9-year-old conflict between Russia and Ukraine began not with a bang, but with a bank loan. In 2014, Putin’s government used several forms of economic pressure, from random customs checks to barring a number of imports, to get Ukraine to abandon plans to sign an association agreement with the European Union. (Putin has oddly tried to rewrite this history since the invasion, saying Russia has “no objections” to Ukrainian E.U. membership, and that only NATO is objectionable. If that were really true, we all could have avoided an awful lot of trouble over the past decade.) When Viktor Yanukovych, then president of Ukraine, agreed to join Putin’s Eurasian Economic Union instead, Moscow agreed to bail out Kyiv by buying $15 billion in Ukrainian bonds. This decision sparked the mass protests that would force Yanukovych from office, prompting Putin to send troops into Ukraine in response.
As the political analyst Maximilian Hess describes in the new book “Economic War: Ukraine and the Global Conflict between Russia and the West,” the loan was clearly structured to keep Ukraine in Russia’s debt and protect Russia’s leverage over natural gas exports. It also, as Hess writes, “spread the tentacles of Russia’s war on Ukraine into international capital markets as its soldiers spread across Crimea.”
Much has been said about Putin’s background in the KGB, but Hess makes a convincing case that his days in the St. Petersburg government, when he served as a liaison between the city, foreign business and, occasionally, criminal underworld, were just as formative. Putin’s engineering of Russia’s return to global prominence may owe more to his background as a capitalist than his days as a spy. Hess’s portrait of Putin as an economic actor builds to some extent on Washington Post journalist Catherine Belton’s “Putin’s People” (2020), which detailed how the men who once ran the KGB maintained their power after the collapse of the Soviet Union by insinuating themselves into Russia’s export markets, legal and not so legal.
For Putin, military and economic power go hand-in-hand. Long before the Ukraine war, Hess shows, Putin was a practitioner of what the international relations theorist Edward Luttwak has called geoeconomics, a worldview in which “the methods of commerce are displacing military methods — with disposable capital in lieu of firepower, civilian innovation in lieu of military-technical advancement and market penetration in lieu of garrisons and bases.”
As Hess also demonstrates, the international business community didn’t exactly cover itself in glory during the rise of Putin’s economic empire. Just three years after Putin’s government jailed the oil tycoon Mikhail Khodorkovsky, who had dared to challenge him politically, and absorbed his company Yukos into the state oil firm Rosneft, 16 U.S. and European banks supported Rosneft’s initial public offering on the London stock market.
Russia’s full-scale invasion of Ukraine in 2022 changed a lot: European countries belatedly took real steps to wean themselves off dependence on Russian energy exports. Russia lost access to around half its currency reserves, held in foreign banks. Dozens of international firms — not just McDonald’s — pulled out of Russia. Novel export controls were imposed to cut off Russia’s access to vital technology for its war effort.
But not everything changed. Russia has resisted the effort to move to a full war economy, or even the North Korea-style autarky called for by Yevgeniy Prigozhin, the Wagner Group mercenary leader who died in August.
And as widespread and hard-hitting as international sanctions have been, the U.S. and its allies have avoided totally cutting Russia off from the global economy. This has been shown most dramatically by the complex and novel “price cap” the G-7 has imposed that allows Russia to continue exporting oil at a discount. Why not just try to block Russian exports completely? Hess notes that this would risk “prompting a crisis akin to that experienced by the global economy following the 1973 Arab Oil Embargo, when Arab producers cut off countries that supported Israel in the Yom Kippur War.”
There’s a parallel here between economic and military strategy. Just as Western countries have held off on providing certain weapons to Ukraine, and imposed conditions for how those weapons are used, to avoid escalation that could lead to direct conflict between nuclear powers, they have also refrained from economic “nuclear options” that could do untold damage to the global economy, including to the countries imposing the sanctions.
At this point, it’s just as difficult to predict the outcome of the economic war as the military one, and this can make “The Economic War” somewhat frustrating for readers. We yearn for firm conclusions that Hess is far too responsible and cautious to provide. The book likely has a short shelf-life: It’s destined to be replaced by works whose authors — perhaps even Hess himself — will have the benefit of hindsight. But for the impatiently curious, seeking a quick primer on how the war is playing out on global balance sheets, it’s an invaluable resource.
One of the main takeaways of Hess’s book is that for all the talk of a multipolar world, the United States still wields enormous and unique power to mete out economic pain on its adversaries. Readers looking for an explanation of why this is the case will find answers in Henry Farrell and Abraham Newman’s “Underground Empire: How America Weaponized the World Economy.” Professors at Johns Hopkins and Georgetown, respectively, Newman and Farrell are best known in international relations circles for coining the term “weaponized interdependence,” which, as they wrote in an influential 2019 paper, describes how countries leverage “global networks of informational and financial exchange for strategic advantage.”
As they write in the new book, they were somewhat perturbed to discover that officials in the Trump administration had read the paper and viewed it as a “playbook to implement” against targets like the Chinese telecommunications firm Huawei.
Farrell and Newman write fluidly and grippingly, and not just by the standards of international relations theorists. As the book jumps from nondescript Northern Virginia office parks housing America’s intelligence establishment, to the boardrooms of mid-20th-century New York banks, to sanctions-dodging tankers traversing the Indian Ocean, it’s not hard to detect the influence of techno-thriller writers such as Neal Stephenson, whose works get a few citations.
“Underground Empire” expands on the idea of weaponized interdependence to explore how “choke points” in the global economy have been used as coercive tools by the U.S. government. The sheer amount of money and data flowing through U.S. financial institutions and data centers gives the U.S. government outsize power for surveillance and coercion. More than anything, the dollar’s role as the global reserve currency has allowed America to not only cut off U.S. trade with targeted states and companies, but force non-American actors to comply with its sanctions.
Leaders like Putin see conspiracy in all this power. He has sought — mostly unsuccessfully — to enlist Chinese help in creating a new global reserve currency to challenge the dollar’s dominance. He has described the internet as a “CIA project” that is “still developing as such.”
But Farrell and Newman argue, convincingly, that there wasn’t any grand design behind the underground empire. It emerged piecemeal out of one decision made after another to address a variety of security threats. “The United States sleepwalked its way into a new struggle for empire, breaking bad without ever quite realizing it,” they write. Putin may be right to some extent about the internet’s origins in the U.S. national security establishment, but the early pioneers of Silicon Valley certainly didn’t envision a world in which, according to a 2002 National Security Agency estimate, “less than 1 percent of global internet bandwidth passed between two regions of the world without passing through the United States.”
The most alarming thing about this “empire,” Farrell and Newman suggest, is that the leaders in Washington don’t always appear to understand just how powerful the weapons they’re wielding really are. Take the case of sanctions on Iran. Even critics of sanctions policy generally concede that economic pressure on the Iranian government and financial institutions forced Tehran to concede to the 2015 Iran nuclear deal. But, Newman and Farrell write, “A policy based on creating fear, awe, and terror can’t be turned on and off like a spigot.” Even when Obama administration officials urged European banks to lend to Iran again after the deal was signed, few were willing to, fearing they could fall afoul of the sanctions that were in place, or that the U.S. would change its mind and impose sanctions again.
This fear proved to be quite rational when Donald Trump did just that in 2018. The authors quote the veteran U.S. diplomat Christopher Hill describing the U.S. as having created a “kind of sanctions doomsday machine that could not be turned back off.”
That Hill quotation could easily serve as a blurb for “Backfire: How Sanctions Reshape the World Against U.S. Interests,” by Agathe Demarais, who is now a senior policy fellow on geoeconomics at the European Council on Foreign Relations. In Demarais’s view, western politicians, and especially American ones, have become overly reliant on sanctions to “fill the void in the diplomatic space between ineffective declarations and potentially deadly military operations.” This has led to a state of affairs in which Washington maintains about 70 sanctions programs targeting more than 9,000 individuals, companies and economic sectors across virtually the entire world.
Demarais acknowledges that sanctions can get results when the demands are specific and limited and the time frame is short. When the Trump administration imposed sanctions on Turkey over the imprisonment of the American pastor Andrew Brunson in 2018, Brunson was released from jail within a couple of months. But too often they take forms like Trump’s “maximum pressure” campaign against Iran, which imposed conditions Tehran was so unlikely to agree to that it essentially amounted to a demand for a regime change. (In an unfortunate omission, Demarais doesn’t engage with the most frequently cited example of a successful “regime change” pushed along by sanctions: the global pressure campaign against apartheid South Africa.)
Worries that sanctions had become an all-purpose crutch with diminishing returns are not new. As far back as 1998, President Bill Clinton worried that the U.S. had become “sanctions happy.” But Demarais takes the normal critique further, arguing that sanctions have become largely ineffective and also encourage behavior that runs counter to U.S. interests.
Most famously, the embargo against Cuba that President Dwight D. Eisenhower first imposed in 1960 not only failed to dislodge the country’s communist government, but also likely led Cuba to deepen its economic ties with Russia in the early years and with China — now its largest trading partner. In other words, Russia and China might be the main beneficiaries of this ostensibly anti-communist policy.
Other examples abound. U.S. sanctions against Pakistan’s nuclear program in the early 1990s diminished its influence on the ground in what had once been a staunch Cold War area around the same time Islamabad began supporting the Taliban in Afghanistan next door. North Korea has turned to a variety of criminal enterprises, including cryptocurrency hacking, to fund its sanctioned nuclear program. Under President Nicolás Maduro, Venezuela has ramped up its involvement in drug trafficking and illegal mining to make up for the lost revenue from its sanctioned oil sector. Demarais does not mention, but could have, how Bashar al-Assad’s heavily sanctioned Syrian regime has allegedly become a major producer and distributor of the cheap stimulant Captagon, flooding the drug throughout the Middle East as a means of both generating revenue and punishing the countries that have backed his opponents.
Demarais sometimes overstates the case, including when she cites the retracted United Nations claim that sanctions resulted in the deaths of half a million Iraqi children under Saddam Hussein. But for the most part, she makes a convincing case that sanctions come with significant costs, and not only to the countries they target.
If the book still feels a bit unsatisfying, it’s because Demarais doesn’t really present alternatives — or consider other outcomes for this tool. Demarais sees the fact that Putin ordered the invasion of Ukraine despite the threat of economic pain as evidence that “the threat of U.S. sanctions had lost its potency.” But President Biden has himself conceded that sanctions were never likely to deter Putin. The goal, U.S. policymakers say, is to raise the costs of the war for Putin’s regime, thus helping the Ukrainians toward military victory. Is that enough to justify them?
This bumper crop of new books on the practice of economic statecraft — these three are far from the only recent titles in that category — arrives at a time when the U.S. national security establishment is increasingly rejecting the logic of economic peace.
In a recent speech, national security adviser Jake Sullivan made the case that “economic integration didn’t stop China from expanding its military ambitions in the region, or stop Russia from invading its democratic neighbors. Neither country had become more responsible or cooperative.”
As disruptive as the economic warfare surrounding Russia’s invasion of Ukraine has been, it would likely be dwarfed by a global conflict involving China, which is far more integrated and pivotal to the world economy than Russia. An analysis by the Atlantic Council and Rhodium Group has estimated that a “maximalist” sanctions scenario resulting from a Chinese invasion of Taiwan could cost the global economy some $3 trillion.
One would think that these costs might deter China. Officials in Taiwan, which produces some 90 percent of the world’s most advanced semiconductors, often refer to their “silicon shield”: taking the world’s chip supply offline would just be too disruptive to the technology the global economy — very much including China’s economy — depends on.
But as Putin’s invasion shows, dollars-and-cents calculations are often outweighed by what leaders and their citizens view as core questions of territory and sovereignty. The precarious global economy may be just as likely to act as a weapon of war as a guarantor of peace.
“Economic War: Ukraine and the Global Conflict Between Russia and the West”
“Underground Empire: How America Weaponized the World Economy”
By Henry Farrell and Abraham Newman
Henry Holt. 278 pp. $28.99
“Backfire: Sanctions Reshape the World Against U.S. Interests”
Columbia University Press. 292 pp. $30
correction
An earlier version of this article incorrectly said that Agathe Demarais currently works as global forecasting director at the Economist Intelligence Unit. Although she previously held that position, she is now a senior policy fellow at the European Council on Foreign Relations. The article has been corrected.
