Chokepoints: the new global warfare

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This is a CBC podcast. Hello, I'm Matt Galloway, and this is the current podcast. Donald Trump announced that he was no longer sending U.S. envoys to Pakistan for peace talks with Iran. I think the prime minister of Pakistan is great, and, you know, they'd like to see something happen, but we're not going to be traveling 15, 16 hours to have a meeting with people that nobody ever heard of. But when you get right down to it, it's a lot of traveling. No, we don't want to do that. The two sides were supposed to resume negotiations this weekend, but in the end they did not meet. Since then, both sides have continued to make threats, mainly over the closure of the Strait of Hormuz.

Competing U.S. and Iranian blockades in the strait are turning the waterway into one of the most powerful economic choke points in the world, not only influencing oil prices and global markets, but also shifting the world into a new era of economic warfare. Edward Fishman is the director of the Center for Geo-Economics at the Council on Foreign Relations. Also was sanctions lead for the U.S. State Department under the Obama administration when the United States put oil sanctions on Iran. He is the author as well of choke points, American power in the age of economic warfare. Edward Fishman, good morning. Good morning. Nice to talk to you. Good to have you here. There are physical choke points and there are economic ones.

And I want to walk through both of them. Let's talk about the physical one first. we have seen because of the closure of the Strait of Hormuz, a spike in gas prices, shortage of jet fuel, all sorts of broader impacts on everything from food prices to the availability of plastics. How has Iran weaponized the Strait of Hormuz as a choke point? So look, even before this war, we all knew that the Strait of Hormuz was the most important geographic choke point in the world. You've got about one in five barrels of oil and one in five shipments of LNG that go through the Strait of Hormuz that go through the Strait of Hormuz was the most important geographic choke point in the world. of Hormuz every single day. I think the misunderstanding or the misperception that the Trump administration had going into this war was that they thought that in order to close the strait, Iran would have to use these sea mines. You know, they've got thousands of them that they could put in the strait

to make it physically impassable. The thing, though, about sea mines is that they don't discriminate. They could blow up a vessel carrying Saudi oil or Iranian oil. And so the thought was Iran might not do this because it would be economically suicidal. Well, what Iran has done is that just by using these relatively cheap drones and missiles, they've been able to selectively close the strait, changing the risk calculus of the shipping industry and being able to say, you know, this vessel goes through, this one doesn't. So I think what Trump is fighting for right now is to try to get rid of the status quo in which Iran is effectively the toll master of the Strait of Hormuz. What does that mean for the possibility of negotiating a deal? You wrote in

foreign affairs, as the war in Iran has shown, smaller powers can also exact devastating costs on the global economy by weaponizing those choke points. So how do these two sides get out of this? It's very challenging, right? Because of course, before the war started, Iran was not the toll master of the Strait of Hormuz. Anyone could sail through that waterway, and maybe you'd feel a little nervous while he were doing it, but you didn't have to pay anyone at toll and you weren't worried about your ship getting blown up by a missile. So I think what's happened now is that if this status quo persists, in which Iran basically holds all shipping through the Strait of Hormuz hostage and says, you can only pass if you pay us a $2 million toll in Bitcoin or Chinese yuan.

I mean, that changes the entire dynamic in the Middle East. It makes Iran even more powerful than it was before the war began. So I think the conundrum Trump has now, even though he's really desperately looking for a way out of this war, he's struggling to find one that doesn't make him look like a loser. And if we know anything about Donald Trump, he does not like. to be humiliated. So if you are watching this unfold, and you are maybe a smaller power in the world

or a larger power, and you're seeing what this action in this particular area can do to the global economy, what is the lesson you're taking from this? Look, I actually think this is part of a more consistent story we've seen since last year, right? When Trump came out with his Liberation Day tariffs in April of last year,

basically imposing import tariffs on every country in the world. You know, the country that came out best from that whole situation was China, right? China retaliated by cutting off America's access to rare earth elements, which is another choke point in the global economy because China refines 90% of the global supply. And Chinese retaliation forced Trump to back down. Well, fast forward a year, you know, Trump wages war against Iran. The United States has massive military superiority, and Iran retaliates in a similar fashion. using a choke point that it controls, the Strait of Hormuz, to inflict economic harm on the

global economy and to basically force the United States to reassess its war aims. So I think what both China and Iran has shown is that the best way to confront the Trump administration isn't to capitulate to his demands, but rather to fight back economically. Because I think the Achilles heel of the United States in economic conflicts is the country's low tolerance for economic pain. And I think this is what Iran is manipulating now, and I'm sure other countries will take note. Which speaks to the idea of those economic choke points, that there can be points on a map where it's very narrow and you can close that off and the things that you need can't get through there. But to your point, there are economic choke points as well

that go beyond the map. Walk us through some of those. Sure. Yeah. So, I mean, the geographic choke points have always been fulcrums of power throughout history, you know, Strait of Hormuz or the Bosphorus or the Panama Canal, the Strait of Gibalter. You know, these are narrow passageways that are essential for global trade. Well, since the 1990s, where we really embraced this model of globalization, where the entire world is based on a single currency, and we're all in the same transnational supply chains. We have these economic chokepoints that don't exist in maps, but exist in supply chains and financial flows. So the U.S. dollar is the most important choke point in the global economy. You know, 90% of all foreign exchange transactions use the dollar.

And basically, if you're trying to do business across borders without access to the dollar, it's kind of like trying to travel without a passport. It's effectively impossible. I mentioned Chinese rare earth minerals. You know, China controls about 90% of the global supply of refined rare earths. And you need those rare earths to produce everything from motors in electric vehicles to missiles and drones. And so they are a very important choke point as well. AI chips, you know, Invidia, the U.S. company, produces about 85% of the global supply. So, I mean, you can see how these other choke points, even though they don't exist on maps, you know, can also be used for economic warfare and arguably even more effectively because you don't need to use drones or missiles to cut them off. You've hinted at this, but do you see Donald Trump's use of tariffs as a choke point, an economic choke point?

So I think Trump thought they would be because the United States is the biggest market for other countries exports, right? I think Trump's assumption was that he could use tariffs to get anything he wanted. the U.S. is the world's biggest importer, and so if you can't sell into the U.S. market, you're kind of out of luck. The problem is that the U.S. only accounts for about 13% of global imports. So for the average country, if you can't sell into the U.S. market, it might be painful, but you can still sell into roughly 87% of the world economy. So it hasn't worked very well, particularly against countries like China, India, and Brazil. And look, even for Canada, obviously Canada is in a different position, right? Canada sells 75% of its expectations.

exports to the United States, I would argue that U.S. import tariffs on Canada do not represent a choke point. Because if the U.S. were actually to impose a very high tariff on Canada, of course, it would be very bad for Canada, but it would also be catastrophic for us here in the United States, right? It would cause inflation. It would, you know, snarl supply chains for automobiles. And so I don't think that it's a particularly credible threat for U.S. presidents to impose, you know, embargo level tariffs on Canada. We just have a couple of minutes left. Part of what you talk about in that piece for foreign affairs is what we've been talking about in this country,

with the Prime Minister Mark Carney trying to figure out ways to reduce that reliance on the U.S. market. Do you see that as an antidote? What Mark Carney is doing in terms of building alliances with China and India through Japan and Australia and what have you, as an antidote in some ways to the choke point theory, the way that you can kind of squeeze off the economy in those specific areas? Yeah, look, I mean, I do interpret Carney's goal of diversifying Canadian exports as a way to try to reduce American leverage over Canada.

but I think it's more bark than bite because when the rubber hits the road, if you actually imposed a very large tariff on Canada, it would be very bad for the U.S. economy. If you look back, by the way, last year, despite, you know, Trump threatening 25% tariffs and, you know, all the stuff against Canada, the average effective tariff on Canadian imports into the United States last year was just 3%, the lowest in the world. So despite all the rhetoric, you know, we actually haven't seen as much disruption as Trump has hinted at. This is so interesting. And, I mean, very real for so many people living through the effects of what we're seeing in the Middle East right now and beyond. Edward, thank you very much for

this. Yeah, my pleasure. Edward Fishman is a director of the Center for Geo-Economics and the Council on Foreign Relations, also the author of a book called ChokePoints, American Power, in the Age of Economic Warfare. This has been the current podcast. You can hear our show Monday to Friday on CBC Radio 1 at 8.30am at all time zones. You can also listen online at cbc.ca.ca. slash the current or on the CBC Listen app or wherever you get your podcasts. My name is Matt Galloway. Thanks for listening. For more CBC podcasts, go to cBC.ca slash podcasts.