The Malacca Myth: Lessons On Economic Warfare From The History Of Naval Blockades

>> Manny Rincon-Cruz: Welcome everyone, to I believe, our last winner of the year, unless we hold one right before Christmas Eve. My name is Manny Rincon Cruz. I'm the executive director here at the history working group. It is my pleasure to introduce sort of the rest of the panelists today.

I just wanted to make a few announcements. Remember, as always, to keep yourself muted during the presentation. If you have any questions during Q&A, you're welcome to use the hand raise icon on Zoom, as well as to put some questions into the chat. We have just a very short number of announcements.

We'll be sending a longer email, I believe, later next week with the rest of the events for the academic year. Do mark your calendars though for January 25, we'll have Neil Locri. He'll be talking about cashing out the flight of Nazi treasure from 1945 to 1948. February 12, we'll have a Zoe Zhongyuan Liu on Chinese sovereign wealth funds.

There's more dates I could list them to you now, but I'm sure you won't remember them, so look out for email. And so without further delay, I'll now hand it over to our chair, Niall Ferguson, the Milwaukee family senior fellow here at the Hoover Institution.

>> Niall Ferguson: Thank you, Manny.

And I'm going to make these introductions brief because we are eager to get onto the subject matter. Our paper today is a co authored paper by Eyck Freymann, Hoover fellow who joined us this academic year from the university formerly known as Harvard, and his co author, Hugo Bromney, from a respectable university based in a town called Cambridge.

And they are going to present their new paper, the Malacca Myth, lessons on economic warfare from the history of naval blockades. And we're innovating. Here at the Hoover History Working group, we've decided to institute some formal commentators so that before we get into the General Q&A, we'll hear from Nicholas Lambert.

Some of you may remember from an earlier seminar. Nick's one of the leading authorities on economic warfare, whose work, particularly his recent book the Warlords, has been pioneering in helping us understand the economic warfare of world War one. With that, I'm going to hand over to Eyck and Hugo, who will show some slides and have promised to keep their presentation to within 30 minutes.

Over to you, gentlemen.

>> Hugo Bromley: Thank you, Niall. Great to be here. Good afternoon, or evening, everyone. So this paper looks, or rather begins, by looking at a very simple question, which is, how can the United States deter China from attacking Taiwan? The so called strategy of denial aims to show that us forces could defeat a chinese invading force.

But as China's military modernizes the strategy of denial is losing credibility, and many in Washington are now thinking about strategies of punishment. Unfortunately, the policy debate about economic punishment against China often lacks historical perspective. Prominent commentators have made very extreme proposals, including dollar sanctions and physical embargoes of Chinese trade, but often justify their recommendations with misleading and inaccurate historical analogies.

Today, we present a historical framework for thinking about the common features of great power economic warfare and apply this framework to the case of China. We're focusing on the Melaka blockade because it is the most well known and most striking of these myths. But our analysis sheds light on other economic warfare scenarios as well, including those in which the United States tries to force rapid decoupling through financial sanctions.

Every time in history, a great power has imposed a far blockade on another. Neutrals have resisted more effectively and in more organized fashion than the blockader anticipated. Indeed, our historical analysis might suggest that a US led economic war against China is likely to fail unless it harnesses the logic of the market to incentivize neutrals to comply.

Before I hand over to Eyck, I just want to begin with Mayor Culber. By accident, the circulated text is a slightly earlier draft than the one submitted to international security and includes a number of small errors, including in fact, misattributing a quote of Nics to someone else, for which I can only apologize most sincerely.

You can imagine the horror when I saw that one coming along the lines. So on that note, I will hand over to Eyck.

>> Eyck Freymann: Thank you, Hugo. The notion that the United States could punish China by imposing a far blockade on maritime transit through the Straits of Malacca is one of the most enduring myths in us foreign policy.

The idea is superficially tempting. China imports roughly two thirds of its oil by sea, which comes to about 8 million barrels a day. Its economy is highly dependent on maritime trade, and a malacca blockade, by interdicting Chinese oil imports could also in the process screen China's merchant shipping in general for contraband.

As Hugo mentioned, it would be an act of economic warfare and would not realistically be considered outside the context of a general US China war. But on its face, such disruption would threaten to harm China's economy and over time to degrade China's warfighting ability. Chinese observers are aware of this vulnerability.

General secretary Hu Jintao famously mentioned the Malacca dilemma in a 2003 speech, and several prominent chinese commentators have written in depth about the scenario, one even calling it the quote achilles heel of China's energy policy. To mitigate the Malacca dilemma, Chinese analysts have proposed a range of measures.

China has dramatically invested and expanded its domestic oil production. It's expanded its strategic petroleum reserve and many in China have argued that the Malacca dilemma is a strategic justification for the Belt and Road Initiative. However, starting in 2007, an alternative school of Chinese scholars associated with prominent party think tanks began to push back, arguing that these methods and measures were largely unnecessary because the Melaka dilemma was exaggerated.

In fact they argued, market pressures would incentivize neutral countries to help China break the blockade. And as a result, as one scholar put it, quote although a us blockade or embargo cannot be completely ruled out, the possibility is not very likely. The overall impact of such risks on China's energy security is relatively limited, argued another.

We show that western scholars have almost entirely overlooked these sources. But when we conducted our own analysis, we found that they're probably correct. Our study begins with a definition of terms. We then turn to a discussion of the five cases in question, and I'll hand them over to Hugo to take us through them in more detail.

All were conducted by the British Royal Navy between 1770 and 1945. So let's start by distinguishing blockades from other types of economic warfare. Sanctions and embargoes are legal rather than physical operations. They aim to deny the target state access to shipping routes, products or markets within the national jurisdiction of the sanctioning power or its allies.

They're not acts of war, they're not enforced by military threats, but they often escalate to war. The problem with embargoes and sanctions is that they hurt domestic exporters. And in an integrated global economy, embargoes and enemies can turn friendly trading partners into collateral damage. Next on the ladder of aggression is the close blockade, which involves policing waters immediately off the target state's coast to control its access to the sea.

European powers imposed dozens of such close blockades between the 18th and 20th centuries, mostly against smaller states and territories. One example is the Pacific blockade of 1827, which aimed to confine the ottoman fleet to harbor so it couldn't interfere with the Greek war of Independence. Now, sometimes, as we see here, great powers impose closed blockades on other great powers, but they tend to work only when naval power is highly asymmetrical.

The union blockade of the Confederacy or the Japanese blockade of China in World War II illustrate as we will see shortly, that such close blockades have more in common with far blockades against great powers than they do with close blockades against small states. In the Tianjin incident of 1939, for example, Japan embargoed excuse me, imposed a closed blockade on British treaty ports in China, almost precipitating a war with Britain.

And though it was difficult, the British and Americans found a way to resupply nationalist China with airlifts through the Himalayas and eventually with the Bohemia road as well. Next on the ladder of aggression, at least in terms of the impact on neutrals, is the far blockade, which is an administrative operation to screen maritime trade.

The problem with far blockades is that they are active war under international law and they are costlier to enforce. Both because of the naval resources involved in the operation and the difficulty of smoothing out diplomatic ructions with neutrals. Finally, the most extreme form of economic warfare with respect to impact on neutrals would be sea denial.

Which aims to stop all shipping through the exclusion zone, regardless of the flag of the ship and its cargo and destination. And sea denial is obviously backed with the threat of indiscriminate violence, the canonical example being Germany's unrestricted U boat warfare during the world wars. Now, some have suggested that the US may use sea denial in a Taiwan contingency, but that is not our focus here.

Finally, one recent case falls between these definitions and requires a brief word. Between 1990 and 2003, the UN Security Council authorized the maritime interception operation, or MIO, on Iraq's exports through the Strait of Hormuz. And the MIO is the best blockade analogy in the post war error, some scholars using it as a benchmark to estimate what a potential operation in Malacca would require.

But the MIO strategically is a bad analogy for Malacca. Saddam's Iraq was neither a military nor an economic great power, and the MIO was authorized by international law and enforced by a broad international coalition. It also targeted Iraq's oil exports, not its imports. In short, to sum up, to restrict we have to restrict our historical sample to cases that resemble Malacca in these three critical respects.

First, it must be a blockade imposed by one great power against another. Second, it must seek to interdict shipping that goes through specific waterways but not all maritime transit entering and leaving the target states ports. And finally, it must deploy naval forces to block the transit of merchant ships from the target state.

And inspect all vessels suspected of carrying contraband with a threat to sink or impound noncompliant vessels. Hugo will now walk us through the cases which we argue reveal that a Malacca blockade would be unlikely to work and in fact might backfire in ways that the United States may not expect.

 

>> Hugo Bromley: Thanks, Eyck. So the cases as we present them in the paper are reduced from vast literatures and supplemented with archival research. We're keen to make the cases as accurate as possible as part of a work of real applied history. In the light of the Malacca case, we're seeking to understand the broad arc of the history of Royal Navy blockades.

And we're using a definition of blockade that is broad within the framework we've just set out. And when we're looking at this superficially, the two world wars are the logical place to start. And let's begin with World War one. Before World War one, the Admiralty had planned to leverage Britain's advantages and the globalization of trade to rage a, quote, economic war on Germany.

However, in the event, as Nicholas Lambert has outlined, British business interests refused to accept the damage caused by locking Germany out of global financial markets. Because other economic warfare methods were too painful. Britain fell back on the most politically expedient a far blockade, initially targeting both German and neutral ports in Europe and impounding German merchant ships.

The United States was strongly opposed and ultimately was able to successfully undermine Britain's policy working with domestic interests. The reason was not so much because it was politically sympathetic to Germany. But because in the context of a global economic crisis it could not afford to lose access to some of its most important overseas markets.

In October 1914, under US pressure, Britain agreed to lift many aspects of the blockade as they worked on neutral European ports. As soon as they could, the Netherlands, the Scandinavian countries, and initially Italy began to re-export to Germany in large quantities. I'll give an example of this, in January and February 1914, just before the war, the US exported $2 million in goods to Sweden in the same period.

The following year, it exported 24 million. By 1916, 5 million gold marks of food were entering Germany from the Netherlands every day. Imports of food, feed, metals, cotton and similar commodities into scandinavian countries jumped five times above pre war averages. To crack down on re exporting, Britain introduced the navaset system, which set quotas on how much neutrals could import based on estimates of their domestic consumption.

And Navazert did have some impact on the German economy, but not Germany's war making potential. Food deprivation resulting from the blockade did not force Germany to armistice and may in some cases, in fact have strengthened German resolve. One expert on the German economy told the British cabinet in 1916, and I quote.

Even those in Germany who a year ago condemned the sinking of the Lusitania and similar horrors, now feel that all was fair since the Allies were ready to starve Germany. German morale did not collapse until American troops were on their way to their doorstep and the allies had so many more men in the field.

The consensus view of German military governors was that, quote. Although the public were willing to endure great hardships while they saw chance of victory once that was lost, rapid demoralization would set in. The important point, though, is that the allies found much more success when they combined aspects of the far blockade with embargoes based on their vast American, African and Asian empires.

These measures did contribute to Germany's eventual defeat. And the confusion we have is the difficulty of disentangling that from the impact of bar blockade. On the eve of war, British India was Germany's largest source of rapeseed and natural rubber, and Russia was Germany's largest source of grain. Before the war, Germany's main oil suppliers were neutral Romania and the United States.

But by 1917, Germany was at war with both. The global economy was also small enough that imperial embargoes could be supplemented by purchase agreements with neutral states. In March 1915, Washington agreed to limit manufactured rubber exports in return for commitments by France, Britain and Russia to absorb excess us production.

In short, if the German military by 1918 did face shortages of key commodities, and we know it did, the reason was not on not only Britain's far blockade, but the fact that Berlin had foolishly declared war on all its suppliers within an imperial system. So let's move forward to World War Two.

And when Germany invaded Poland on September 1, 1939, Britain reimposed the blockade and the two main neutrals were the United States and USSR. And the story was initially much the same. European neutrals, the United States and the Soviet Union, worked together to help Germany skirt blockade. This is a reflection from Adolf Berle, the US assistant Secretary of State, which captures some of the reaction, I think.

The US exported cotton, wheat and oil to the Soviet Union, allowing the Soviets to resell the same commodities to Germany. This included shipping products directly from the US to Germany via the Trans-Siberian railway. And here we go on British estimates which aren't perfect but do capture a sense of the incentives that existed, I think.

Between January and May 1941, before Hitler invaded Russia, the British estimated that 109,000 tons of soybeans, 12,800 tons of raw rubber, 2800 tons of copper and 200 tons of tungsten ore, as well as nickel woolen goods. A bunch of other commodities were transshipped across Russia to Germany via the Trans-Siberian railway.

And these figures were in addition to Britain's own raw material exports to Germany. Throughout the war, neutrals such as Sweden were prepared to resell to the Reich at marked up prices. And Germany's mistake once again was to declare war on the handful of imperial economies that controlled the bulk of the global supply of key commodities.

These empires would have been happy to keep exporting to Germany had they remained neutral if they could have done. But when Germany attacked them, they imposed embargoes. When Germany attacked the Soviet Union, it lost a key supplier of grain, oil and many industrial metals. It now had to rely on the small number of European and South American neutrals for essential resources such as iron ore, which it acquired from Swedish Lapland via Norway and on Romania for oil.

With so many of the world's resources under the control of a handful of states and empires embargoes could be extraordinarily effective in the first half of the 20th century. As in fact they had been in the interwar period when as Nicholas Mulder has argued league of nations sanctions drove authoritarian states towards military expansionism aimed at gaining self sufficiency.

As Brendan Sims has shown, the need to control resources comparable to the great European and American empires was central to Hitler's plans for global conflict and his decisions to declare war on both the USSR and the United States. Even under embargo, the German war machine adapted. Germany fought on for four more years using new chemical processes to turn raw coal into fuel oil and synthesize artificial rubber.

Again the emphasis in Germany's defeat must be placed not primarily on the blockade in our view but on a combination of imperial power and Germane strategists who had declared war on key allies and pushed neutrals into the arms of their enemies. In short, the early 20th century was a uniquely supportive environment for great power economic warfare in one sense.

There were relatively few neutrals and they were relatively weak. In this sense there's a benefit in going back to the earlier periods of the 18th and early 19th centuries before the era of widespread imperial resource control to understand our current moment. And the cases from this period are even less encouraging I should say for a potential Malacca operation.

Britain's naval power was relatively speaking far stronger, yet its blockades were often less effective. And let's begin with the American Revolutionary War. The Royal Navy first attempted to file a blockade here aimed in the case that's most relevant to us, not primarily on the American colonies but on France and Spain.

Britain's blockade targeted naval stores the essential supplies on which all navies depended in the age of sale. Think masts, hemp, timber, that kind of thing. At the time Russia was Europe's leading exporter of naval stores, followed by Prussia, Sweden and Denmark Norway. Unfortunately for Britain these neutral states were powerful enough to organize and push back decisively.

When British vessels stopped and seized naval stores on several Russian ships Empress Catherine the Great instituted the declaration regarding the principles of neutrality in February 1780 which is the first ever attempt to define the concepts of neutrality in international law as it relates to nations rather than individuals or ships.

Its first two principles were that all neutral vessels may freely navigate from port to port on the coasts of nations at war and that goods belonging to the subject powers shall be free in neutral vessels except in contraband articles. In practice Catherine's position benefited France and Spain, the main targets of the blockade, which welcomed Russia's declaration as founded injustice, equity and moderation.

Denmark, Sweden, and the Dutch Republic then joined with Russia to form a league of armed neutrality to enforce Catherine's principles. Britain ended up declaring war on the Dutch, who had profited as the key medal man for the sale of naval stores, defeating their navy at the Battle of Dogger Bank, the first of a number of pictures of battles you'll see on the screen.

However, Britain was not capable of fighting all neutrals at once, and indeed itself needed Russian naval stores. So it was forced to temper the blockade by allowing them through and of course, lost the war itself. If we look at the revolutionary and Napoleonic wars, Britain attempts a similar operation, balancing a close blockade against the French fleet.

That's the most famous part of it. With constant searches and seizures of vessels taking part in the international trading system, it faced the same problem. Neutral parties had strong incentives to sell goods to France precisely because it was under blockade and prepared to pay more for those goods.

French trade with individual neutral countries fluctuated during the war, but trade with Denmark, for example, reached levels seven times above its pre war and postwar baselines. Britain's attempt to enforce the blockade also forced it to violently stop offending neutral vessels. The neutrals then used diplomatic and legal tactics to play for time while their convoys continued to run the blockade.

However, once again, Britain's blockade could not hold up against an organized coalition of neutrals. Tsar Pol was angry about Britains repeated violation of its rights and condemned Britain's treatment of danish vessels as a self-evident violation of the law of nations and the principles of neutrality. And in December 1800, Russia and other neutrals proclaimed a second league of armed neutrality.

Determined to make the blockade work, London launched a military expedition against the entire league, and the British fleet ends up sinking much of the Danish late navy in the first Battle of Copenhagen. A war between Britain and Russia was forestalled only by news that Tsar Pol had been assassinated, and his successor negotiates a compromise.

Britain agreed a joint declaration that naval stores once again were not contraband and a passport system for all future trade was created in which merchant vessels had to specify what goods they were carrying, where. But Britain accepted it could not stop and search and seize neutral vessels without prior evidence they had violated the terms of the passport.

Simply put, the price of neutral compliance was a weak blockade. Britain concedes the peace of Amiens. But when war breaks out again, Britain briefly reimposed a blockade on neutral ports, but was forced to black down. Meanwhile, its blockading tactics antagonized the United States, the fledgling United States, which had been profiting hugely from their neutral status with the US merchant marine quintupling in size.

When Britain mandated that all Americans trade with Europe stop for inspection at British ports, America responded with a full economic embargo against Britain. And this eventually escalates to cause part of the reason for the War of 1812, with two of the four counters Belli given directly relating to the blockade.

Again, we see that escalation with the blockade, but we also see it struggling to have an economic effect. The last case I'll mention is the Crimean War, where Britain imposed yet another far blockade, this time on Russia through the Turkish straits. That was arguably more successful. And it's worth talking about why?

The blockade focused on two things war material and Russian exports, particularly grain. Having learned from the blockades of France, London pledged to, quote, preserve the commerce of neutrals from all unnecessary hardship. Economic warfare in the Crimean war struggled to halt war materiel that was just moved through Prussia and into Russia, but was more effective because it targeted Russia's financial systems through a trade embargo and exports, in this case, Russia's grain exports.

The two largest markets for Russian grain were the belligerents themselves, Britain and France. The belligerents could therefore not only severely limit Russia's exports through embargo, by doing so, they were raising the price of grain and creating incentives for neutral grain exporters to work with the blockade. There's dispute about how much of Russia's defeat in the Crimean War can be attributed to blockade.

Economic exhaustion definitely contributed to Russia's collapse, as Andrew Lambert has argued. But it's well documented that the blockade was struggling to stop Russia from acquiring and deploying materiel. Russia's weakness, rather, was the collapse of its export market caused by an economic crisis. So here we can see these major themes coming through the historical case studies.

One is the danger of 20th-century analogies in an imperial context that makes economic warfare very different. And the other is the extraordinary autonomy and agency of neutrals in times of greater geopolitical diversity in confronting, working around, and dodging blockades. I'll hand back to Eyck to look a bit further at Melaka.

 

>> Eyck Freymann: Thank you, Hugo. So considering the China situation in light of these historical cases, I'm going to argue that the case for a Malacca blockade is particularly tenuous. China produces about 4 million barrels per day, roughly a quarter of its total oil consumption. But it's less vulnerable to a potential cutoff of its maritime oil supplies than is commonly assumed.

One reason is China's vast and growing strategic petroleum reserve, which now contains over 950 million barrels of oil, about three months of current imports. And another is the fact that domestic production could adapt if prices rose, which they inevitably would if China was placed under blockade. And because of its land borders, China could over time through pipelines or even trucking, expand domestic over-land links to Russia and central Asia.

And the PLA itself would only require about 500,000 barrels per day for the war effort, which is about 12% of current domestic production. China's food system similarly adaptable, arguably even more so. China has vast food stockpiles 70% of global maize reserves, 60% of global rice reserves, 50% of global wheat reserves, according to USDA estimates.

Today, China derives most of its protein from imported soybeans and meat, which gives the impression superficially of food dependency on the United States and Brazil. But that doesn't mean China would starve if trade were shut off. As this chart shows, China was almost entirely self-sufficient in protein until the early 2000s.

China just imports protein today because the population is rich enough to afford more protein and higher quality protein than it strictly needs to survive. And the Chinese government has signaled that it's prepared to respond decisively if protein supplies are cut off. In a 2021 speech, Xi Jinping made an interesting comment.

He said that China's food security is a top priority national security issue, and furthermore, he called for research into alternative proteins that come from microorganisms as well as from plants and animals. Meanwhile, as we have seen, the question of whether the US Navy has enough ships to screen maritime transit through Malacca is perhaps the wrong question.

A better question is what new techniques the neutrals may devise as they seek to cheat and over time erode the modern-day navicert system. As we have seen, the price pressures to cheat would be massive. Producers could arbitrage price differentials created by blockade, by finding alternative routes. But it wouldn't necessarily be needed to redirect shipments across China's numerous land borders because ships can just go through the blockade and hack whatever electronic navicert system exists.

We've seen how quickly such a system can fail this year, with the failure of the Russian oil price captain. Merchant ships are in theory required to report their cargo's identities, origins, destinations, and so forth through the automated identification system, AIS, but Russian trolls have repeatedly shown that this can be hacked.

Chinese analysts have mentioned the same possibility. Ships that are supposedly bound for Japan could simply resell their cargoes to China after they had passed through the blockade and divert course to Chinese ports. Electronic communications are an important difference between the current moment and the 19th-century and 18th-century blockades that Hugo discussed earlier.

And then there's the question of whether, if at all, the threat of blockades serves as deterrent. We argue in the paper, citing some sources from analysts at kicker, the China Institute of Contemporary International Relations, which is the in-house think tank at the Ministry of State Security, the main organization responsible for such analysis, that the analysts there are not at all impressed by the threat of blockade.

As Zhao Hong Thu puts it in one 2007 paper, and many of his colleagues have referenced similar arguments, blockades have, quote historically, often failed to achieve the goals of their enforcers. And the US goal of containing China's economy through oil embargo is difficult to achieve in an integrated global energy market because any disruption to oil supply anywhere will have an impact on the global market through the price channel.

So in conclusion, far blockades tend to be ineffective because they aspire to defy the gravity of market logic. They create shortages in the target country, which then create incentives to adapt and opportunities for neutrals to profit through arbitrage. Thus, civilians suffer the effects of rationing, but the impact on the blockade, Blockaded state's war fighting capacity is relatively small.

Meanwhile, the blockading state suffers serious and often escalating diplomatic challenges. Neutrals have collective incentives to cheat and degrade the blockade over time through legal challenges, uneven enforcement, and eventually organized resistance. And ultimately, the blockader faces a choice. Broaden the conflict and potentially drive the neutrals towards the blockaded power, or accommodate the neutrals, leading to a Swiss cheese blockade.

Embargoes tend to be more effective because they do not require participation from neutrals to work, but they also affect neutrals. Now I'll hand it over to Hugo for a final thought.

>> Hugo Bromley: Thanks. To deter an adversary with a threat of punishment, one needs to be able to show that the pain imposed by the punishment would be maintained and ideally increased over time.

And would and would not inevitably diminish, because it's nearly impossible to show that a far blockade would strengthen rather than deteriorate over time. The threat of a blockade is a bad deterrent. Lord Fisher, one of the architects of Britain's blockade in the First World War, knew better than anyone else the limits of this approach.

And he put it this the promulgation of war at sea tends to raise up fresh enemies for the dominant naval power in a much higher degree than it does on the land, owing to the exasperation of neutrals. The lesson for Washington is that economic war against China, as traditionally understood, is a struggle.

It's helpful to flip the question around. In a conflict scenario, people should be thinking, not how can the United States punish China. But how can the United States incentivize neutrals and work with market forces to curtail engagement? How could it create the necessary momentum for such a system so that it could strengthen over time, resulting in a stage decoupling?

These are the kind of conversations that might lead to a more effective economic deterrent, and we're going to talk about some of that elsewhere in future work. But we do suggest that a Malacca blockade is not the way forward. Thank you.

>> Niall Ferguson: Thank you very much, Hugo, and thank you, Eyck.

I am going to waste no time and hand straight over to Nick Lambert for his and comments, and Nick assures me that he will be able to dispatch these in 10 to 12 minutes. Nick, over to you.

>> Nick: Thank you, Niall. Right, economic warfare is a very complicated and poorly understood and surprisingly understudied subject.

To keep my remarks to around about ten minutes will be a challenge, not only because I have much to say on the subject. But more especially because I suffer from what my wife diagnoses as chronic Zoom Asperger's and I'm afraid it's incurable, but I will do my best.

So I take the thrust of your argument saying that 250 years of British investment in sea power was largely a waste of time mainly because of what might be termed the neutral problem. I have to say that as a hard carrying navalist that I am somewhat disturbed by your lack of faith in the power of the force.

I will allow the neutral problem is a very real one and I can see what you're driving at and substantially, the proportions of your argument I agree with. But I generally, I think how you exaggerate the scale of the neutral problem and perhaps misjudge its nature. I would like to point out that although Britain was sometimes induced to make some adjustments to accommodate the interest of neutrals.

Nevertheless in all instances the campaigns of economic coercion did continue and ultimately they won. And indeed it is very difficult to explain this pattern of consistent british victories in any other way other than the successful application of seaport. But going down, further down this path is, I think, impractical because of the time it would take and anyways unlikely to prove much use for your contemporary purpose.

To query the Malacca operation as I think you called it. And by the way, I actually agree with what you're saying there, although perhaps for different reasons. So instead I'm going to limit myself to going over what I see as the three overarching problems with the historical side of your paper.

And these are the category of definitions and terminology, conceptualization and sources, right. First, definitions. I'm afraid I found many of you the terms you employ imprecise and confusing. You use non standard terms without clearly defining them and you use standard terms in perhaps non standard ways. I especially dislike your phrase far blockade.

The conventional term is distant blockade, although frankly neither of them are really ideal. Without taking a deep dive into the thicket that is international maritime law, I would put the question in this way. What does the blockade actually mean? And this isn't semantics. Historically speaking, until the beginning of the 20th century it has meant deploying warships off an enemy port to physically bar entrance negress.

But like many writers, you employ the word in your paper generically as a catch all for economic attack and this is a bad habit of. This bad habit began round about the time of the second 1907 Hague Peace conference. But if you look at the primary sources you will find that those who did so usually inserted some sort of qualifier to the effect that yes, yes.

I know this is the wrong word for what I am describing, but really I can't think of a better one. Over time, this qualifier or these qualifiers have been seen as redundant and dropped. The problem is, as more time has passed, the qualifier has been forgotten. So basically, what I'm saying here is the meaning of blockade has varied in time and space.

And it is highly context-specific, thus making it really quite problematic to employ across time and space, as you've done in this paper. Now, I'm accepting that in employing such imprecise technology, you are following counselors, previous writers, and therefore, in a sense, you are accurately reproducing the state of the literature.

The problem is that the secondary literature is a gigantic hot mess. Many who have written on this subject have come to it indirectly, and the real focus of their work being elsewhere. And this has encouraged the tendency to skate over an awful lot of complexities. Others have come with a particular agenda, meaning that their work is highly politicized and thus really can't be taken at face value.

And I'll return to this point later. My second point concerns your conceptualization of your paper. Forgive my blunt list, but I think far too much has been smushed together. In this, what, 44 pages you discuss measures of economic coercion that presume a state of war, and in the same breath you discuss measures that presume peace.

War and peace are very different, and in your analysis, I think it's important you keep them separate. And I just hasten to add again, I acknowledge you're not supposed to do this, but it's problematic when you do. In making your case, you also don't take adequate account of the changes in the international economic landscape.

In your analysis, you have the pre globalized economic era mixed in with the pre first war. Globalization one, the semi auto autarkic trading blocks of the 30s and the post 1980 globalization two. Similarly, you sometimes presume a highly optimized market system and sometimes essentially plan the economy. And these differences just can't be elided.

Great precision is required. All this is to say that, to my mind, you can't incredibly mix and match the economic coercion campaigns from different eras in the way you've done it. The concept and practice of true naval blockade originated and acquired legal status during the early modern era, between, say, 1648 and, should we say, 1898.

The object of tact was the enemy state. The aim was quite literally to bankrupt the enemy state. The mechanism of coercion they employed mechanism coercion, so to speak, aimed at depriving the enemy's state of excise revenues. It really wasn't to interdict enemy trade per se. Indeed, to a considerable degree, the British welcomed trade with the French as long as it was bioneutrals, and so long as it was British merchants taking the lion's share of the profits and the British exchequer collecting the taxes.

Now, the end of the 19th century marked the beginning of a new era. This was the time of the first globalization and the second industrial revolution. The economic landscape changed fundamentally, and so did the strategic environment in which navies operated. From the late 1890s or so, you see a transition from simple blockade to sophisticated economic warfare as I turn it.

Certain naval officers, beginning with Captain Alpern there, Mahan in the United States, and Jackie Fisher in Britain, saw that this new economic system was highly optimized and therefore susceptible to derangement. They're going for the system. They're not looking at stocks. They're aiming to disrupt the flows in order to basically topple the system.

In studying this subject, the navy, particularly the British navy, they factored in new understandings of business cycles as well as the psychology of economic shocks. They also had new tools at their disposal, the most important of which was information transmitted to the admiralty via cable. And they also devised ways to exploit the aggregation of information, again, wholly different.

In any case, as a result of all this, the object of naval economic attack shifts from the enemy state to the enemy society. In effect, the Royal Navy sought to cause maximum discomfort for the enemy society by deranging the systems that underpin their economy, with the intent of provoking social upheaval and political unrest.

You can see this is quite different. The mechanism of coercion also changes. In 1914, Britain plans to isolate Germany from the outside economic world by denying access to the mainly British owned and controlled infrastructure of the global training system, which is the communications grid, oceanic merchant shipping, and global financial services.

Think of this as a giant denial of service attack. Most importantly, this new economic warfare strategy relied not upon the physical interdiction of ships and cargoes as previously, but rather upon the control and manipulation of data. It is almost a virtual attack. Real ships, physical ships, are almost ancillary to the whole process, and that's going to be very much closer to that today than any other of the examples.

I think I should also clarify that in 1914, this strategy is central to British naval strategy, into the government's plan for winning the war. It was not, as you say, on the top of the page 24, an auxiliary or fallback measure. Consider this, when the war began in August 1914, the expectation was it would all be over by Christmas, all right?

What lay behind this conviction? It was not that the machine guns would kill all the soldiers in a couple of half an hour or more. It was the widespread fear that the global economic system would collapse, thus raising the specter of 1848. Now, in choosing economic warfare, the British leadership understood that they were playing with very powerful forces, that in many ways their strategy was a weapon of mass destruction, and that this would produce significant collateral damage both to neutrals and to themselves.

By the way, they were quite right. The problem was that they underestimated the magnitude of this collateral damage, which was the main reason why, after a couple of weeks, they called it all off and improvised a much watered down form of economic coercion against Germany, which really didn't begin to work until maybe late 1916 or early 1917.

In effect, they glimpsed the abyss and shrank back. The pity was that they then plunged into an even deeper abyss. Four grinding years of attritional warfare that destroyed British society and irredeemably mortgaged British power. And I'm nearly done. My third and last point concerns your use of sources.

Basically, in producing this paper, you have engaged in what I call averaging, especially in your World War II section. In effect, you have averaged the interpretations of different scholars without paying sufficient attention to the quality of the scholarship underpinning their interpretations. You've taken everything at face value without sufficient grasp is a strong word, but grasp of the appreciation of the archival and conceptual rigor of the underlying research.

So, first World War section, besides Archibald Ball's so-called official history, which, by the way, was nothing of the sort. In your footnotes, you cite Alan Kramer, John Maurer, Morgan Owen, Nicholas Mulger, and Abner offer. Here's the problem. Except for Bell, whose I've said is deeply problematic, none of these people have done any research in the key archives in economic warfare, and I mean none.

And if you doubt me on this, go and look at their footnotes in all their various publications and you'll see it's quite true. In tackling this subject, the point of departure must be the records of what was called or became known as the Ministry of Blockade. This was the body that actually implemented policy.

It coordinated all departmental action and ran the entire administrative apparatus. To develop a sense of this subject and to understand how the blockade functioned on a day to day level, how it really functioned, you must plow through at least several hundred feet of files, which, by the way, are uncatalogued, and this is just a necessary first step.

Now, since these Ministry of Blockade files were released in 1968, just four historians have done serious research in them. The other people you ought to be reading, therefore, are Keith Nielsen, Greg Kennedy, and Alan Marsden. Two others have done enough to be regarded as having informed opinions, and they are Bruce Kent and George Peden.

All the others have basically dipped their toes into these murky waters and promptly run away shrieking, which is probably what I should have done but I didn't. Now, you may be surprised by my including Avner Offer in this list. Certainly he's done considerable research on economics of the First World War, but his work was driven by a very different set of questions.

And anyway, he was much more interested in the German side. In his treatment of British blockade policy, he skimmed the British archives and therefore offers, at best, a 30,000 foot view. His understandings of British aims and intent, which are all important, was based upon Bell. You should also be aware that when Offer's book came out, a number of historians felt he had over determined his evidence.

When he spoke at Oxford at All Souls, I was there and saw the pushback he encountered, which is sadly not recorded. But may I suggest you look at the carefully constructed and rather guarded review essay on Offer's book that appeared in 20th century British history, written by some chap called Niall Ferguson of Cambridge.

Very guarded. Very good. Anyway, the reason, last point, the reason I dwell on this point about sources is that the outputs of applied history are only as good as the inputs. Unless there's quality control on the inputs, there's going to be a problem with the output. Now, of course you want to blame for the superficial quality of so much previous writing on this subject, but you do need to be aware of it and take steps to control for it.

You need to know the history of the history. And if I may say, you need to employ the methods used to write this book. You may recognize it. The methodology described in Chapter 1. The delightfully cynical skepticism displayed in Chapter 3. You basically, I'm saying, is double check that the emperor really is wearing new clothes.

I like that line. Sometimes historians can be as artful as politicians. I'll stop.

>> Niall Ferguson: Thank you very much indeed, Nick, for a very Oxonian critique.

>> Niall Ferguson: That's perhaps the best way of putting it. And it brought back happy memories of reading Avner Offer and thinking, hm, something about this doesn't quite add up.

I wonder if the best way to proceed is, rather than saying to Eyck and Hugo, respond. Rather than doing that, let's maybe take some questions from the audience and come back to Eyck and Hugo at the end. I think that might make more sense. I want to ask a question that really follows on from what Nick just said, and it's really a question about the Melaka case.

I mean, the objects of applied history is obviously, to use somewhat coarse grained analogies, just to think about a contemporary problem. By the very nature of the lives we lead, it's impossible to do as much research on every single case as one ideally would like to. So if one thinks about the Jackie Fisher point with which Hugo ended, that you're gonna have trouble with the neutrals, and that will be the hard part, can we just think about what that implies for the Malacca scenario?

I don't know which of you would like to take that, but I'm guessing Eyck will have a go if we just think about the case. I'm reminded here of Edward Luttwak telling me with absolute confidence that China would be very quickly defeated by the Malacca blockade. What are the kind of other players going to do?

I mean, what can we learn from the trouble of the Russian sanctions about how a Malacca blockade would play out in the case of the neutrals, to be very specific?

>> Eyck Freymann: Well, let me just quote from Zhang Jie, who's another research analyst at Kicker of the Ministry of State security.

This is him writing in 2005. Quote, the US cannot operate in Malacca without the permission and support of the littoral states. And while Malaysia and Indonesia are certainly suspicious of a growing China, they are also distrustful of the US. They believe it is in their interest to keep the straits open to maintain a delicate balance between superpowers and powerful neighbors.

I think Zhang is right. Hugo?

>> Hugo Bromley: Yeah, I agree with all of that. I would only add that what weve seen in the russian case is those countries with land borders to Russia massively profiting from transit trade. I think there have been Kyrgyzstan statistics that have been doing the rounds a lot, and I think thats worth considering as well.

I would also say that its not just neutrals on this score. The UK, US and Australia have very different interpretations of international law, and they see these things in very different ways. The specifics of, well, when can you board a ship? When can you stop it? Or as Nick says, fiercely complicated.

And different states interpret it differently. Of course, the US is not a signatory of the UN convention of the law of the Sea, but others are, and that goes for us allies as well. So there's a neutral point that I can emphasize and we emphasize in the paper, but these things are really difficult to line up.

Do you want us to talk about the next side of things now or just do it in the context of other questions?

>> Niall Ferguson: Well, I was going to take advantage of the fact that we have some distinguished naval expertise on the line by just seeing if I could goad Jim Ellis into intervening.

Jim, you may not not want to, but it would be a shame not to hear from you. And I'll just take this opportunity to remind everybody that if you want to intervene, the best way of attracting my attention is to use the dreaded hand gestures on Zoom. You can also use the chat function to get my attention.

But, Jim, let's hear from you as somebody who probably has a slightly more firsthand understanding of the Malacca strategy than most of us.

>> Jim: Well, as Eyck knows from our shared experiences of a couple of weeks ago, I mentioned I had a preview of this briefing at an energy conference we were both attending in Dallas and very much enjoyed the conversation.

And so, again, I think there's a great deal to think about here, but Nick has pointed out some of the significant elements that need to be considered. But I'm also mindful of the practicalities and realities of naval blockades and quarantines or court unsanitary, as we run through the litany of real options in this.

But we tend to do a correlation of forces and a correlation of capabilities. We tend to view, as Hugo mentioned earlier, the role of, or maybe it was Eyck in his quote, the role of. The littoral countries and the like. But in practicality a lot of these things are driven by perceptions and not by necessarily reality.

There doesn't have to be a one-on-one. I mean, Eyck will remember that I somewhat humorously said that in terms of the quarantine or blockade scenario that there's an old saying, Islamic terrorists are like coho salmon, life is good until the seals show up. And so in terms of economic blockades and things that might be applied you have the threat of that we've seen in conflicts I'm old enough to have been a part of.

I'm now into six wars, if you count the cold one. But beginning in Vietnam, it wasn't the mines in Haiphong harbor that did anything. It was the threat of the mines and the perception that there were mines that changed the outcome. And so there are tools that can be had and can be employed that don't have to be a one-to-one correlation of forces.

That could dramatically shape the willingness of insurance companies and the like and even commercial mariners to test the waters, pun intended. So again, I think there's much to think about here. We're far too glib and I do agree with Hugo and Eyck and kind of waving our hands about this.

But I think the analysis and the realities are gonna be different the next time than they were in some of the historical analogies that they very carefully and excellently crafted for our review. And I think that's something that's gonna have to be considered. But nonetheless, I mean, the realities are that from a US perspective and the pivot to the Pacific has been spelled with a very small p.

And the force structure to affect some of the things that we think may be possible in the Malacca scenario are not likely in place. And their mobilization and motivation to do so would have to be attended to in much larger numbers than it is now. I too, Nick, I'm a navalist, as you might imagine after 39 years in the uniform.

And so I do think that chiseled on the front of that dais that I used to stare at when doing congressional testimony. It says, it's the obligation of Congress to raise an army and to maintain a navy, and one could argue that we failed in both directions. So thank you.

 

>> Niall Ferguson: Thanks very much indeed, Jim. I wanna, before going to Kevin and Aaron, take one part of Nick's critique that I want both Eyck and Hugo to respond to. And that's the critique that says that there are really different kinds of blockade. There's the 18th, 19th century blockade that looks to impose financial pain on the enemy sovereign.

And then there's the 20th century version that looks to destabilize the enemy society. And I guess my question is which of these is the US envisioning with the Melaka strategy?

>> Hugo Bromley: I'll take that one. I should begin by saying we are not criticizing sea power in general. There are too many very important admirals and naval historians on this call to say it's useless.

That's far from the case we're making. The case we're making is narrow and specific to this. The interdiction of trade and the kinds of blockades we're talking about. The point you make is a good one in that what it meant to destabilize an economy meant different things in different time periods.

And there was a greater focus on financial resources, as well as physical stuff, right? Naval stores, war material, that was central to so many of the early modern examples. Descriptions of the Malacca system kind of vary between the two. I think there's an implicit suggestion in many that there could be an oil shortage.

I think Eyck has demonstrated the dangers of thinking that way. Social destabilization, I'm never quite certain what that looks like in practice. I think the capacity to endure hardships is much greater. I'm gonna defer that conversation to Eyck to take further. The one thing id say as we move forward is that when we think about the neutral case which is so central to the argument were making, the reason we look back further in time is to try and account for a world of considerable geopolitical diversity in which there are so many states that will wish to remain either non aligned or to take advantage of both sides.

There's huge problems with looking back further in time towards those 18th and 19th century examples. But the benefit is because the economy was so much smaller. For the very reasons you outline, we can get a sense of the scale and significance of neutral action. That's harder to do in the first and second world wars simply because the number of neutrals is so much smaller relatively and the greater empires have such huge resource control.

And this is Alan Kramer's point, who I agree is not a historian of blockade. But that's the point that many others are trying to make you look at it more broadly. I should end just by thanking Nick so much for his comments. That's really helpful, and I hope we can take that forward subsequently to this call.

I'll hand over to Eyck on the kind of Malacca intent point to take further.

>> Niall Ferguson: Thanks.

>> Eyck Freymann: I don't think that the strategic goals of a potential Malacca operation have been carefully thought out. And whether the goal is to deprive China's hypothetical war machine of the fuel that it would need to keep operating.

Or whether it's to propose shortages, inflation, other sorts of social pressure in China to bring about a systems collapse of the kind that Nick was describing. I think it's important to remember this would not be taken in isolation. As we said at the beginning of the talk, this is not an operation you would contemplate outside the context of war and therefore if it were to be implemented it would be part of a much broader suite of economic warfare policies which would try to destabilize China at home to the point that it was willing to sue for peace.

So I think it's worth considering what those policies might be. Will they include financial sanctions? How strict would those financial sanctions be? Would the US inevitably halt all trading with the enemy, as Philip Zelikow and Bob Blackwell have suggested? What other measures would be taken alongside this? I think there is a set of measures that you can imagine the United States inflicting on China which would cause so much damage to China that the regime would collapse very quickly.

But if what were trying to imagine is whether this contest to bear pain could be credibly threatened in advance, I think China being able to tell itself a story whereby market forces and all of its trading partners would work together to resupply its key needs is a very important consideration because it means that China is not deterred by the threat.

And I think we should not underestimate the Chinese system's ability to ration supplies and adapt. So I don't yet see a way around the problem of stockpiles plus cooperation with neutral states. And this is just a feature of blockaded continental powers in general. It's a feature of how China survived blockade of Japan.

In World War II, when a military needs to be resupplied, it can be resupplied through pretty outrageous circumstances and tenuous supply lines. And China has a whole continental hinterland, especially a burgeoning partnership with Russia, which would probably be willing to support it. And this is something that Admiral Ellis and I had discussed briefly in Dallas.

Unless the United States were actually willing to contemplate targeting China's supply lines on its land borders, something that could potentially expand the war in a very rapid way, I think it's naive to assume that simply cutting off its physical supply routes by sea would have an immediate impact in halting its warfighting ability.

 

>> Niall Ferguson: Thanks, Eyck, what I'm going to do now, given that we don't have limitless time, is take Kevin Harrington, Erin Carter, and Kate Epstein's questions one after the other, and then we'll go back to the presenters, or maybe to Nick and the presenters for final thoughts. Kevin, you're first.

 

>> Kevin Harrington: Hi, Niall. So a couple of thoughts here. Have you looked at the differences now in the cases where neutral shipping needs to have insurance pretty much. And that insurance would skyrocket if they have to sail into a war zone, where merely creating a sufficient military friction would deter a lot of neutral shipping.

And so China would thus be dependent on its own shipping, and, in effect, have to militarize it. So that even if Chinese ships could run the blockade under some military scenarios where the United States failed to enforce the blockade for some reason, you would shut down most of the neutral shipping just because the insurance costs would be prohibitive?

And the second question is, how much does a modern blockade depend on control of space? Where if there is a space war accompanying this, where either the United States or China or both loses their ability to surveil the open ocean, or has that severely impaired that the blockade fails for that reason.

Rather than it primarily be focused on what the neutral states sitting on those straits to the South China Sea think about things? And third, is there some usefulness for partial blockades as a form of escalated pressure, similar to what the Kennedy administration did in its quarantine of Cuba, which didn't seem to come up in your paper, where it was not a full blockade and they were using a minimum of force, but it was enough to signal to the Soviet Union that there was more to come if they didn't negotiate it into the situation.

 

>> Niall Ferguson: Thank you, Kevin. Erin Carter.

>> Erin Carter: Thank you. I found this paper very interesting and informative and persuasive. So I have two quick reactions and comments. So, first, so global public opinion about China has been trending negative for quite a long time. And of course China has been nibbling at its neighbor's territory for also for quite a long time now.

So I can imagine a scenario in which neighboring countries are actually quite eager to be part of a multilateral effort to impose a blockade on China. Those policies might be appealing for domestic electoral reasons. So I'm curious how you might react to that. So as you know, I find this idea of a neutral problem very interesting and persuasive, but I'm curious how the domestic politics of China's neighbors might influence their willingness to actually possibly be part of a concerted multilateral effort to counteract China through a blockade.

So second, so this wasn't really part of the paper so much, you mentioned it really briefly. I'm curious for your estimate of what share of the Malacca problem being not so much of a problem for China it can be attributed to this neutral problem, right. So you have, of course, the northern route in the summer.

You have these overland routes that were briefly mentioned in the paper. I'm curious about how much you think those alternative strategies solve the Malacca problem, and if that's really the solution to the problem that Chinese scholars have discussed already, what share of it is really this neutral problem.

So I'm thinking if you might want to go down the game tree a little bit in thinking about if the conflict were to widen or become more severe, how vulnerable are these alternate routes to US military action? I'm just curious how you think about them in China's broader strategic solution to this problem, thank you.

 

>> Niall Ferguson: Thank you, Erin, and Kate Epstein.

>> Kate Epstein: Thank you very much. So this is really a question for Eyck, because I know you know the kind of Chinese side so well, and it's a question about prices. So you talked about, one of the things that I liked in your paper was kind of the, when you talked about the oil issue, it was, you were saying it's really not the physical supplies, it's the way that everything would react on the global price of oil.

And so my question is like, how does that apply to other commodities? You've talked about food. You've talked about, I mean, all the other things that China would need in a war. And one of the things that Nick talks about in Warlords was it's stocks for a modern economy don't last for very long.

You have to keep the flow going. And then the question becomes at what price can you do it? And then it helps not to have a massive debt problem because it helps to be able to borrow on an emergency basis to basically buy things at higher prices. So I was just curious how you envision you talk about in the context of oil, but what does that price ricochet effect look like for other commodities?

And then how does it affect China's ability to kind of sustain a war effort?

>> Niall Ferguson: Thanks, Kate. Well, we have, I think, six distinct questions there. We've got only a finite amount of time, well, ten minutes, technically, to deal with them all. And so it probably will be best if you and Hugo divide them up in some way.

 

>> Eyck Freymann: Would you like to go first? I'm sure you have thoughts on-

>> Niall Ferguson: I need you to decide which ones to ask.

>> Eyck Freymann: I'm sure you have thoughts on the insurance question.

>> Niall Ferguson: Yeah, the insurance question might be a good place to start, Hugo.

>> Hugo Bromley: Okay, I'll start with insurance and I'll look at one or two others and then I'll move across.

So insurance and shipping. Yes, you're absolutely right. It would be a massive issue that happens anyway, regardless of the blockade. Many of these scenarios relate to a fiscal confrontation over Taiwan. Obviously that would have an impact on insurance things. I would say that impact affects other countries in the region too.

So that has its own wider knock on effect. That is very unhelpful to us positioning because it makes. Those countries struggle to trade. So the insurance point is true for all states in the region. I really would emphasize, though, the price incentive point. No one's doubting that in many of these scenarios the chinese economy and the chinese people would be suffering hugely.

But the difficulty you have is that the chinese state would have a massive incentive to pay a premium to run goods through and that includes potentially insuring there's no reason they couldn't do that. So I'd emphasize the price point, and again, it goes back to Niall's original point, which is what is the objective of this blockade?

If the objective is to really slowly inflict hardship on the civilian population over time, okay. If the objective is to limit or restrict China's actual capacity to fight the conflict, that I don't think is really engaged in the insurance case. Neighboring countries and domestic politics, I'll largely defer to, I would only say, that the domestic economic pressure would be catastrophic in those very same neighboring countries.

I would also say that some of those countries, notably Singapore, have longstanding ideological and very important commitments to free trade and free shipping. So that's also a separate point to consider. Shares of the Malacca problem attributed to new routes relative to the neutral trade. That is a very difficult thing to work out.

I would say that quite often the overland routes conversation focuses on oil and potential oil pipelines. I know Gabe Collins has done some work on this and the potential construction of new pipelines to increase supply. What I would mostly say on that is that that would very much depend on how the actual conflict was going, obviously.

And that relates back to the insurance question, right? A lot of this is peering into the dark. What I do think is clear is that the russian case will have reinforced to China the neutral issue and the potential, the massive incentives that exist for neutrals to work around sanctions and blockades.

So I think as a deterrent strategy, that's a really important thing to emphasize the balance between the two would depend on the actual conflict itself. I'll move to Eyck now.

>> Eyck Freymann: Okay, let me hit these quickly. Insurance, well, in addition to China having by far the world's largest merchant marine, China could just offer its own insurance to neutral shippers.

In terms of space combat, I think the difficulty of tracking vessels is less significant than the system AI's that we use, which relies on vessels reporting accurate information. And we showed you that image of Russian ships that made a Z pattern in the Azov Sea. The point being that it's relatively easy for ships to turn their own transponders off if they don't wanna participate in this system, and especially if it was a collective interest in the neutrals to erode the efficacy of the AIS system over time.

Based on the satellite capabilities we have, we just cannot keep track of every merchant ship thats moving through the east and South China Sea all at the same time. Its too big a task. And in any case, that wouldn't be the focus of US and allied intelligence if they were simultaneously fighting a naval war with China.

Their focus would be on spotting chinese ships with respect to a partial blockade or quarantine. I just think it's an interesting question, but it's a very different analogy. Cuba is right off of the US coast, and it is an island rather than a continental power. So I think the analogy, although interesting and potentially very relevant in terms of a chinese quarantine on Taiwan, isn't so instructive in the other direction.

Vulnerabilities of overland routes, I mean, yes, as some have noted, pipelines are vulnerable infrastructure, and they too could be hit with conventional strikes. But there's any number of ways that if the price pressures kicked in, China could acquire, for example, the oil it needed. We talked about Fischer-Tropsch, which is the process for chemically converting coal into fuel oil.

The estimates vary, but the break even is something like $100 a barrel. China has abundant domestic coal resources, so if they needed, they could produce not a perfect substitute, but some sort of fuel oil, and they could build it relatively quickly given their state capacity for doing that.

The global public opinion reaction in Central Asia, I mean, I think countries that were willing to transship weapon systems to Russia, or DJI drones to Russia during the war in Ukraine, which include many of the central asian republics, would presumably be willing to do the same for the right price.

In a conflict with China, we can maybe pick off some of them, but that's not the difficulty. The difficulty is picking off all of them, being that the fewer, the fewer neutrals are actually participating in breaking the blockade, the more the cheaters can profit. So I would suggest the analogy of the war on drugs.

One of the papers that we cite is Reuter and Kleimans famous 1986 piece, Risks and Prices, An Economic Analysis of Drug Enforcement, where they make the point that if demand is inelastic and you crack down on supply, you simply make it more profitable. Or you increase the compensation for drug trafficking to take on the human risk involved in trafficking.

And so there would be some equilibrium, dynamic equilibrium about price pressures incentivizing neutrals, which may be state actors or may be non-state actors, to participate in Chinas resupply effort. And then in terms of the impact on global prices of commodities that Kate mentioned, I think it's hard to grasp unless you remember that China has accounted for most or all of the demand for key commodities, and basically every year since the great recession.

And they account for more than 50% of global imports of seaborne iron ore, of copper, tungsten, and essentially any other element you can think of. So without the Chinese market, prices of these commodities would plummet and the finances of many of the producer countries would not work. And so this would give China a lot of leverage.

I think I may have missed it, but I don't recall anyone answering Kevin's question about space. Yeah, I said the difficulty of spotting ships, I think we wouldn't be able to. It's not a question of spotting ships, it's a question of dealing with them one at a time as they come through the strait.

So I think that's where it could be relevant, is if the communications of the ships, and this is an important point, maybe this is, Kevin, what you meant if the communications of the ships are shut down because no one has access to GPS, no one has access to satellite communications, it may be harder for them to resell their cargoes or change their destination while en route.

 

>> Niall Ferguson: We're really running short of time, but I think it would be wrong not to allow Nick a last word, and then Hugo and Eyck a last word. But these will need to be almost Twitter-length concluding reflections. Nick, can you go first?

>> Nick: Twitter length? That's tough. I still, in a lot of what I'm hearing, there's a great deal of confusion of whether we're talking about a state of war, a state of peace or aggravated peace.

Whether we're trying to deter, whether we're trying to punish, coerce, whatever. And it's, if we're talking state of war, I mean, you can shut those straits quite easily just by dropping couple hundred mines in it, stop traffic dead. If you're talking about states war in the space dimension, yes, extremely important.

When satellites start falling down from the sky in large numbers, which both sides have incentive to do, you're going to have much bigger economic problems to worry about. And I also think that the question of insurance is terribly important as well. It's if you're going to have a state or anything approaching a state of war, you seriously consider the traffic in the South China Seas or indeed over much of the Western Pacific is going to continue.

And if it's not continuing, what's going to be the impact and knock on effects for the economies? Well, pretty much right the way around the world, particularly Australia. I could go on and on and on. I mean, as I said, my view is the historical analogy doesn't work too well because the similarities, yes they exist.

But the differences so dwarf, the differences so dwarf the similarities that I think that makes any form of attempt to analysis or conclusions from it extremely problematic. Now, if we're going to have a discussion on a war strategy against China, well, we would start again.

>> Niall Ferguson: Thanks Nick, Eyck, and Hugo.

Perhaps just final reflections.

>> Eyck Freymann: What we're reaching for here is a strategy of deterrence by means of credible threats of economic punishment. Which means making China believe that if it attacks Taiwan that it will have a very high probability of getting hit by something that poses severe pain and possibly existential risk.

And I think a threatened operation that has such a high propensity to backfire and which operationally would be so difficult to execute even in the best case scenario, makes for a not compelling threat of punishment. So I think it's a poor deterrent and we should be reaching for other approaches for thinking about economic deterrence that have to do with building coalitions of neutrals.

 

>> Hugo Bromley: I'll conclude on that point. First of all, thank you everyone for your feedback and questions. And thank you, Nick. We are in a geopolitical moment that is very unlike the geopolitical moments of the early 20th century because of its diversity and because of the number of states out there that want to have views and opinions.

And when we're thinking about economic warfare and we're thinking about economic deterrence. Any strategy that you are putting forward needs to recognize the incentives of neutral and third party states and understand that in these times they don't face binary choices. And we've laid out our criticisms of the Malacca idea when we're thinking about strategies of economic denial of deterrence, that has to be central, how you build those coalitions and incentivize support.

And I hope we can play a role in starting that conversation. Thank you again.

>> Niall Ferguson: Well, thanks everybody for what's been a fascinating discussion. It certainly forced me to think much harder about this question than I had before, and I will have some great comeback lines the next time I run into Edward Luckback.

It's been an excellent discussion. I think the innovation of having a designated commentator is a good one, which we should keep. And so I'm going to wrap it there. We always end with a virtual round of applause, or you can do real applause if you prefer. So let me invite you to join me in thanking the speakers.

And Manny, have you got any final reminders or announcements before we call it a day?

>> Manny Rincon-Cruz: I do not. I'll just point out to, there's some people really had a lot more questions and comments, so you might want to screenshot the chat right now so you don't lose them.

Please mark your calendars, as I said, for January 25 and February 12, you'll be receiving an email with the rest of the dates. But mark your calendar for at least those two. Happy holidays.

>> Niall Ferguson: If that is the last history working group seminar of 2023, allow me to wish you a happy Christmas, Hanukkah holiday, or anything else that you feel like having.

And we look forward to seeing you in 2024. Thanks, everybody.

>> Jim: Thank you all.

>> Hugo Bromley: Thank you.

>> Jim: Great work, Nick.

>> Niall Ferguson: Hello, I'm Niall Ferguson. I'm the Milbanke Family senior fellow at the Hoover Institution and I chair the Hoover History Working Group. We've just had a brilliant presentation of a new paper, The Malacca Myth: Lessons On Economic Warfare From The History Of Naval Blockades, authored by Eyck Freymann and Hugo Bromley.

Eyck is a fellow here at the Hoover Institution, having joined us this academic year. His co-author, Hugo Bromley is a postdoctoral research associate at Cambridge University. Gentlemen, thank you very much indeed for joining us. Let me begin with a very basic question. What exactly is the Malacca myth?

This is the myth, if I understand it correctly, that in the case of a war with China, the United States can shut China's imports down just by closing the Malacca Strait. Have I got that right?

>> Eyck Freymann: Yes, that's right. China is very dependent on imported oil. They import over 8 million barrels of oil a day by sea, and most of that comes through the Straits of Malacca, the narrow passageway that most ships use to transit between the Pacific Ocean and the Indian Ocean.

So the idea is that because this waterway is so narrow, it can easily be cut off. US Naval forces could conduct an interception operation there either to to prevent Chinese oil shipments from reaching China or to screen various of China's imports and exports for contraband. But the argument of the paper is drawing on lessons of history that that would be much harder to do than many strategists assume and would, in fact be likely to backfire because neutrals would not be inclined to participate.

 

>> Niall Ferguson: Hugo, one of the fascinating things about this paper is that it is real, applied history. You take five historical examples of naval blockades and you use them to help us understand the flaws that there might be in this grand design to shut down Chinese imports through the Strait of Malacca.

Walk us through the historical examples. You're not saying any of these is a perfect fit, but if you take the five together, you begin to see some of the downsides or disadvantages of this kind of distant or far blockade. I don't know where you want to start. We go through them chronologically or maybe begin with the World War.

It's up to you.

>> Hugo Bromley: Let's go with the World Wars and work backwards. Thanks, Niall. So what we're trying to do with the case studies is get a broad sense of how geopolitical systems, how international systems react to blockades and try and learn from the ways they've been imposed by one great power on another throughout history.

And that's the key point here. We're not talking about actions against small states. We're talking about an action aimed by the United States against China. And so to understand it, we need to go back to those examples of great power of blockades. And really, the key examples come from the Royal Navy and come from Britain's use of power in the early modern and modern periods.

And, of course, the first thing you go to is the world wars, right? You go to the blockades, the United Kingdom that the Royal Navy put against Germany in the first and second world wars. The difficulty you have here, and there's two points I'd make. The first is that the neutral states that did exist in that period, particularly initially the united states, but also in the second world war case, initially, the Soviet Union, as well as other european neutrals and south american neutrals, all sought to avoid and work around the blockade.

And when those countries seek to avoid and work around the blockade, the blockading power has a choice. They can either escalate and try and enforce the blockade as it is, or they can accommodate those neutral concerns. And those neutral concerns aren't trying to trade around the blockade because they love the blockaded country.

They're dealing with an economic situation, and they're seeing an economic opportunity. If you have a global war, you have a global economic crisis. You have states around the world really struggling, particularly commodity producers. But if you have a blockaded country, in this case Germany, for example, they really want that stuff and they're prepared to pay money for it.

So the obvious thing that you want to do is you want to get around the blockade. It's a basic question of economics. What makes the world war cases difficult is they're taking place within an imperial system where so much of the world's landmass, so much of the world's resources are under imperial control.

So you're looking at the British Empire in India and Africa and Canada, you're looking at the French in Africa. You're looking at this whole system that is imperially run. So the number of neutral countries is actually quite small. What we then say is that while there are huge problems with these analogies in terms of technology, in terms of impact, there's a real benefit to looking further back.

And when you look further back to those British blockades in the late 18th and early 19th century, so in the American revolutionary and Napoleonic and then later into the Crimean wars. What you see is in those contexts where neutrals are far more significant, blockades are a diplomatic nightmare.

You're constantly having to balance against those incentives. You're constantly facing that de-escalate or escalate pressure. We see that spiraling into conflict for Britain several times, particularly with the Dutch in the American Revolutionary War, with Russia and Denmark in the Revolutionary War and Napoleonic wars. So there's this constant difficulty of managing the blockade, and even still the economic incentives remain.

And remember, it's hard to collapse a society. There's two basic objectives of a blockade. In all these cases, you collapse the society, you collapse the war making machine. Societies are really hard to collapse. War-making machines have a massive incentive to get stuff and don't need as much stuff as a society.

And those are the key lessons we take away from those broad historical case studies.

>> Niall Ferguson: In his commentary on your paper, Nick Lambert made the argument that if this kind of thing was such a bad idea, it was strange that Britain kept doing it and winning wars. How do you respond to that, Eyck?

I mean, it seems to me as if it would be odd if the United States, with its global naval power, maybe not imperial, but, you know, quite imperial ish, didn't threaten this kind of action. Isn't it a necessary part of being a great anglophone power that you do have the option to impose blockades?

Sure, they're never gonna be perfect. In fact, I think Nick Lambert's point is when it was perfect, it was way too destabilizing. But it's something you've gotta have as an option if you want to deter another empire, which, let's face it, China kind of is these days.

>> Eyck Freymann: Well, this is the right question, Niall, because any strategy of economic warfare doesn't have to work perfectly in order to have some effect.

So the question, rather, the argument that advocates of the blockade would make is why not? Well, there's two reasons for why not. The first is the opportunity cost of what you would be doing with all the resources that you need to enforce the blockade. And that means the ships, but also the massive administrative capacity, the bureaucrats who are involved in tracing and cataloging all of the movement of tens of thousands of vessels around the world simultaneously, especially if they're incentivized to lie to you about their cargoes.

And in the context of a US-China naval war, the US Navy would be numerically outmatched. So any ships that it was dispatching to the South China Sea or Indian Ocean to police neutral shipping would be ships that would not be participating in an actual conflict against China. But then the other reason is more subtle, and that has to do with what Hugo is describing and the pushback and price incentives of neutrals.

I think that the point that Hugo made about the American revolutionary and Napoleonic wars is really key. Not just that neutrals don't like it, it's that they actively resist and they end up taking steps that tempts the blockading power to expand the war by going to war with the neutrals themselves.

That was the lesson of the Napoleonic wars. And that was one of the key reasons why Britain failed for the better part of a decade, the first decade of the 19th century, to make its blockade on Napoleon work by means of its blockade. It disrupted the potential coalitions that would have been so helpful otherwise.

So the argument that we're making is you have to reconceptualize the whole idea of economic war. If you make it all about punishing your enemy, you're going to isolate every neutral country that you are making collateral damage. The better way to think about it is building a coalition that can collectively benefit from taking economic action against your target.

But a blockade is not the way to do that.

>> Niall Ferguson: You quote Admiral Jackie Fisher, one of the architects of British naval power in the early 20th century, as saying, the prolongation of war at sea tends to raise up fresh enemies owing to the exasperation of neutrals. And it seems to me that your paper takes this very much to heart.

I guess the question I was left with was, well, how do you go about building that kind of coalition of non exasperated neutrals if you take the blockade threat off the table? What's the alternative?

>> Hugo Bromley: Which is another one of the brilliant questions we hope to provoke. I mean, it's important to stress, as a side note, we're not saying that naval power is useful.

There are lots of things that ships do that don't involve blockades, that had huge benefits to any power. And in Britain's case, of course, it's essential to domestic security. We're an island. In the case of what might work. Well, maybe one place to start is two anecdotes from history.

One is Napoleon, who actually actively wanted to export grain to Britain at one point because Britain was suffering from bad harvests and he wanted the profit. The other is the Crimean war, where neutrals Had massive incentives to comply with Britain's blockade because Russia was the main grain exporter.

Russia couldn't export grain, so the price went up. When we think about what deterrence might look like, it needs to have two key arms. One is it needs to prevent China building a global trading system. It needs to say, if there's a conflict, you're not going to get the chance to remake the international trading system in a way you'd like.

But the second is to find some way of incentivizing neutrals to play the role that China plays in the global trading system. And this is something Eyck and I have been thinking about a lot. Hopefully, there'll be more stuff coming out actually, with Hoover on this point in the coming months.

Now, that's kind of already happening. We call it decoupling. And the benefit of decoupling is you get to make the stuff and you get to sell the stuff that China is currently making and selling. So there's a whole world of economic leadership ideas that aren't explored enough. And our goal is to start that conversation because the threats of punishment aren't viable in so many ways.

They do something, but there are such huge problems, and why not? Is not the good origin of a strategy.

>> Niall Ferguson: Let me end with a question about the lessons of very recent history. Now, obviously, there's not been a blockade imposed on Russia since its invasion of Ukraine, but all kinds of forms of economic warfare have been adopted.

I'd be very struck by the fact that, for example, attempts to restrict Russia's revenues from oil exports have not been very successful, partly because one senses that the United States doesn't want to pay the price of successful economic warfare against Russia. And I wonder if that would be even more true in the case of a conflict between the United States and China.

Ive talked about mutually assured financial destruction. One consequence of a conflict would just be financial chaos. Is that the right conclusion to draw here? That, in a sense, economic warfare sounds good, but it's not clear that the United States can afford it domestically, even if it were to work against China.

 

>> Eyck Freymann: Well, let's compare the Russian and Chinese economies. Russia represents 13% of global oil production and less than 1% of global demand, or about 1% of global demand. China represents over 90% of production for a number of critical minerals, as well as 30% to 50% of production for a whole range of things that we take for granted in our daily lives, including active pharmaceutical ingredients.

So if we did not dare cut off Russia's exports of oil for fear of the shortages that would result how would we think things would play out differently if we cut off China's exports of things like active pharmaceutical ingredients so people around the world couldn't access life saving medication?

But I think the point were making in this paper is its not just about the worlds reliance on Russias or Chinas exports, its also about the magnetic power of their demand. And the fact that China is such a monumental share of global demand for all these commodities means that the countries that produce these commodities are completely dependent on China's demand keeping the price up.

So if you cut China out of the system, their finances don't work, they'll face social collapse. What we have been thinking about, and this will, as Hugo mentioned, be coming out in a separate report, is if you are decoupling from China realistically, you're going to want to do it over time.

Youre going to want, as Hugo indicated, to bring back the productive capacity that currently exists in China that has moved to China in the past 20 years, since China joined the WTO into the United States and Britain or really any other allied or neutral countries around the world.

It's not just friends shoring, it's anybody else shoring. And in the process you'll be bringing back the demand for all those commodities to the rest of the world. So this is essentially the pitch that the United States and its core allies would make to the neutrals in the event of a war with China, not we're going to ban you from trading with China.

But China exported $3.7 trillion worth of stuff last year. We're gonna take it back. Would you like a cut of making some of it?

>> Niall Ferguson: Well, it sounds to me as if you're wetting our appetites for another paper, and I look forward very much to having you come and present that at the Hoover History working group whenever we can schedule it in 2024.

This has been the last of our seminar series for 2023 and we've ended, as a result on a very high note. The paper once again is the Malacca Myth, Lessons on Economic Warfare from the History of Naval Blockades, the authors, Eyck Freymann and Hugo Bromley. Eyck, Hugo, thanks so much for leading.

For the discussion, and we look forward to seeing this in print in due course and shaping debates on US naval strategy in the years to come. Thank you both.

>> Eyck Freymann: Thank you.