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How The U.S. Uses Financial Warfare To Isolate Enemies

photo by Kramchang via Flickr 

Modern warfare isn’t just waged with guns, rockets, and soldiers anymore. Increasingly, financial tactics have become weaponized as an alternative to physical combat.

Blacklist

Since the dawn of the 20th century, financial warfare has become integral to the foreign policy strategy of just about every developed country in the world–especially the US, whose treasury department has blacklisted almost 6,000 entities and individuals as of 2014.

What is financial warfare?

If you’ve been paying attention to the ongoing feud between Russia and the US, you’ve no doubt heard of financial warfare–though not necessarily in such terms.

In essence, financial warfare–not to be confused with the broader term economic warfare, which attacks a nation’s ability to produce and distribute goods–is defined more specifically as “attacks on the credit and monetary foundations that underlie production and distribution.” (pdf)

This includes methods of financial depredation like blacklisting a nation’s banks in an effort isolate them from the global financial market (tactics not unlike what we’ve seen in the struggle between the US and Russia) in addition to pressuring other countries into doing the same.

Aside from inflicting financial harm, however, one of the main objectives of financial warfare is usually to replace the need for traditional military action by applying economic pressure in its stead.

The US, which is the most powerful purveyor of financial warfare (due to it’s juggernaut status in global markets), has used such tactics against a number of recent adversaries, including Iran–a scenario which has since become one of the most enticing cases for its use.

How did financial warfare gain traction?

Since 9/11, financial warfare has grown into a major tool for the US government in achieving its national security objectives, and its rise to prominence was anything but a coincidence.

Following the terrorist attacks on 9/11, US national security apparatuses experienced a major shift. Subsequently, organizations like The Department Of Homeland Security were created to fill a perceived gap in US security.

During this period a lesser known organization, now instrumental to US foreign policy, also came into existence–the Treasury Department’s Terrorist Finance Tracking Program (TFTP)

The express purpose of the TFTP was to track funds of terrorist organizations in an effort to eradicate their financing and aid the US war on terror.

Since then, however, the TFTP has expanded its role significantly, and has become one of the biggest players in global financial warfare.

With the TFTP’s rise to power came a new era of financial isolation, where, unlike traditional sanctions, where specific assets and categories of imports and exports were targeted, new financial pressure has been placed upon the private sector.

When has financial warfare been used?

In 2012, the US was in the midst of heated negotiations over Iran’s nuclear program. Both diplomacy and the current cocktail of sanctions and trade embargoes were failing to curb the Iranian government which continued moving forward dramatically with its program.

In an attempt to turn the tables, the US turned to financial warfare.

In early 2012, Iran was blacklisted from the global financial market. International banks were told that if they were to do business with Iran’s national bank, that they too would be exempted from transacting in US dollars (a currency which is involved in 87 percent of the world’s foreign exchange interactions). It was a perceived death sentence for Iran’s lucrative oil trade.

As a result, Iran was pushed out of the world banking system, and within a few days the rial–Iran’s local currency–plummeted in value by 40 percent to the US dollar. Inflation ran rampant, and the Iranian economy was reeling.

Since then, Iran’s nuclear program has slowed to a halt. At this point, US financial tactics appear to have yielded surprising results.

Though Iran has since recovered somewhat from their exemption from global markets (thanks in no small part to transacting in gold as opposed to US dollars) they still find themselves under significant financial duress.

The takeaway

In the foreseeable future financial warfare will continue to be a key element in America’s foreign policy strategy against terrorism and perceived foes.

With Russia being threatened by both the US and EU with being blacklisted from global markets another test of the efficacy of financial warfare may be in the works.

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James Pero