Chris Holloway: After the Cold War - The Impact of Economic and Financial Warfare on Civilians

Resource type: Blogs


Chris Holloway, Australian Department of Defence

This blog article compares two examples of indirect coercion, namely, economic and financial warfare, and shows a crucial role of informal authorities, such as banks, and non-physical space in current conflicts.

‘Conflict’ includes modalities of coercion beyond simply the threat or use of armed force. So, when we think about the changing character of conflict, we need to think about the changing nature of coercion more generally. Indirect coercion - coercive strategies without an immediate physical dimension - can generate outcomes for non-combatant populations that are just as destabilising as armed conflict, despite their remove from the battlefield. Such strategies engage actors other than states, or the non-state groups who fight or seek to subvert them: indeed, the (re)privatisation of violence, and the use by states of private or commercial entities in strategies of political coercion, is an important driver of changes in the character of conflict. Equally important is the extension of coercion from physical to non-physical (cyber) spaces. This is the case with economic and financial coercion, and this short note aims to illustrate why studies of conflict ought not to be limited solely to the study of armed force.

In the summer of 1990, the American political scientist Edward Luttwak argued that the waning of the Cold War would see a wholesale devaluation of military power in world affairs. States would, he argued, come to prefer the use of economic and commercial instruments to the threat or use of armed force in their strategic competitions. ‘Geoeconomics’ was the term Luttwak coined to describe this circumstance: the logic of war transposed into the grammar of commerce. Certainly, the United Nations Security Council came to prefer economic to military coercion following the Cold War: if the Council had imposed mandatory sanctions only twice before 1990, it did so more than a dozen times in the 1990s—the so-called “sanctions decade.”

Economic coercion has been a part of war for centuries. Economic blockades, for example, are a familiar component of conflict, and the language surrounding modern economic coercion retains its military associations. In 2017, for instance, Edward Fishman, a former policy advisor to the US Department of State, wrote in Foreign Affairs that “we are […] living in an era of intensifying economic warfare” and, consequently, “the United States must prepare itself for the coming economic battles by overhauling its sanctions apparatus.”

But by 2017 the nature of economic coercion had changed considerably, and the 9/11 attacks were the catalyst. In October 2001 Jimmy Gurule, former Undersecretary to the US Treasury, pointed to “a new and unconventional war” in which the Treasury Department would play a prominent role. As part of the “war with the terrorists,” the Treasury would work to “financially paralyse and marginalise those who serve as financial supporters and intermediaries for terrorists” and “dismantle the maze of money that makes [their] atrocious acts possible.” According to Paul Bracken and Juan Zarate (former Assistant Secretary for Terrorist Financing and Financial Crimes, US Treasury), Gurule was pointing to “financial warfare:” “a significant new type of conflict in the 21st century” defined by “the use of financial tools, pressure and market forces to leverage the banking sector, private-sector interests, and foreign partners in order to isolate rogue actors from the international financial and commercial sectors and eliminate their funding sources.” Notably new was the extensive role that private actors were to play in the US’ global security measures.

Financial warfare comes into play as processes of integration draw national financial systems into “a global system in which the national markets, physically separated by distance, actually function as if they were one.” That financial warfare is waged in a global environment is also fundamental to its relative novelty. Only with the Cold War’s passing did finance and capital find again a truly global circulation: the eclipse of the capitalist / socialist rivalry restored “the unity of the global political economy […] for the first time since 1914.” And if the highly diversified trade networks that emerged after 1945 could limit the efficacy of economic sanctions, global financial and capital flows would remain centralised, tied to the banking systems of the advanced Western economies and, above all, to the US dollar as the global reserve currency.

How does economic warfare differ from financial warfare? Economic sanctions involve the denial or disruption of critical resources and especially their conversion into war goods. By contrast, ‘financial warfare’ deals with money and credit. Economic warfare requires direct state action for enforcement. Financial warfare, on the other hand, relies almost entirely for its prosecution on banks and other financial institutions and regulators which act to avoid potential investigations, criminal or civil prosecution, and / or financial and reputational penalties. Notably, financial warfare does not rely on ‘traditional’ state-to-state pressure for its coercive effect.

Further, economic warfare involves physical interdiction; financial warfare does not. The former takes place in Cartesian space and relies on territorial control (control of borders, for instance), and thus reflects key aspects of ‘traditional’ war. By contrast, financial warfare occurs in a ‘space of flows’ rather than a ‘space of places’: a “non-territorial ‘region’” at once decentered and integrated, operating in real time, and infiltrating “the space-of-places we call national economies.” This is not simply ‘cyberspace’. It is, instead, jurisdictional geography of surveillance and regulation sundered from territory per se; a space newly organised for the exercise of control and authority according to the dictates of national security.

The actors involved in financial warfare include states, private commercial interests, non-state regulatory agencies, multilateral intergovernmental institutions as well as non-governmental organisations. Financial warfare thus reflects the widening array of actors who have come to be involved in military operations. Further, the environments in which financial warfare takes place to replicate the hybrid, multi-scalar nature of contemporary militarised conflicts, combining as it does both the physical and the virtual in a complex mix of global, national and local settings.

Other similarities exist too: the prosecution of warfare at the level of the individual (discussed by Glenn Voelz in The Rise of iWar: Identity, Information and the Individualisation of Modern Warfare (2016)) reflects, in its forensic and juridical approaches, the targeting of individuals in financial warfare. In addition, both contemporary military operations and financial warfare problematise long-standing legal norms in their reliance on assertions of extraterritorial jurisdiction and (having regard to Carl Schmitt) in the creation of mobile ‘zones of exception’, where ‘normal’ legal regimes and individual rights are held not to apply.

In short, analysts and students of contemporary conflict have much to gain by exploring ‘non-kinetic’ modalities of coercion as a way to uncover the changes in the character of conflict. The relationships between seemingly disparate coercive modalities are yet to be explored and theorised in detail, and the same is true of the structural forces that work to drive convergences between them. If we are to fully understand the settings of organised violence, we need to ask if, and how, the use armed force is embedded in wider and more complex ‘technologies of coercion’. And we need, to understand the way in which these technologies work—who is involved in them; the methods of their operation; the resources that sustain them; how they unfold in time and space; as well as their social, political and cultural impacts. The potential research agenda is rich indeed.

Author’s bio: Chris Holloway works for the Australian Department of Defence. He has an extensive background in capability analysis with particular application to the development of future force design options and the identification of capability risk. In 2016 Chris was seconded to the Development Concepts and Doctrine Centre (UK Ministry of Defence) and in 2014 to the Australian National University to undertake research into ideas of sovereignty in cyberspace. He was a visiting research fellow at the Changing Character of War program, University of Oxford, throughout 2018, where he researched the forces working to change the historical structures of warfare.


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4. Jimmy Gurule, speech before the American Bankers Association Money Laundering Conference, Arlington, Virginia (22 October 2001). At, accessed 22 May 2018.

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