Transcription
The Iranians do hold a lot of cards here because even though international law is not on their side, you know, they have no right to have drone strikes against vessels just because they decide to sail through Oman's waters instead of themselves. If they're willing to go there, there's not much that the world can do about it.
>> All this sounds like more protectionism and less free trade. Is that what the world's heading towards? Thursday night, Iran attacked tankers in the street of Formoose. Today on Friday, President Trump is accusing Iran of violating the ceasefire. Our next guest has written the 2025 bestseller book Chokepoints: American Power in the Age of Economic Warfare. He argues that the United States has fundamentally transformed the global economy into a weapon of war. Instead of relying primarily on military force, the US now dominates through control of critical choke points in finance like dollar clearing and swift. Other choke points include technology, advanced semiconductors, chipmaking, equipment, energy, shipping, maritime routes, and critical minerals. Edward Fishman is a senior fellow and director of the Maurice R. Greenberg Center for Geoeconomics at the Council on Foreign Relations. Eddie, what a time to be alive and what a timely time to have you on the show. Thank you for coming on the show.
>> It's my pleasure. Thanks for having me on, David. I started the introduction by referencing your book and saying how America has weaponized choke points. Now it looks like the tables have turned on America. We're going to get to that in the bigger theme and which choke points to watch for importantly. Let's start with some recent news. Iran striking a cargo ship in the straight of formoose Thursday with a drone projectile causing damage but no casualties yet. US officials attributed the attack to Iran's revolutionary guard. President Trump called it a foolish violation of recent ceasefire agreements. How does this impact confidence in the Iran US deal that's pretty fragile up to this point, but probably even less solid on solid footing after yesterday's strikes?
>> So look, it reveals that Iran has absolutely no intention of loosening its grip on the straight of Hormuz, which is the world's most important energy choke point. I think the Iranian leadership sees the straight of Hormuz as the most important gain that it has from this war. Obviously, it's been battered militarily and economically through months now of US and Israeli strikes on Iran. But I do think that the Iranian leaders believe that they've come out of this war with an advantage strategically, having asserted control over the strait. What happened was there effectively two ways you can clear the straight of Hormuz. One is through Iranian territorial waters, and the other is through Oman's territorial waters. It looked like this Singaporean flag vessel had taken the Oman route without going through the protocol set by the IRGC. They have this entity called the Persian Gulf Straight Authority, or the PGSA. They actually have their own Twitter account now that you meant to register with and actually potentially pay some sort of service fee to go through the straight. It seems like that Singaporean flag vessel didn't do it, and they were rewarded with the drone strike ostensibly from Iran. I think they're trying right now to enforce their control over the straight. They're trying to enforce uniformity such that all commercial vessels do go through the PGSA and potentially pay a service fee to Iran. Whether or not this is going to break down the ceasefire, I don't think so. I think that what caused this deal in the first place, David, is that Iran had successfully weaponized the straight of Hormuz against the United States, had coerced the United States to back down. And so I don't think that there's really any political will in Washington right now to reinitiate hostilities with Iran.
>> I do want to get your projection and outlook on how this is going to play out. But before that, let's talk about this weaponization of this important choke point. You did call it just now the most important choke point for oil in the world. So, it's improbable to believe that the US government, the Pentagon, the CIA did not anticipate that this would be weaponized by the Iranians. So, either they didn't care that this would impact the economy of the US or potentially the world, or they were confident that through a regime change or through military force, the US would force the state of Hammoose to remain open. Either way, it was a miscalculation. Why did they go ahead with it knowing what you and I know that this in retrospect was an obvious outcome if the US started bombing Iran?
>> So, look, I do think that there was a specific analytical error at the beginning of the war, and it's one that the Trump administration made, but it's also one that many other analysts and strategists made. Everyone knew that the straight of Hormuz was this essential choke point that Iran potentially could close it. I think the assumption that proved wrong was that in order to close the straight of Hormuz, the thought was that Iran would have to use sea mines. They have an arsenal of thousands of these sea mines, and they are effectively the least nuanced weapon in the world. You float them, they float in waterways, and they blow up ships that they come close to. They're not easy to control, right? Once you put hundreds or thousands of mines in the straight of Hormuz, no one's going through that straight. Not Saudi vessels, not vessels carrying Saudi oil, not vessels carrying Iranian oil. And so the thought was that Iran, even though they could take that step, they probably wouldn't because it would be economically suicidal. They wouldn't be able to send their own ships through the straight of Hormuz, which they depend on to get their oil to global markets. I think what analysts didn't get right, what they didn't foresee, was that Iran didn't need to use these sea mines. All they had to do in the first week of the war was to literally get on a radio where they talked to all the ships in the straight of Formoose and say the straight of Formoose is closed. It's not safe to go through, and the ships that didn't listen to them, they struck. They hit about a dozen ships within the first week of the war with anti-ship missiles and drones. Which sounds like a lot, but it's actually not much in the grand scheme of things given that you had over 130 a day going through the straight before the war. And those strikes, those dozen or so strikes, was enough to change the risk calculus of the entire shipping industry. Getting shipping companies to the point where their crews were saying, "We are not going through that straight. We don't care what the insurance situation is. We're not putting our lives on the line." And so what Iran was able to do was they were able to selectively close the straight. They were able to close the straight for everybody else besides themselves. And that's a different type of power, right? Choke points are not all that viable if closing it is suicidal to yourself. But if you can close a choke point for everybody else except yourself, or if you can decide that China's vessels get through, Malaysia's vessels get through, but Israeli vessels, US vessels, Saudi vessels don't get through, that is a different type of power that I don't think that the Trump administration anticipated.
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By the way, it's been reported that a pause is to be taken into effect for evacuating sailors from the street of Formoose. The UN's International Maritime Organization has suspended plans to evacuate more than 11,000 sailors stranded in the straight after a cargo ship transiting this waterway was struck by a projectile. IMO Secretary General said several crews had already been evacuated, but the agency had decided to pause the operation until there was necessary safety guarantees for those involved. What does that mean? What does that speak to the difficulty in this kind of operation at this particular point in time?
Look, I think that it shows that the Iranians do hold a lot of cards here because even though international law is not on their side, you know, they have no right to have drone strikes against vessels just because they decide to sail through Oman's waters instead of themselves. If they're willing to go there, there's not much that the world can do about it. And the reason we know that is, and this is to the point you made earlier, David, the belief before this war also was that if Iran ever was to close the straight, the US Navy would quickly be able to reopen it. That sort of the international hegemon, the United States, by military force guaranteed the free flow of commerce on the high seas and through waterways because the costs were seen as too high. I think that first of all, in order to do maritime naval escorts through the straight of Hormuz, you'd be putting these exquisite expensive naval warships at risk of Iranian drones and missiles. And so I don't think there was really any appetite for potentially seeing US warships sunk, seeing casualties taken by the United States. But I think there's also indicative of the changing nature of warfare, right? Iran has thousands and thousands of these drones that cost $20 or $30,000 to make and that can be made in facilities the size of my office. In order to get rid of that capability, the only viable way to truly eliminate Iran's drone capability is an occupation of the country and regime change.
>> Yeah, I was going to ask that. An occupation of at least the shoreline where these drones and projectiles are being launched. Surely the American military has taken this scenario into account. Why hasn't that been executed yet?
>> Yeah. And I think shoreline maybe is right but maybe undersells it because these drones have ranges of over 150 km. I mean you'd have to take a big portion of coastal Iran in order to actually create the buffer zone that you might have in mind. So I mean it's just not tenable, right? You would need a force of hundreds of thousands of American ground troops. They would be sitting ducks for Iranians that would control territory further inland. I mean, look, you would be looking at a 2003 style Iraq war, right? I mean that's what you'd be looking at. And I don't need to tell you, David, there's no political support for that in the United States, right? There's literally you cannot find a single person in the US who would want that kind of a military campaign in Iran. I think Trump thought this would be easy, right? I think he came in fresh off the success of the Maduro raid in Venezuela with maybe a hubristic attitude, a thought that this could be quick and easy, and it turned out to be very, very difficult.
>> Trump did say at the G7 summit, and this was right at the time when the street was temporarily open after the deal was signed, he said that we avoided a global depression. So what if he were to make the point again that if we don't invade Iran, the world will face a global economic depression from this choke point being closed? Would you agree with that assessment?
>> You know, I don't think that that would be accurate, and I don't think the American people would believe it because I think this also gets down to something that's kind of an uncomfortable logic. There's been talk about the Iranians charging a toll at the straight of Hormuz, right? Charging service fees, whatever you want to call it. And it doesn't sit right with really anyone because it violates international law. And really it doesn't serve anyone's interest besides Iran, right? But if you look at it from a financial standpoint, even if the Iranians were charging up to a million dollars for a large oil tanker, $2 million reportedly they've charged some large oil tankers going through the straight of Hormuz. I mean that's like two or three percent of the value of the cargo of these ships, right? So I mean it's actually not economically that meaningful for the private actors involved. If you think about the oil producers in the region like Saudi Arabia or the UAE, for them it's obvious: even if it requires paying Iran billions of dollars a year, it's well worth it to get their ships out of the straight of Hormuz. So I think basically what has happened is Iran has just been able to monetize this choke point. It's turned into something where there's a lot more political support for paying Iran, which is effectively what Trump is doing in this deal, paying Iran to open the straight of Formoose, as opposed to launching a massive costly military venture in Iran.
When I think about what's going to happen next, I tend to look at the market price to see what the market believes is going to happen next. And right now, even overnight after the tanker has been hit, it doesn't look like the oil market believes things are going to escalate significantly. Otherwise, things would have moved up. The WTI price is still sitting above just above $70 a barrel. Now, it's come down significantly from a couple of days ago. Eddie, what do you make of market reaction right now? And ultimately, how do you think this is going to play out in the next couple of months?
I think the market's reading it correctly because I think that the comment you made earlier, where Trump said that he averted a global economic depression, right? That's a tell. It explains exactly what happened. Folks have been comparing this to the 2015 Iran nuclear deal; that's not the right comparison. 2015: the US and other world powers imposed economic pressure against Iran by weaponizing a core choke point of the global economy, the dollar, and Iran was pressured into making nuclear concessions. That's what happened in 2015. What's happening now is the opposite. Iran weaponizing a key choke point, the straight of Hormuz, to impose economic pressure on the United States and the rest of the world to compel the United States to give economic relief to Iran. And so, and Trump again admitted that he said that this deal is about averting economic catastrophe. And so I don't think there's really any appetite to go back to war, even if that means the Trump administration swallowing what is quite a humiliating deal, right? Where they're giving Iran huge amounts of front-loaded economic relief in exchange for no nuclear concessions whatsoever.
>> Well, like you said, the American people have no appetite for another Iraq style invasion of Iran. And so, do you think the market is basically just pricing in the straight being closed and having a permanent toll now? Is that the ongoing concern now going forward?
I think that's the real question. So, I do think there is going to be compensation for Iran for ships to go through the straight. Be it service fees, environmental fees. They have an insurance scheme that Iran has launched. I don't know exactly how they're going to monetize it. They're going to monetize the straight. I think the key question is the combination of that monetization and then maybe any residual threat from the IRGC. How much does that depress shipping through the straight? We had 130 crossings roughly a day pre-war. Are we going to get back to anything close to that? I mean, apparently before this Singaporean tanker was hit, you had 70 crossings. So, I mean, could we get to 100, 110? Probably. I'd be surprised if we get all the way back up to 130. But that might not matter as much for the commodities markets that mean the most like oil, where we already this year were coming into sort of a lax market, and the market was looking like it was going to be pretty well supplied.
>> Okay, let's go back to the global theme, or the theme of global choke points. The world is now aware of how important it is to protect a choke point, a vital choke point such as the straight of Hormuz. Weaponization of a choke point has now been made the focal point of everybody in the world. Especially people in Asia, island nations that depend on oil imports. They're feeling it more than America is probably. My question is, how has the world changed following this revelation? So, there is a phenomenon that we see when choke points are weaponized. And I'm defining choke points in a more broad sense, not just geographic choke points, but also economic choke points like the dollar and semiconductors like you mentioned earlier.
>> And what that phenomenon is, is once a choke point is weaponized, the countries that then feel vulnerable take steps to insulate themselves from that vulnerability. So the United States first imposed major financial sanctions on Russia in 2014. This was after Russia annexed Crimea. It was in that same year that China, having seen what happened to Russia and worrying that it might happen to themselves, created the cross-border interbank payment system and launched a whole suite of initiatives to try to circumvent the dollar choke point, being able to clear their own transactions in RMB. Right? Last year when China weaponized rare earth elements against the United States, how did the US respond? We've been investing billions and billions of dollars of taxpayer money into domestic producers of rare earth minerals. Right? We've even taken equity stakes, the US government, in rare earth mineral producers. So there is sort of this action-reaction function. Of course also the semiconductor export controls in China have incentivized China to indigenize their entire semiconductor industry. What we're seeing now coming out of the straight of Hormuz crisis, and to your point many countries around the world did experience acute demand destruction, particularly developing countries, island nations, etc. But look, there was real fears of energy insecurity even in industrialized Asia and Europe. These countries are not going to want to be in that position again. So I think there are a few easy bets coming out of this war. One, you're going to see more infrastructure in the Gulf to circumvent the straight of Hormuz. Obviously, the Emiratis are building more pipeline capacity to Fujairah. I'm sure you'll see more Saudi capacity. I think you'll see many more pipelines built over the coming years. Two, I think you're going to see increased energy storage significantly closer to the big buying markets in Asia, because it just makes a lot of sense to get as much product in the market so that you're not worried about these maritime choke points. But three, and I think most consequentially, is I do think you will see a meaningful acceleration of adoption of clean energy technologies: solar panels, batteries, electric vehicles. We've already seen spiking exports of those goods from China to the rest of the world in the last few months. I think that that's only going to continue. I think a lot of countries who have been wary of taking Chinese EVs into their country are going to relax that. I know in Canada where you are, Mark Carney had already agreed to allow in about 40,000 or so Chinese EVs in January. I think that's going to be just the tip of the iceberg. So I think that you are going to see big moves to reduce vulnerability to the straight of Hormuz. But what that will do is it will just create other choke points, because for instance in these sort of clean energy renewable technology spaces, China typically has somewhere between 70 to 95% market share, and so we could wind up as a world exchanging one dependency for another.
>> All this sounds like more protectionism and less free trade. Is that what the world's heading towards?
>> Yes, for sure. I mean, I think that's the macro trend. My book Chokepoints, as you know, is a narrative history of how we got from sort of the hyper-globalization of the '90s to this age of economic warfare that we're living in today. And one of the most consistent themes across that whole story that shows up in the data is that every single president in the 21st century, every US president from George W. Bush to Barack Obama to Trump's first term to Joe Biden to Trump's second term, has imposed sanctions at twice the rate of their predecessor. This is a secular trend in which every president is doing this more and more. And now by the way that trend is apparent in global data as well, not just in the US. And I think what that represents is that there is a broad move away from open globalization into something that is more restrictive. And I think the big question is what does that look like? Is it something that's more like autarky where every nation for itself, we see more onshoring, or do we get something that looks more like the Cold War where we see the world splinter into economic blocks? Those would seem to me to be the most likely outcomes of where this all is headed in the coming decade or so.
While all these major industrial powers are preparing to insulate themselves from the weaponization of choke points, you brought up several examples already. We're also seeing a global trend of global rearmament. Japan wants to spend twice as much money on defense. That will bring them up to effectively number three in the world in defense spending after the US and China. The US, Trump wants to propose a $1.5 trillion defense budget. Germany wants to be Europe's largest military again. And so all this begs the question, is this correlation or causation? Both of these trends happening at the same time.
I think that the trends happening at the same time are driven by the same factor, which is the return of geopolitical competition. Right? I mean the global economy that we have today, that is truly centered on a single currency, the dollar, where we have transnational supply chains, critical dependencies that crisscross the globe — that economy originates in the '90s at the end of the Cold War, where for the first time we really embrace economic interdependence at a global scale. We had it during the Cold War period, but it was really only among advanced industrial democracies. China, Soviet Union were not part of that story. And so during the '90s when we embraced that model, David, there was the assumption that we would not have geopolitical competition. Right? This was the end of history moment where in the US and Canada, we viewed China and Russia more as potential friends than as rivals. Well, today it's a fundamentally different story, right? I mean, the US and China are clearly rivals. Europe and Russia are more than rivals; they're adversaries. And so, I think this is what's causing this kind of haphazard effort to retrofit the global economy for today's geopolitical realities. It's also what's causing the surges of defense spending where regions around the world are realizing, hold on a second, I actually do have real military threats right on my borders. And it's not sufficient just to depend on the guarantee on the piece of paper that the United States is giving me. I need to have my own ability to defend myself.
>> So what is the next major choke point that we need to watch for?
So one of them, which as I mentioned, is I do believe that in the energy space we could find ourselves moving from one choke point, which is the straight of Hormuz, to another, which is Chinese solar panels, batteries, electric vehicles. I do worry about that because it's not the type of thing that will manifest itself overnight, but we do not have viable competitors in the West to the big Chinese battery companies, the Chinese EV companies, the Chinese solar companies. We are so far behind, and if that is actually the direction of the global energy system, I worry. The same, by the way, is true in the pharmaceutical and biotech space and active pharmaceutical ingredients, KSMs which are key starting materials, the upstream components of drugs. China is completely dominant, and they're increasingly now moving that dominance into more value-added sectors like biotech, clinical trials, etc. I worry that absent a real concerted strategy at the national level here in the United States and other Western countries, that will become another choke point that China could weaponize. I think in terms of maritime choke points, there are a few that could become flash points. Indonesia has already mooted the possibility of putting a toll on the straight of Malacca, which is a critical maritime choke point on the route from pretty much anywhere in Europe or the Middle East to Asia. They were immediately faced a backlash from the Singaporeans and the Malaysians. But look, if the Iranians successfully derive $40 billion in annual revenue from the straight of Hormuz, which by the way is what the Wall Street Journal reported just yesterday is what Iranian officials believe they can get — $40 billion a year from this toll revenue. If that's true, you got to ask yourself, how long would a country like Indonesia that does need that, would benefit quite a lot from more fiscal revenue, how long would they actually hold out from monetizing something like the straight of Malacca? So, that's another one I'd be watching quite closely in the months and years ahead.
>> What about the Taiwan issue? The fact that Taiwan semiconductor currently still produces the majority of the world's most advanced chips. Why isn't the rest of the world spending billions upon billions of dollars to insulate themselves away from that flash point?
Look, and I'm glad you brought this up because that's the other one that I'm extremely worried about, because I think that also Iran's playbook for closing the straight of Hormuz does provide the PRC with a potential playbook with Taiwan. Could China, absent some sort of an actual amphibious invasion of Taiwan, could they just establish some sort of naval patrols in the Taiwan Strait where they're questioning ships, collecting customs duties, for instance, from vessels? They did actually start these what they call special maritime traffic law enforcement questioning that they've been doing to commercial vessels in the last few weeks. So I do worry that the Taiwan situation could escalate in the months ahead. In terms of why you don't see an even greater effort around the world to reduce our dependence on Taiwan for semiconductor fabrication, it's because the private sector capital allocation is great for a lot of things, but it's not good at pricing in these geopolitical tail risks, as we saw with the strait, as we've seen during COVID. And I think you are going to need market intervention in the style of the CHIPS Act. You haven't seen anything at that scale as a follow-through either in the United States or anywhere else in the world, but we're not moving at nearly the pace we would need to be insulated from a potential hot war that could break out between China and Taiwan.
>> Yeah. Final question. It's been estimated, depending on who you read, it's been estimated that the West and perhaps even China are years behind TSMC. It's not like they want to build something similar and they don't invest; it's that they can't. So if you take that theory, then the window is closing for China to act on Taiwan. Is that something you ascribe to?
>> Look, I don't know if the window is closing. But I do think that Xi Jinping is attuned to his legacy. I think that he probably does feel that he wants a closer integration of Taiwan into mainland China before he leaves the Chinese presidency. And I do think that it's possible over time Taiwan could become better defended, right? I mean there are already lessons that many countries around the world are drawing from the use of drones in the Ukraine war and in the Iran war: how smaller, less powerful countries can defend themselves against much bigger militaries, right? Ukraine defending itself against Russia, and Iran defending itself against Israel and the United States. So I do think that there is an incentive for China to act on the sooner end rather than later. But Chinese military strategy has always been to try to win without fighting. And so my own expectation is it's pretty unlikely we'd see some sort of amphibious invasion. But some sort of a more creeping invasion, creeping annexation where you have customs duties that are being drawn from commercial vessels by Chinese merchant ships — I think that could be a real problem and something that I'm watching out for.
>> Okay. Tell us about where we can follow your work and give us a teaser of what's coming up for your writing.
>> Thanks so much. I appreciate it. So, I'm at the Council on Foreign Relations. So, I've got a website there where all of my interviews and articles are published. I'm also on Twitter/X, Edward Fishman, and LinkedIn. You can find me there as well. In terms of what's next, I've got two major projects in the hopper. One is I'm doing a project on the future of the global economic order where I'm trying to figure out: is there a new vision for how the global economy could be organized that suits our new geopolitical system? And then second, I am working on a new and revised version of Chokepoints that hopefully will come out sometime next year that will provide a first draft of history of some of the issues you and I have discussed over the last 20 minutes or so.
Yeah, it will be very interesting to see how you've integrated some of the current developments with Iran into your new revision. Thank you so much, Eddie. It was nice to meet you. Thanks for coming on the show, and I hope to speak with you again soon. Take care for now.
>> My pleasure. Good to see you.
>> Everybody, follow Eddie in the links down below. I'll put them in the description. And thank you for watching. Don't forget to like and subscribe.
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