Economic warfare

Template:TOC-right One of the components of grand strategy is economic warfare. Remembering that grand strategy includes, but is not limited to, military means to enforce national policy on other states and quasi-states, economic warfare is a wide-ranging set of measures that put pressure on different aspects of a foreign economy. These can include preventing the opponent from obtaining raw materials or various manufactured goods, manipulating the world financial system to deny cash or credit to the enemy, actual attacks on national currency, and a host of other measures.

Interfering with supplies

In the Second World War, it became obvious, at the level of grand strategy, that the military operations of Germany depended on the output of two industries: ball bearings and petroleum, oil and lubricants. An obvious but very costly measure, in terms of lives and treasure, was to attack the German factories that made ball bearings, the key target being Schweinfurt.

Bearings of various types are quite small, although requiring precision machinery. While it would be much more difficult for Germany to import oil by sea, given Allied naval superiority, a militarily significant quantity of bearings could fit into a transport aircraft.

Competitive purchasing

Germany was able to buy bearings from neutral countries such as Sweden. Allied economic warriors recognized that buying up the Swedish supply, even if prices escalated, could limit the supply available to Germany. A price war over bearings also would put financial pressure on Germany.

So, every week once the program was started, a De Havilland Mosquito fast, high-altitude bomber would deliver, to Britain, bearings bought in Sweden. The purchasing mission essentially had an unlimited budget.

Cartel pressure

Rather than order its private sector not to make specific transactions, when a nation or nations can act as a cartel, they can pressure another state that is depending on their exports. Arab nations within the Organization of Petroleum Exporting Countries (OPEC) used this method to pressure the United States for supporting Israel in the 1973 Arab-Israeli War.

Blockades

Blockades need to be interpreted in the broadest of economic terms. If lack of raw materials idles an opponent's factories, they are as useless as if they were bombed, as long as the needed finished goods cannot be imported.

Exports also can be the target of blockades. In the American Civil War, preventing the Confederate States of America from exporting cotton prevented the South from getting both hard currency, and the goods that could be bought with hard currency and imported.

Interfering with cash and credit

One key weapon against non-national groups, which have no industrial base, is to prevent their buying goods and services they need. Such a goal may not be soluble by competitive purchasing, as with bearings, because there are far too many potential suppliers, some overt and some more shadowy.

Governments supporting a non-national group may provide supplies to them, but there may be no such patron country, or no practical way to ship the needed supplies to the group. At best, those governments may make financial credits available. International arms dealers, however, have one thing in common: they expect prompt cash payment.

If it is not possible to buy up the critical supplies, such as weapons (e.g., shoulder-fired surface-to-air missiles), the opposing country may prevent its opponent from acquiring them, by seizing bank accounts and other financial assets.

Countermeasures

Non-national groups use three types of financing, which are difficult for financial intelligence to track:

1. Charities, which use conventional financial institutions and value transfer,
2. Informal value transfer systems such as hawala and hindi
3. "Commodities- or trade-based money laundering includes the smuggling of bulk cash and the evasion of federal reporting requirements used to track money laundering with commodities such as diamonds, precious metals, gold, and tobacco."

One of the challenges of anti-terrorist FININT is that surveillance of transactions only works when the value transfers go through conventional, regulated banks and other financial institutions. Many cultures use informal value transfer systems, such as the hawala widely used in the Middle East and Asia, where value is transferred through a network of brokers, who operate with funds often not in banks, with the value transfer orders through personal communications among brokers. The brokers know one another and operate on a paperless honor system.

A study from the Institute for Defence Studies and Analysis [India] describes "narco-terrorism" as "the nexus between narcotics and terrorism...It is recognised as one of the oldest and most dependable sources of terrorist financing, primarily because of the magnitudes of finance involved in both the activities." The study indicates that informal value transfer systems, known "... [in] India it is known as hawala, in Pakistan as hundi, in China fei qian (flying money), in Philippines as black market peso exchange" are important means of transferring funds to terrorist organizations.