ECONOMIC WARFARE: SUPPLY CHAIN DISRUPTIONS, SANCTIONS AND ENERGY SECURITY

Note: The views expressed here are solely of the author and do not necessarily reflect the views of the Indian Navy or of the Government of India.

Abstract: Economic warfare has emerged as a key instrument of 21stcentury statecraft, with states increasingly leveraging trade dependencies, sanctions, financial controls, and energy security to pursue strategic objectives without kinetic conflict. In an interconnected global economy, interdependence itself has become a tool of coercion, enabling disruption of critical supply chains, financial networks, and resource flows. This article examines the evolution and application of economic coercion through supply chain disruptions, sanctions, and energy security, drawing on case studies including Cold War technology denial regimes, sanctions on Iran, U.S.–China technological competition, the Russia–Ukraine conflict, and maritime chokepoints. It highlights how economic pressure shapes strategic behavior and proposes a framework for resilience. The paper argues that India must integrate economic statecraft into its national security strategy by diversifying dependencies and strengthening domestic capabilities.

Introduction

conomic interdependence has increasingly become an instrument of strategic competition, with control over supply Echains, financial systems, and energy flows shaping contemporary state behavior. In contrast to traditional conflict centered on military engagement, states are now leveraging economic tools to influence outcomes without resorting to kinetic means. As a result, global supply chains have emerged as critical arenas of contestation, where vulnerabilities within interconnected systems can be exploited for strategic advantage. Powerful countries are increasingly using tools of economic warfare as their primary weapons in war.¹ Global supply chains are the main battlegrounds for economic warfare in the 21st century and they are increasingly becoming unsafe.

Globalisation has made modern economies rely on complex, dispersed manufacturing, transportation and logistics networks. The use of semiconductor chips, shipping lanes and payment systems in economic warfare has become a primary strategy. A few countries or corporations dominate these critical networks. Strategic control of these supply chains can force a government to do as desired. This research paper discusses the historical evolution and current trends of economic warfare. It explains how powerful countries have employed supply chain disruptions, sanctions and energy security to accomplish desired results without resorting to war.² It  recommends certain measures for India to make its economy stronger and become less dependent on technology from other countries in a world that is becoming increasingly competitive and contested.

Historical Evolution

Tools employed in economic warfare have deep historical roots. Global powers have been using supply chains, trade and resources to weaken adversaries and influence desired outcomes. The British Navy used naval blockades during the Napoleonic Wars to stop French trade and commerce.³ Blockades employed by the Allied forces against Germany caused shortages and unrest during World War I.⁴ Aerial bombings were undertaken during World War II targeted at industry and transport hubs to disrupt the adversaries' wartime capacity.⁵ The Incheon Landing in the Korean War of 1950 cut off North Korea's supply lines, forcing them to retreat quickly and shifting the course of the War.⁶ The Cold War era conflict between the U.S. and the Soviet Union extended beyond conventional military rivalry. Economic warfare was used by both powers to weaken the other’s industrial capacity and technology access. The Coordinating Committee for Multilateral Export Controls (COCOM) was established in 1949 as part of the U.S.-led Western containment strategy.⁷ It imposed strict control on the transfer of advanced technologies to the Eastern Bloc, thereby inhibiting Soviet industrial and technological modernisation. In addition, the U.S. also used sanctions and trade controls to isolate enemies and support allies. The Soviets were also targeted by the U.S.-led grain embargo for their invasion of Afghanistan in 1980.⁸ Washington aimed to disrupt the Soviet food security and pressure its domestic stability. In contrast, Moscow countered by weaponising energy exports using oil and gas as leverage over Eastern Europe and NATO states. Thus, the Cold War era displayed how economic warfare was institutionalised, shaping alliances, constraining adversaries and defining global power dynamics.

The relevance of economic warfare did not reduce after the Cold War era. In fact, it became even more relevant as globalisation grew, and tools of economic warfare became politically driven tools of influence. The U.S. put sanctions on India after it tested nuclear weapons in 1974 and 1998.⁹ India was denied access to nuclear fuel and technology due to these sanctions. Iraq faced similar sanctions like oil embargoes and limits on trade for its invasion of Kuwait in 1990.¹⁰ However, the most significant sanctions were 10 the ones that were imposed on Iran in 2006 for its nuclear programme. The harsh sanctions cut Tehran from global banking, foreign investment and energy exports. These long-lasting economic sanctions were a major reason Iran agreed to talks leading to the 2015 Joint Comprehensive Plan of Action (JCPOA).¹¹ It showed the effectiveness of export controls and sanctions as measures of economic warfare.

Table 1: Evolution of Economic Warfare.

Weaponisation of Supply Chains

The economic coercion due to the weaponisation of supply chains can cause any economy to stop working. The COVID-19 pandemic caused problems in the supply chains that affected businesses worldwide.¹² Some real-world examples of supply chain disruptions involve control of critical minerals, technologies, logistics networks and energy security. China stopped exporting rare earth elements to Japan in 2010 following a territorial dispute.¹³ China has more than 80-90% of the world's supply of rare earth elements.¹⁴ This kind of ban can affect businesses and cause problems for the economy.¹⁵ The Houthis' operations in the Red Sea also showed how controlling trade routes can hurt economies by breaking supply chains.¹⁶ The recent U.S.-China technology rivalry is mostly about semiconductors that are important for both military and digital capacities. Washington desires to stop Beijing from getting advanced chips and tools by using export bans and political pressure. For example, it has stopped ASML from supplying EUV lithography machines and Nvidia from selling advanced chips to China.¹⁷ It has limited China's chip output to less than 7nm. The CHIPS Act incentivises the U.S. industry for local production and reduces dependency on East Asia.¹⁸ China’s retaliation includes investments in chip design, domestic output and controlling rare earth mineral exports. This ‘chip war’ is an example of a new kind of economic statecraft, where controlling technology is used to slow down competitors and alter the global balance of power.¹⁹ From fighter jets to EVs and green technology, this war could reshape global supply chains. So, managing supply chains is a strong way to force countries to do things that affect strategic outcomes.

Fig 1: Semiconductor supply chains and country-wise expertise

Source - https://www.semiconductors.org/strengthening-the-global-semiconductor- supply-chain-in-an-uncertain-era/

Sanctions and Financial Statecraft: Coercion Without Conflict

The use of sanctions as a tool of financial statecraft in geopolitics has been evolving. It has allowed powerful states to punish their adversaries and affect the desired outcomes. Sanctions make it difficult for countries to get access to markets, technologies and financial systems. It hurts their economy and the choices they make. The fact that the U.S. dollar and Western banks are powerful has made these sanctions work even better. After 9/11, such economic warfare methods were also used to fight terrorism and its perpetrators. The ability to refuse access to SWIFT (Society for Worldwide Interbank Financial Telecommunication) has made sanctions a formidable weapon. It ensures the possibility of freezing economic reserves or imposing secondary penalties.²⁰ Such coercive economic punishments shape the strategic environment before a confrontation.

Secondary sanctions are economic punishments imposed on allies/ partners of the primary targets. The U.S. dollar is the world's main reserve currency and systems like SWIFT act as the central nervous system of global finance. China and Russia are building parallel financial architectures like the Cross-Border Interbank Payment System (CIPS), System for Transfer of Financial Messages (SPFS) and other alternative currency systems.²¹ They are meant to be countermeasures to the Western sanctions and reduce dollar-denominated channels. Bilateral trade agreements like the rupee-rouble settlement between India and Russia allow them to continue doing business with one another even when Western powers limit them.²² Control over currencies and financial systems will become essential for the sustenance of political power as the effectiveness of these sanctions declines.

Russia was imposed with severe sanctions after its invasion of Ukraine in 2022.₂₃ It affected practically every sector of the Russian economy. Major Russian banks were cut off from SWIFT and Russian assets amounting to approximately $250-350 billion were frozen.²⁴ Vital technologies were banned from being exported. Western countries also limited maritime insurance and imposed limits on oil prices. The rouble fell sharply, investments dried up and capital left. In response, Russia increased commerce with China, India and Turkey. Furthermore, energy exports were moved eastward and the use of national currency was increased. Sanctions catalysed the process of de-dollarisation and the growth of new trade networks in the Global South. They hurt Russia's economy and technology, but they didn't modify its strategic position. This shows that sanctions are good at hurting but not so good at forcing political change in stronger states.

Global Vulnerabilities. Some of the examples of global vulnerabilities, which can be leveraged or used by countries to employ economic warfare are tabulated below:

Table 2: Global vulnerabilities to Economic warfare

Energy Security and the Geopolitics of Flow

In the 21st century, energy is a key weapon in economic warfare used to influence choices, build alliances and project power. Crude oil, natural gas and other renewable energy sources are vital for national security. The energy resources are being used as weapons by regulating their flow to either reward friends or punish adversaries.²⁵ Countries that rely too much  on others risk being forced to do things they don't want. The Arab oil embargo of 1973 was one of the first times that energy was used as a weapon. The ongoing Russia-Ukraine war has seen the weaponisation of natural gas through pipelines like Nord Stream 1.²⁶ The Strait of Hormuz allows one-fifth of the global oil flows as of 2024-25.²⁷ Iran has been threatening to block it in response to Western sanctions. Malacca Straits are vital for East Asian countries and are a strategic vulnerability for China.²⁸ Today, energy is not merely a commodity but a strategic economic tool that shapes state actions, alliances and regional power balances. Countries that preserve their energy security can stop others from getting an undue advantage or doing hostile acts. For India, these dynamics are particularly pronounced in the maritime domain. The security of Sea Lines of Communication (SLOCs) underpins energy imports, trade flows and overall economic stability. The concentration of critical traffic through chokepoints such as the Strait of Hormuz and the Strait of Malacca exposes India to external coercion, elevating maritime resilience to a core pillar of national economic security.

Fig 2: Strait of Hormuz and energy flows

Source- https://padhai.ai/blogs-padhai/strait-of-hormuz-upsc-exam

The global energy ecosystem is transitioning towards clean energy due to environmental concerns. This low-carbon technology is being developed into a new frontier of economic warfare. It focuses on managing necessary resources, renewable supply chains and infrastructure. Lithium, cobalt, nickel and rare earths are essential for solar panels, wind turbines, electric vehicle batteries and hydrogen electrolysers. China controls over 90% of rare earth refining and 80% of solar module supplies.²⁹ It impacts costs and access in the market, and it could even cause problems in the supply chains. About 70% of the world's cobalt comes from the Democratic Republic of the Congo.³⁰ Chile has around 40% of the world's known lithium reserves 30 which makes the situation even worse from a political point of view.³¹ Western countries have made their vital mineral supply chains more varied, formed strategic partnerships and set up safe processing centres to protect against these vulnerabilities. The U.S.-led Minerals Security Partnership (MSP) and the European Union's Critical Raw Materials Act are two examples of this strategy.³² The growing competition over energy supply chains is a sign of a bigger change for the world in the days to come. In the future, states that command raw materials, processing infrastructure and advanced manufacturing will wield decisive influence over global economic and political power.

Fig 3: Critical mineral distribution across the world

Source - https://pubs.usgs.gov/publication/fs20253038/full

Challenges for India

Fig 4: Challenges for India in Economic Warfare

 Source - Author

India's GDP of almost $4 trillion makes it the fastest-growing and fourth-largest economy in the world.³³ Its economy is growing at 6% and it could become the third-largest economy in the world after the U.S. and China. Hence, its rise won't be unopposed, and India will face hurdles posed by global powers. The challenges for India in relation to economic warfare are as follows:

• Heavy dependence on imports of crude oil.
• Tariffs imposed by the Trump administration in August 2025 for importing discounted Russian crude oil.
• Vulnerabilities in defence and industrial supply chains emerging out of the import dependence on semiconductors and advanced chips.
• Import dependence on China for rare earth elements, critical minerals, fertilisers, chemicals and pharmaceutical intermediates.
• Maritime chokepoints and exposure to shipping lane disruptions.
• Rising freight and container costs and the absence of Indian owned container ships despite the high volume of sea-borne trade.
• Dependence on foreign countries for critical technologies such as AI, quantum, nuclear and space technologies. Furthermore, the limits on technology transfer.
• Balancing the multi-alignment strategy in a geopolitically volatile environment.
• Heavy reliance on defence imports such as marine, aero engines and sensors. Aircraft/ Helicopters such as P-8I, MH-60R, Apache, Chinook and others are dependent on the U.S. for maintenance and spare parts.
• Exposure to the U.S. dollar and the SWIFT payment system is a vulnerability in a sanctions scenario.
• Vulnerability to cyber-attacks on critical infrastructure, viz., ports, power plants, stock exchanges, etc.
• Vulnerability to malicious public attacks through disinformation campaigns on private/ public enterprises by foreign agencies to damage reputation and economic standing.

Lessons from the World

Supply Chains.

• The U.S. CHIPS Act has mobilised $53 billion for domestic fabrication plants and R&D.³⁴ The European Union Chips Act aims at achieving 20% global chip output by the year 2030. ³⁵
• Japan, Australia and the U.S. have launched joint frameworks between 2023–25 for rare-earth sourcing and processing to counter China.
• Australia’s Naval Shipbuilding and Sustainment Plan has expanded domestic shipyard capacity to mitigate global shipping shocks.
• The U.S. 2024 Quadrennial Supply-Chain Review has mandated traceability and cyber-risk audits for critical suppliers.

Sanctions.

• Russia’s System for Transfer of Financial Messages (SPFS) and China’s Cross-Border Interbank Payment System (CIPS) systems have matured as non-SWIFT cross-border payment options.
• The U.S., European Union and Japan have tightened their technology export controls through the Wassenaar framework and allied agreements.³⁶
• Several Asian economies like South Korea and Singapore have expanded their foreign exchange swap lines and sovereign wealth buffers to cushion against sanctions-driven volatility.

Energy Security.

• The European Union’s REPowerEU plan has reduced reliance on Russian energy by sourcing LNG from the U.S., Qatar and Africa while ramping up renewables.³⁷
• The U.S. SPR (Strategic Petroleum Reserves) drawdowns during 2022–23 have stabilised markets from oil shocks by demonstrating the value of flexible and deployable reserves. Japan and South Korea have increased their mandated stockpile days to hedge against any geopolitical disruptions.³⁸
• Australia and Canada have invested heavily (2024–25) in lithium and nickel mining to secure the battery energy supply chain and reduce exposure to Chinese processing.
• France has recommitted itself to nuclear energy. The U.S. Inflation Reduction Act of 2022 has ensured $369 billion for attaining selfreliance in clean energy.³⁹
• China aims to strengthen its energy security through projects like the China-Pakistan Economic Corridor (CPEC) and ‘string of pearls’ strategy.

India’s Approach and Response

Supply Chains. India is a globally emerging power and its ability to handle supply chains will determine the speed at which it rises. It is significantly dependent on imports of crude oil, semiconductors, defence technology, rare earth elements and other vital resources. The approach taken by India is as enumerated below:

• The Atmanirbhar Bharat program was started to improve local manufacturing using policies, incentives and infrastructure.
• The Production Linked Incentive (PLI) scheme has beenintroduced in several important sectors such as electronics, renewables and semiconductors to encourage and boost local production.
• India has become more involved in plurilateral frameworks including the Supply Chain Resilience Initiative (SCRI) with Japan and Australia, the Indo-Pacific Economic Framework (IPEF) and the U.S.–India Initiative on Critical and Emerging Technology (iCET).
• The Semiconductor Mission has provided incentives to attract domestic fabrication, OSAT (Outsourced Semiconductor Assembly and Testing) and design houses to counter the chip import vulnerability.⁴⁰
•  India has signed upstream exploration and processing pacts with Japan and Australia to counter the rare-earth and battery-metal choke points. It is also pushing the domestic magnet/REE manufacturing and recycling.
• India has pushed investments in ports, waterways and shipbuilding through the Sagarmala 2.0.⁴¹ It will strengthen the supply chain control and reduce dependence on foreign shipping.

Sanctions and Technology Denial. India's experience with sanctions and technology denial shows that they can be disruptive initially but can lead to long-term strategic independence. India was hit with sanctions after the nuclear weapons tests in 1974 and 1998. It resulted in great difficulty to get access to atomic fuel, manufacturing tools, satellite parts and highperformance technology. But India showed strength by creating its own capabilities, expanding institutions like DRDO and ISRO and forming new collaborations with Russia, France and Israel.⁴² The sanctions proved to be less effective as India established itself as a reliable nuclear and technology power. India demonstrated that sanctions can slow down progress, but they can also encourage creativity, resilience and strategic independence by turning pressure into long-term strength. Furthermore, the Reserve Bank of India has authorised international trade settlement in Indian rupees for bilateral rupee-trade corridors, e.g., with Russia and the UAE. In addition, India has renewed its Bilateral Swap Arrangement with Japan (USD 75 billion ceiling) and maintains substantial foreign-exchange reserves, thereby creating buffers against sanctions.

Energy Security. India is the third-largest consumer of crude oil and the fourth-largest importer of LNG in the world.⁴³ Hence, safe and secure flow of energy is its top priority and important for protecting its national interests. The approach towards energy security is as enumerated below:

• Diversification of crude oil sources to avoid price fluctuations, geopolitics and supply chain disruptions.
• Sourcing of energy from the U.S., Russia, the Middle East and Africa.
• Building strategic energy reserves and signing long-term LNG contracts with Qatar and the UAE.
• Aims to have 500 GW of renewable energy capacity by the year 2030.⁴⁴
• Leveraging platforms such as the International Solar Alliance (ISA), India-Israel, the United Arab Emirates, and the United States (I2U2) grouping and strategic bilateral partnerships to influence the emerging global energy landscape.⁴⁵

India needs to figure out its weaknesses and ambitions in global commerce to combine its economic and security strategies.⁴⁶ India is one of the most important economies in the Indo-Pacific and may utilise its might for regional development. It can withstand economic coercion from any entity and influence positive results. India can learn to use economic statecraft, stand up to outside pressure and have strategic autonomy on its own terms.⁴⁷ Digital payment systems like UPI and Rupay provide more economic freedom.⁴⁸ India is in the process of establishing free trade agreements (FTAs) with friendly countries. In addition, it should be able to do business with its FTA partners in Rupees and reduce dependency on the dollar. Thus, India can use its financial might to gain geopolitical influence by tying its economic and trade policies to its strategic goals.

Recommendations

India would benefit from adopting a multi-dimensional approach to safeguard its strategic autonomy and become a key player in economic warfare. The following recommendations outline actions at the national, regional, and global levels:

Fig 5: Recommendations for Economic Security

Source - Author Policy

Policy

• Institutionalise Economic Statecraft within National Security Planning. India needs to establish a National Economic Security Council (NESC) under the National Security Council Secretariat to integrate economic warfare into policy-making.

Fig 6: Proposed Economic Security Architecture

Source - Author

• National Economic Resilience Strategy. A priority strategy for sectors like semiconductors, rare earth elements, defence technology and shipping may be published along with timelines. Targets are to be made through measurable KPIs and budgetary pledges.
• Technology Acquisition and Protection Policy. India may increasingly adopt a technology acquisition and protection policy for technology scouting, transfer and protection. It should focus on dualuse technologies, critical minerals processing, IP protection and hostile takeovers in strategic sectors.
• Critical Suppliers. Periodic audits of all critical suppliers are expected to be undertaken for traceability and redundancy plans similar to U.S./EU supply-chain traceability mandates.
• Import Restrictions. It is a fact that India has always done well when denied technology, be it our space and nuclear programs. The government has published a positive indigenisation list five times towards import substitution. This should continue with additions and a timeframe for critical technologies like defence aviation, with strict timelines/ roadmap.

R&D and Innovation

India would benefit from allocating at least 2% of its GDP to Research and Development against the 0.64% in 2020-21.⁴⁹ It needs to be revised gradually, thus aiding innovation. Strategic partnerships could be formed to cultivate innovation and co-development.

Cyber & Digital Resilience

• Cyber Audits. Cyber vulnerability assessment and audits are required to be undertaken regularly for ports, power grids, stock exchanges and bank payment systems.
• UPI/ Rupay. India would benefit from accelerating the international roll-outs of UPI/RuPay and create a roadmap for global expansion.
• Alternative to SWIFT. India may build/ co-develop an alternative to SWIFT, akin to Russia and China. It will enhance the resilience of critical economic and defence supply chains. Also, it could reduce foreign-currency exposure and provide cost efficiencies for certain corridors and partners.
• Participation in Global Forums. India may increasingly continue to engage with global forums like the SCO, BRICS, ASEAN, G20 and Quad. India’s engagement with the Global South will provide access to resources from Africa, Latin America and East Asia. A multi-alignment strategy in a multipolar world will aid in securing strategic autonomy and protecting national interests. In addition, initiatives such as the Indian Ocean Rim Association (IORA) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economical Cooperation (BIMSTEC) must be used to develop shared stockpiles and coordinated responses to economic coercion.
• Free Trade Agreements. India would benefit from successfully negotiating FTAs with a few more countries. It is likely to promote trade in rupees and reduce dollar dependence.
• Trade and Market Access. India should leverage by offering access to domestic markets by negotiating the supply of critical minerals and technology during FTA negotiations. It may result in a win-win situation for both parties.

Industrial Production and Defence Industrial Base

• Production Linked Incentives. The PLI schemes may continue and be extended to other critical strategic sectors like defence production.
• Dual Sourcing. Diversification of critical defence supply chains by dual-sourcing mission-critical components/technology.
• Shipbuilding and Maritime Industrialisation. India could potentially accelerate the shipbuilding and port development programs.

Energy and Critical Minerals

• Secure Energy Flows and Clean-Energy Transition. India may continue to invest in clean and renewable energy resources. Ensure long-term energy supply contracts to insulate from price volatility and supply shocks.
• Enhance Supply Chain Security and Strategic Stockpiles. India is required to undertake diversification of critical supply chains by securing partnerships and incentivising domestic production. Strategic reserves need to be created to insulate the economy from global shocks. Also, safeguarding SLOCs and mitigating chokepoint vulnerabilities must form an integral component of India’s economic statecraft.
• National Critical Minerals Roadmap. India could draw a national roadmap for exploration, refining and recycling of critical minerals and also incentivise the activities involved.

Legal, Regulatory and Trade Tools

• Ease of Doing Business. India may create a favourable business environment by enhancing the ease of doing business and cutting red tape. Exports by local industry and foreign investments across various sectors must be promoted.
• Tariff Retaliation Measures. Strategic measures are required to be taken for mitigating the effect of hostile tariffs. Such measures should be drawn up in advance to avoid any knee-jerk actions. A deterrence posture must be created to deter powerful nations from imposing any economic sanctions/ tariffs.

Intelligence, Wargaming and Exercises

• Economic-coercion Wargames. The scenarios of economic warfare should also be incorporated into wargaming and be part of think tanks' long-term planning processes. Wargames should also be conducted for private sector entities by conducting simulated supply chain stress tests and tabletop exercises to test alternate supply activation.
• Strategic Monitoring Unit. A strategic monitoring unit may be established within the NESC framework. It can be tasked to monitor shipping incidents, export controls, sanctions trends and financialsector anomalies in real time to aid apex-level decision-making.

Public-Private Partnerships and Skills

• Public-Private Partnerships. Public-private partnerships are required to be established in critical sectors such as semiconductor chips, defence technology, battery recycling and shipping. Innovation and R&D in critical sectors should necessarily be funded by the government.
• Academia. Various academic institutes across the country may be engaged to revise the academic curriculum to train students in emerging technology fields. Scholarship programmes may be introduced for graduate-level programmes to ensure the availability of a technically trained and skilled workforce for the industry.
• Defence-Industry Assurance Fund. A defence industry assurance fund in line with NABARD (National Bank for Agriculture and Rural Development) can be established to fund capacity expansion in the defence industry.

Conclusion

Today, India stands at a very decisive inflexion point. Economic warfare has redrawn the global battlespace by increasing competition in the military field to supply chains, payment systems, energy flows and critical technologies. The flow of energy, technology and innovation will define the coming decades. India’s path to resilience will lie in reducing external dependencies, investments in research and asserting leadership in emerging domains like semiconductors, AI, and clean energy. India would benefit from merging its economic security into its national security strategy. Strategic autonomy will no longer stem from non-alignment but from technological self-reliance and industrial capability. India’s rise will depend on how well it converts economic strength into geopolitical influence. The wars of tomorrow will be waged on the economic front and India cannot afford to be a mute spectator. The struggle ahead will take place in boardrooms in place of battlefields and India needs to be ready to confront the same.