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The writer is a Hoover fellow at Stanford University and author of the forthcoming book ‘Defending Taiwan: A Strategy to Prevent War with China’
Iran did not need to sink a single tanker to shut down a fifth of the world’s oil supply. It took only a handful of missile and drone strikes to persuade insurers to pull coverage from vessels transiting the Strait of Hormuz. Within days, the vital energy chokepoint was functionally closed. So far, the market is still refusing to bear the risk — despite Washington’s efforts to backstop reinsurance coverage, which would depend on US Navy escorts.
This is a replicable playbook. China is a vastly more capable actor than Iran that could use a more sophisticated version of the same economic blackmail in the Taiwan Strait. The US and its allies should start preparing accordingly.
Tehran’s strategy is one of economic attrition — calculating that the US cannot tolerate a high oil price indefinitely and will eventually back down. If and when it does, Iran’s Revolutionary Guards will control Hormuz. The oil will flow again — but only when Tehran says so, or for the right price.
Beijing has the capabilities to pursue a similar strategy without actually shooting at merchant ships. A Taiwan crisis could begin with a unilateral legal statement: Beijing would declare the right to control who and what comes and goes from the island. China could demonstrate resolve by firing missiles or bullets and declaring “exclusion zones”. Even short of outright conflict, if escalation risk seemed high, private carriers would face pressure to avoid the waters and airspace around Taiwan. The standard “Five Powers Clause” in commercial war-risk insurance terminates coverage in any conflict between the US and China. If it has proved hard to persuade shipping companies to risk sailing amid a few unguided Iranian drones, imagine asking them to take on the People’s Liberation Army.
The choice would therefore fall on Washington: accept a new normal in which Beijing has de facto control over Taiwan’s commerce — including its chipmaking facilities — or risk escalating to outright economic war and possibly a military conflict. Even if a real war were avoided, the macroeconomic and financial shock of such a crisis over Taiwan could be far greater than what we are seeing today in the Gulf. Moreover, the same countries that are currently scrambling would be the worst affected.
Imagine a scenario in which China tries to seize indirect control of Taiwan’s trade. The US and allies try to resupply the island anyway, daring China to interdict them. But China would not need to use lethal force against these convoys. It could simply harass them, or threaten to do so. If trade flows around Taiwan were physically disrupted, the energy shock to regional economies would be far greater than today. Taiwan, Japan and South Korea might find that they could not simply buy energy cargoes on the secondary market at any price, with no one to deliver them.
Additionally, an array of global industries would seize up, from electronics to cars. The Taiwan-based TSMC produces over 90 per cent of the world’s most advanced chips. There is no strategic reserve of semiconductors, no equivalent of International Energy Agency members releasing 400mn barrels. TSMC’s fab in Arizona cannot easily substitute for this lost supply. Taiwan’s government might ration energy allocation to industry if it faced shortages. Or, facing a blockade, Taiwan might curtail its chip production to pressure the world to ensure that it is resupplied.
Today, booming chip exports help cushion the Taiwanese and South Korean economies against the current energy price shock. In a Taiwan crisis, the chip supply itself would be at risk; it would make little sense to keep the energy-guzzling fabs turned on. A semiconductor supply shock would compound the economic and financial pain and could trigger panic in equity markets, particularly the US tech sector, risking rapid global financial contagion.
A Taiwan crisis may not be short. Beijing’s strategy, like Iran’s today, would depend on persuading the US that an authoritarian regime with substantial stockpiles of its own can outlast a coalition of democracies with smaller ones. China is building vast reserves of oil, chips, grain and a wide array of other commodities. The purpose of building a shadow fortress economy is precisely so that it does not have to be used.
The US and its allies need their own joint stockpiling arrangements, pre-positioned crisis logistics and a standing framework for economic crisis management. These will take time to establish, and they should be stress-tested before a crisis, not improvised during one. In any Taiwan crisis, the first order of business — prior to punishing China or decoupling supply chains — would be managing the global economic fallout.
The Hormuz emergency has shown what improvisation looks like. A Taiwan crisis would not be so forgiving.
