Sea Control - Sea Control 427 - The Impact of Conflict on Trade with Dr. Nizan Feldman

Episode Date: April 20, 2023

Links1. "Naval Power, Merchant Fleets, and the Impact of Conflict on Trade," Nizan Feldman and Mark Shipton, Security Studies, December 8, 2022.2. Nizan Feldman’s Twitter Feed.

Hello, and welcome to the Seat Control Podcast. I'm Nathan Miller. Today, we have Dr. Nitsan Feldman on the program discussing his recent article for security studies and his research on the complicated relationships between trade and conflict. Brendan Costello edited and produced today's episode. SimSec is looking for a volunteer to join our technical team and support our web operations. We're looking for someone with a background in WordPress implementation and support, as well as knowledge in web hosting and networking. Some knowledge of identity management and security operations is also helpful. Please reach out to content at simsec.org to share your background and discuss. I would like to pause here to highlight our local chapters. Whether you are in South Korea, Egypt, Singapore, France, New York, India, or the Caribbean,

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My guest today is Dr. Nitzan Feldman, and we're going to be discussing his article published in Security Studies, co-authored with Mark Shifton, entitled Naval Power, Merchant Fleets, and the Impact of Conflict on Trade. So, Nitzan, welcome. Could you start by telling the listeners a little bit more about yourself, please? Thank you for having me. It's a great pleasure. So I'm an assistant professor for international relations at the School of Political Science at the University of Haifa. I'm also a senior research fellow at the Maritime Policy and Strategy Research Center, also in Haifa. Much of my research deals with international political economy, which is a subfield of international relations that explores the two-way relationship between economy and global politics. I particularly focus on international trade and the way economic interactions influence states' relations and vice versa. My recent book aims to explore how the maritime domain can be integrated into the main theories of international trade.

Most of world trade is conducted by sea, yet surprisingly, the white spirit literature I engage with has paid little attention to the way maritime-related variables influence the relationship between trade and other political subjects. And what I'm trying to do is to demonstrate that naval power and states merchant fleet and all other sort of maritime related variables conditions some of the mechanism presented in the literature. In this particular study, I tried to empirically confirm a well-established, a little bit rarely empirically explored notion in the modern thinking about maritime security, namely that there is a positive role of maritime-related capabilities in securing trade during war. So we know there is a well-established notion that states' naval power enables them to secure the trade. And surprisingly, this has not been explored, at least not in the way we do it in this article, which is an extensive, comprehensive, large-scale study. Well, thank you for coming aboard today.

As a reminder to the listeners, all opinions are our own and not reflective of any institution with which we might be otherwise associated. For your study, how did you decide to quantify naval power? Well, it's important first to know that quantifying naval power can be very challenging. Both scholars and practitioners have provided many measurements for naval power through history. Such measures are ranging from number of vessels to total tonnage and even the caliber of cannon or the number of missiles carried on board. The quantification of naval power is especially challenging in modern times as there are many different types of vessels and weapons systems. If one was to measure level power of a small number of states or number of vessels, it could be possible to analyze different capabilities of each vessel from a qualitative point of view, such as the type of number of missiles, the detection capabilities, and even the overall power of localization of systems. Nonetheless, when we're aspiring to create a vast comparative large-end study

that ranges for a long time, we have to make some compromises. So in this case, what we did, we used the commonly used data set that was published in 2014 by Christcher and Sova, and the data set records the total tonnage of all states both possessing at least one class ship or submarine of at least 1,000 tons. In other words, we have 73 states in the sample, and we measure the sum of total tonnage of all the platforms they possess. How are you measuring a state's merchant fleet in an area where you may have a vessel owned by a company in one state,

flagged to a second state, crewed by a multinational group, and then carrying cargo from 10 or more nations? Well, it's very challenging. The maritime shipping market has indeed become very complex in the area of globalization. We know that more than 70% of world ship in terms of tonnage sail under foreign flags, comparing to about 21% in the early 70s. And we know that while Article 91 of the UNCLOS states that there must be a genuine link between a vessel and its country of registration, this link is eroded and becomes very weak if it exists at all. And as you mentioned, it's quite common to find vessels that are accrued by people from various countries, while the flag of registration is rarely associated with the beneficiary owner. This trend by itself is a very interesting topic.

I think it's behind the scope of our conversation. I will just note that in another article published in Marine Policy, I demonstrated how the so-called open registry system impacts on states' ability to evade sanctions. So while a lot has changed in maritime shipping in recent decades, we still believe that the aspect of nationality of beneficial ownership still maintains a strong relationship between the owner and the state during wartime.

And we looked over states' laws and regulations that enable the government to declare a state of emergency, and we saw that in many states during such cases, the government can requisition, purchase, charter vessels owned by their citizens or firms that operate in these countries. So we know that these laws do not ensure that governments would have an effective control over each vessel its citizens own, especially, as you mentioned, if the ships are foreign-flagged or crewed by foreigners, nationalities who might be reluctant to serve on vessels sailing through a conflict zone. Nonetheless, we assume that the more vessels owned by a state's entity or operating in these states, over whom the government might have more power to convince, incentivize, or coerce to operate during the emergency, the more trade the states can ensure. So we adopted several definitions of ownership. In this study, we obtained data from Lloyds, which refers to the nationality of the ownership, and we made some robustness tests. We didn't present them in the article, but we refer also to beneficial ownership location, which is the commonly used definition of UNCTAD, Review of Maritime Transportation. sorry, this means the economy in which the company that is the main commercial responsibility for the vessel is located.

So overall, we are aware that we're using a crude measurement in both cases, but the results were so robust for each measurement that we used, so we find the finding very convincing. Put it another way, if one believes in statistical methods, he would convince that we have something here. No, I think everything that you describe is just reflective of the level of complexity of the maritime system. So God bless you both for sorting through all that data and creating all the wickets that you did to get to a place where you have a workable data set. Which post-World War II examples did you look at as you considered your various hypotheses?

So as part of our research, we refer to data from the Coalition of War Project, which is a commonly used data set in the study of international relation. And the research timeframe is from 1980 to 2011. And notable examples included in our data set is the Iran-Iraq War of the early 80s, the Falkland War, the Lebanon War of 82, the Second Lebanon War, the Gulf War, and Central. We did not get into the cases themselves as actually case study, but rather use them as examples to demonstrate that conflict increases fright rate, rate, sorry, and that naval power can moderate this rise or the storing insurance rates and so on. Interestingly, we submitted the first draft of the paper before the Russian invasion to Ukraine. And once we got the reviewers back and giving us the opportunity to revise and resubmit, the war broke out. And we also mentioned that the Russian blockade of Ukraine is a notable example of maritime trade warfare's ability to inflict substantial damage to a commerce trade and economic activity.

We also mentioned some other short-term incidents, such as the recent Iran attacks on oil tankers in Persian Gulf that were followed by a rise in insurance wage. And we saw that, if I remember correctly, three years ago that the UK Navy stated that it will escort tankers in the Gulf and it immediately reduces the rise in the insurance rate. So we believe that our theory or our intuition

is applicable also to major wars, major conflict and to also lower intensity incidents. Did you explore at all the role geography plays in the effect that it might have on trade there? Because when you talk about Iran, Iraq, for example, that trade has to pass through a very narrow conduit here that is easily interdicted and suffers a greater effect from conflict in and around that region versus, say, the Falklands, where you can drive all sorts of places to avoid conflict in and around the Falklands. And there's also, to my understanding, not nearly as much trade passing through that area as you see on a day-to-day basis in and around the Arabian Gulf. Yeah, sure. It's a great question. And I'm thankful that you weren't a reviewer of the article because it would make things very complicated. I'll give you the answer, the technical answer. First of all, it's something that we have to control for, surely.

In our statistical analysis, we're using a method called fixed effect. Fixed effect, it's a statistical method that can capture different specific types of each state that it doesn't vary across time. We kind of control for geographic and things like this. But I agree that if we hadn't done this, thinking about geography is quite important and it's a very good note. So I'm sure that it has effect, and if I wasn't using the fixed effect method, and I would put into the regression a lot of time-variant and time-invariant variables, such as the distance between states and their shoreline, their area and so on, I would have to put also to refer to maritime-related geographic factors. So the simple answer that we can fall for it. It's controlled for.

How difficult do you find it to reach conclusions, given the lack of quote-unquote great power, even middle power conflict in this period? So the U.S. was involved in conflict in Vietnam, Iraq, and Afghanistan, but none of those nations could really affect American trade. Even the Falklands, again, because of its location, It's there's minimal effect on the British or the Argentine trades. Neither side really opted to make that a focus of their their naval conflict.

Or is this support your theory that because those nations are strong naval forces, they experience little or no disruption of trade? It's a good question. First of all, definitely, if we think about the counterfactual effect, one might argue that U.S. trade would have been damaged had it not had such a slow navy. so the example that you gave provides notable evidence that naval power enables the states to maintain its representative sea lines of communication

having said that the question of whether it is possible to infer from large end study to extreme cases remains open and it's all it always challenges these types of research because

what we present represent the average marginal effect that war inflicts on trade, and we demonstrate the way maritime-related variables mitigate this damage. We can, of course, assume that conflict between China and Taiwan or China and U.S. would have higher trade-related costs to Taiwan or the U.S. or to China

than the damage we found in our statistical analysis, because we include in our independent variable war or conflict include conflict between low-scale states and between big states and small states and so on. So it's a good question. I cannot commit that we will see the same numbers that we present in the paper, but I think that our analysis indicates

that the magnitude of the damage is conditional to some degree on both states, China and U.S., or Taiwan and China and so on, in naval power and merchant fleet. Put it differently, I believe that the higher the merchant fleet of Taiwan, the lower the damage that the blockade would inflict on its trade. Conditional that it won't be a complete effective blockade, and it also depends on U.S. response and so on. But it's good things that we didn't have a major war that we can work with.

And we have to inform from academic studies like this. Yeah, I think we would all be best served by all this stuff remaining hypothetical and not having to test it out. Exactly. So I'll timestamp this next question for listeners. We are recording this Sunday, February 26. So if something changes that would affect the answer to this next question, that's why. But how does the Russia-Ukraine conflict fare in your analysis? You said after your first sort of round of edits, you had some opportunity to look at that through the lens that you're using here.

Yeah, overall, it's possible to say that the overwhelming presence of Russian naval assets in the northern part of the Black Sea enabled Russia to enforce a very effective naval blockade on the crime ports. The lack of any substantial naval forces from Ukraine's side encouraged Russia to maintain presence closer to Ukraine's shore, which is a strategic decision that led to a fatal losses on the Russian side, right? This is, again, a very interesting topic to discuss. to. Additionally, it is possible to see an increased activity of maritime traffic by vessels under the ownership or the control of Russian

entities, especially in export of sanctions committed. And we see these days that we're seeing that Russia is trying to assemble a shadow fleet to find a way to overpass the

sanctions or the imposed by the EU. So it's fascinating. It's very difficult to track of each vessel owned or used by Russia. But again, I think it highlights the importance of merchant fleet during conflict, merchant fleet that the government can use in order to obtain or to fulfill some national missions. We also see it in, for example, Iran, in order to evade sanctions, it uses its own enflagged vessels to send oil to Venezuela and to use other national missions. So the question about, as I mentioned, I have another article that focuses on the role of registry and the merchant fleet in bypassing or evading sanctions. Well, unfortunately, that's all that we have time for today.

I'd like to thank my guest, Dr. Nitsan Feldman, for coming on. Nitsan, where can we find you online and what are you working on next? Online, you can find me on Twitter. You presented the link, right? Nitsan Feldman. And at the University of Haifa, of course. If you're coming, come to visit, say hi. We have a very developed center of maritime strategy.

Haifa is a cold city. So a lot of people from the shipping industry and a lot of interesting things are going on. So as I mentioned, if I'm going back to your first question, I mentioned that it's quite difficult to quantify or to measure naval power. And I won a big grant from the Israeli Scientific Foundation, and I'm employing a lot of research assistants that are trying to assemble and update a data set that also refers to all sorts of qualitative aspects of states' levels. So hopefully it will be published in about one year from now, and then you'll call me again and we'll speak and I'll present the data set. And now I look forward to that. Really, I do. That's one of the more exciting projects I've seen coming out of here. And this was a fascinating to dive into with you. But thank you again for joining us. To listeners, thanks for tuning in. We'll see you next time.

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