SEOUL, South Korea — For all its death and destruction, war also imparts instruction for those willing to learn. The ongoing conflict in the Middle East shows how easily a regional economy dependent on seaborne shipping can be taken hostage — a lesson with worldwide applications, but one that is particularly sobering for China, the world’s biggest exporter.
The war between the U.S. and Iran underscores the massive economic risks a trade-dependent China faces if Beijing undertakes an invasion of Taiwan.
In addition to the extreme peril built into any assault across the 100-mile-wide Taiwan Strait, Chinese officers planning that operation must also confront a double-headed dilemma strikingly apparent in the Persian Gulf.
On the one hand, Beijing must consider the likely closure of the Malacca Strait, which connects the Indian and Pacific oceans, and is the world’s second-busiest shipping lane after the English Channel.
Approximately 80% of China’s energy imports pass through the strait, and almost 60% of its seaborne commerce.
On the other, China has to consider the same stark fact confronting the Americans in the Middle East: A powerful navy does not necessarily ensure that shipping lanes remain open, nor does it guarantee that the maritime insurance sector is willing to gamble with massive ships loaded with millions of dollars worth of cargo.
Maritime insurers dictate whether, and at what premiums, commercial vessels move through conflict zones — and China’s trade-reliant economy needs a constant flow of container ships, energy carriers and bulk carriers.
“For PLA planners gaming a Taiwan contingency, the lesson is immediate,” wrote U.S. Navy Commander Ander S. Heiles, in an April guest article for the Center for International Maritime Security. “Any conflict that triggers a disruption at the Malacca Strait could strangle China’s economy before a single shot is fired.”
Closing Malacca
The 580-mile-long Malacca Strait lies between Malaysia and Indonesia, with Singapore a key hub at its southeastern entrance. Due to the primacy of East Asia in millennial manufacturing, it funnels almost one-third of the world’s trade in goods, and nearly half of seaborne oil shipments.
Beijing recognizes its importance. In 2003, then-Chinese President Hu Jintao coined the term “The Malacca Dilemma,” and China’s military has made some efforts to hedge the risks.
The People’s Liberation Army Navy has essentially seized control over the sea lines of communication, or SLOC, leading to the southeastern or “bottom” end of the strait. It has terraformed a series of reefs and islets in the South China Sea into air-sea-land bases, backstopped by powerful assets on the mainland.
However, that maritime terrain only grants Chinese shipping secure access to a funnel that is highly vulnerable to blockade.
“Just a couple of guided-missile destroyers at the top of the strait could close it to China,” said Lance Gatling, Tokyo-based principal of Nexial Research and a former officer with U.S. Forces Japan.
“At its closest choke point, it is just a couple of kilometers wide,” added Alex Neill, a Singapore-based fellow of the think tank Pacific Forum, referring to the strait’s southern waterway, off Singapore. “It is a crazy bottleneck, so it is relatively easy to blockade.”
The strait’s northwestern geography does not favor China: Its “top” end is overwatched by the India-controlled Nicobar and Andaman Islands.
New Delhi is engaged in a tense strategic confrontation with Beijing in the high Himalayas and is highly sensitive to Chinese power projection into the Bay of Bengal. India’s navy fields aircraft carriers and nuclear submarines, and is engaged in its biggest-ever expansion.
There are other routes for Chinese shipping from points west of the Malacca Strait to reach home ports, including the Lombok and Makassar Straits through the Indonesian archipelago.
But those routes add additional cost, and would likely become high risk in the event of hostilities: They provide ideal ambush locations for American, and potentially Australian and Japanese, submarines.
In April, the U.S. and Indonesia signed a Major Defense Cooperation Partnership agreement in Washington, presaging closer military relations going forward. However, the MDCP does not offer the same kind of relationship the U.S. has with the Philippines, where GIs rotate through a series of bases equipped with weapons including land-to-sea missiles.
This indicates that China and the U.S. have much to play for across Indonesia’s vast network of islands.
“Maybe there is some discussion about bases and places, and facilitating enhanced U.S. interactions,” said Mr. Neill of the recent agreement. “At the same time, China has got such a big footprint and influence over Jakarta, there is pressure they could apply.”
Geopolitical chess
With its naval position geographically disadvantaged, China is extending its influence in other domains.
It has doubled down on overseas land transport corridors — road, rail, pipeline — with partners on the Eurasian continent, from Pakistan to Russia.
Its “Belt and Road Initiative” is winning influence regionwide via huge infrastructure projects — including a $7 billion Indonesian high-speed rail system that opened in 2023. Chinese technology is also deeply embedded in Indonesia’s digital infrastructure.
Another potential Malacca Strait workaround for China is a Panama Canal-style project. The 63-mile-long “Kra Canal” was foreseen as early as the 17th century as a shipping shortcut carved across the Thai Isthmus.
The likelihood of realization, however, is low.
“The idea has surfaced again, but it would be far more vulnerable to closure than the Malacca Strait,” Mr. Neill said. “It is pooh-poohed by a lot by Southeast Asian specialists. … It is almost a subject of mirth.”
London calling
Beyond geopolitical vulnerabilities, Beijing must also contend with financial weaknesses.
While the U.S. and China field the world’s largest navies, neither is a total maritime power. Maritime powers combine powerful navies, capable shipyards and maritime finance sectors.
Underwriting maritime commerce is maritime insurance, with London the global industry leader, and European and Asian capitals making up the remainder. China, despite strengths in trade and shipbuilding, underwrites less than 15% of global cargo shipping.
Cmdr. Heiles, in his CIMS article, contended that the key lesson Beijing is learning from the Iran conflict is likely not kinetic, but commercial.
The Strait of Hormuz was closed, he wrote, “not by minefields or naval blockade, but by the withdrawal of maritime insurance and the cascading commercial decisions that followed.”
If war erupted over Taiwan, China would likely face an “insurance blockade.”
Within three days of the start of the U.S.-Israeli joint military campaign called Operation Epic Fury, the International Group of Protection and Indemnity Clubs — which insure 90% of ocean-going tonnage — issued cancellations of war risk coverage for the Strait of Hormuz.
“The choke point was not closed by missiles,” the officer wrote. “It was closed by spreadsheets.”
While warships may compel ships to stand to on the high seas, they cannot compel insurers to write policies.
Washington is widely expected to fight for Taipei in the event of a contingency. Tokyo is increasingly invested in its defense, and Australia and the Philippines could join the fight.
That means naval combat would almost certainly not be confined to the Taiwan Strait, but would ripple outward. That suggests a scale of risk to shipping far greater than the Iran crisis — with far graver economic implications.
“China’s maritime insurance ecosystem does not yet have enough depth or international credibility to underwrite the scale of coverage that a Taiwan-related disruption would demand,” Cmdr. Heiles wrote. “Even if China can insure its own flag vessels, it cannot compel foreign-flagged ships to continue sailing into a warzone.”
