ECONOMIC OPERATION: State’s Compulsion to Maintain Peace and Diplomacy Economic
ABSTRACT
Economic operations act as a critical compulsion for states to uphold peace and diplomacy in a globalized world. As economic interdependence deepens, states find themselves navigating complex webs of trade, finance, and strategic interests that often necessitate diplomatic engagement over military confrontation. By examining key economic frameworks, international case studies, and the evolving role of global institutions, the study investigates how economic factors shape state behaviour in maintaining international peace. Drawing on realist and liberal institutionalism theories of international relations, we will highlight the strategic calculations behind economic diplomacy, sanctions, aid, and investment. The findings suggest that in an era of economic globalization, peaceful diplomatic relations have become not only a normative goal but an economic necessity. This study concludes by offering recommendations for leveraging economic tools to prevent conflict and enhance cooperative international order.
INTRODUCTION
In the contemporary global order, the preservation of peace and diplomacy is no longer driven solely by ideological commitments or the pursuit of moral values. Instead, economic operations have emerged as a central force that compels states to maintain cooperative relations and avoid direct conflict. With the world increasingly interdependent through trade, investment, resource exchange, and digital connectivity, the stability of a nation’s economy is closely tied to its international behaviour. This has transformed economics from a domestic policy concern into a key instrument of foreign policy, where maintaining peace is not just a diplomatic preference but a national economic necessity.
Economic globalization has redefined the cost-benefit calculus of conflict and cooperation. Wars are now economically disastrous not only for the directly involved parties but also for regional and global systems. As a result, states particularly those integrated into the global economic network are under growing pressure to preserve peace through diplomatic mechanisms, rather than military ones. This phenomenon is particularly evident in institutions like the World Trade Organization (WTO), the International Monetary Fund (IMF), and various multilateral trade agreements that incentivize peaceful coexistence by economically penalizing aggression or instability.
Furthermore, emerging economies, dependent on foreign investment, access to markets, and development aid, are often compelled to align their foreign policies with norms that favour peace and dialogue. The increasing reliance on global supply chains and international financial systems has created a geopolitical environment where economic sanctions, embargoes, and conditional aid have become powerful tools for conflict resolution and state behaviour management.
In this paper I aim to explore how economic operations function as mechanisms of state compulsion in the maintenance of international peace and diplomacy. It will examine the theoretical foundations behind economic interdependence and peace theory, analyze key case studies; such as the US-China economic rivalry, European energy diplomacy with Russia, and sanctions on Iran and evaluate the roles played by international institutions in this context. By doing so, the study will argue that in today’s world, economic stability and access have become equally, if not more, important than military might in shaping a state’s international behaviour.
LITERATURE REVIEW
The intersection of economics and international peace has long been a subject of scholarly attention. From classical liberalism to modern-day global governance frameworks, economists, political scientists, and policymakers have emphasized the role of economic interdependence in shaping diplomatic choices. This literature review explores key theories, case studies, and institutional practices that underpin the role of economic operations in compelling states to maintain peace and diplomacy.
• Economic Interdependence Theory
One of the foundational arguments in this discourse is the economic interdependence theory, which posits that states deeply tied through trade and financial systems are less likely to go to war due to the high costs associated with conflict. Richard Rosecrance (1986), in The Rise of the Trading State, argued that the modern era favours “trading states” over “territorial states,” where economic gains through cooperation outweigh benefits from territorial conquest. Similarly, Keohane and Nye (1977) introduced the concept of “complex interdependence,” suggesting that multiple channels; economic, social, and institutional bind states together and reduce the utility of war as a policy tool
This theory remains relevant today, especially when analyzing how states with high trade volume tend to resolve disputes through arbitration or diplomacy. For instance, Copeland (2014) argued in Economic Interdependence and War that expectations about future trade relations significantly influence state behaviour. If leaders believe economic benefits will grow, they are more inclined to pursue peace.
• Global Institutions and Economic Peacekeeping
International institutions like the World Bank, IMF, World Trade Organization, and UN play a significant role in promoting peace through economic mechanisms. Scholars like Robert Keohane (1984) have argued that such institutions reduce transaction costs and uncertainties in international relations, thereby facilitating peaceful cooperation.
For example, Dreher and Jensen (2007) studied IMF programs and found that countries receiving consistent economic support were less likely to experience domestic instability and conflict. Similarly, Hafner-Burton (2005) pointed out that trade agreements with embedded human rights clauses often promote long-term political stability, pushing states to align with diplomatic norms.
• Sanctions as Tools of Economic Compulsion
Economic sanctions have evolved as one of the most potent non-military tools to discipline or pressure states. Scholars like Hufbauer, Schott, and Elliott (2007), in their seminal work Economic Sanctions Reconsidered, categorize sanctions as methods of coercion used to bring about desired political behaviour without resorting to war. Although their effectiveness varies, sanctions have become central to foreign policy strategies of the US, EU, and UN.
Case studies such as the sanctions on Iran (2010–2016) illustrate how economic pressure can force states into negotiations (in this case, the Joint Comprehensive Plan of Action). While Iran faced internal economic hardship, the broader diplomatic result was engagement rather than escalation. However, scholars like Pape (1997) argue that sanctions often hurt civilians more than elites, questioning their moral legitimacy.
• Foreign Aid and Peacebuilding
Foreign aid; particularly development assistance and post-conflict reconstruction funding is another form of economic operation that promotes peace through incentive structures. According to Collier and Hoeffler (2002), economic incentives can reduce the likelihood of relapse into conflict, especially in fragile states. Aid can be conditioned to promote governance reforms, democratic institutions, and demilitarization.
The Marshall Plan remains a historical benchmark of this logic using economic reconstruction to stabilize post-WWII Europe and prevent the spread of communism. In more recent years, OECD DAC countries have used aid strategically to support peace processes in South Sudan, Colombia, and Afghanistan.
• Globalization and the De-Militarization of Diplomacy
Globalization has redefined the playing field of diplomacy. Scholte (2005) argues that economic globalization produces shared vulnerabilities like financial crises, supply chain shocks, and resource dependencies which encourage multilateral cooperation. In such a setting, using military tools becomes less desirable and often counterproductive.
Frieden and Rogowski (1996) claim that globalization increases the salience of domestic economic actors such as corporations, investors, and consumers who have a vested interest in peace and stable international relations. Their lobbying power pressures governments to pursue diplomatic channels, not military escalation.
• Energy Diplomacy and Resource Security
Energy resources, particularly oil and gas, have become tools of economic diplomacy. Scholars like Victor, Jaffe, and Hayes (2006) in Natural Gas and Geopolitics explore how access to energy shapes international alignments. The European Union’s energy diplomacy with Russia illustrates how economic interdependence in the energy sector creates both compulsion and leverage for peace.
On the other hand, the resource curse theory (Auty, 1993) suggests that excessive reliance on natural resources can fuel internal and external conflicts, particularly when governance is weak. Hence, managing economic operations around resources becomes central to maintaining peace.
• Debt Diplomacy and Strategic Investments
China’s Belt and Road Initiative (BRI) and the concept of “debt-trap diplomacy” have added new dimensions to how economic operations can compel diplomatic alignment. Brautigam (2020) refutes alarmist views, arguing that while BRI projects sometimes lead to dependency, they also offer infrastructure and economic growth opportunities to developing states.
However, the strategic placement of Chinese investments in ports, roads, and railways across Asia and Africa has geopolitical undertones. This raises questions about how states respond to economic dependencies and whether such strategies promote long-term peace or create new tensions.
• Digital Economy and Cyber-Economic Leverage
With the rise of the digital economy, data, tech platforms, and cybersecurity have become new instruments of economic and diplomatic influence. Scholars like Farrell and Newman (2019) introduced the concept of “weaponized interdependence,” where states controlling critical nodes in the digital system can exert disproportionate influence.
For example, the US controls many foundational internet technologies, while China is expanding digital influence through companies like Huawei. These forms of economic power are increasingly used to set global norms, build alliances, or isolate adversaries without firing a single shot.
• Peace Through Regional Economic Integration
Regional economic organizations such as the European Union (EU), ASEAN, ECOWAS, and Mercosur exemplify how collective economic frameworks can promote peace. The EU in particular stands as a post-conflict model of how economic integration can transform adversaries into partners.
Deutsch et al. (1957) called this the development of a “security community,” where war between members becomes unthinkable. Shared regulations, cross-border investments, and labour mobility create powerful incentives to resolve disputes diplomatically.
• Critiques and Limitations
While the literature supports the idea that economic operations promote peace, there are critical voices. Realist scholars argue that states act based on national interest and survival, not economic gain. They caution against over-relying on economic tools, especially when dealing with rogue regimes or ideological actors.
Moreover, economic operations sometimes produce new inequalities, dependency, and resentment, which can fuel conflict in the long term. Peace maintained through economic coercion might be temporary or fragile if not supported by structural reforms and inclusive governance.
RESULTS AND DISCUSSION:
The synthesis of the reviewed literature with real world developments shows a strong empirical link between economic operations and diplomatic behaviour. Economic strategies ranging from cooperation and integration to coercion and competition are now embedded in statecraft and influence global peace outcomes.
One compelling example is the economic interdependence between China and the United States. Despite ideological tensions and strategic rivalry, both nations have demonstrated restraint due to their extensive economic ties. As of 2022, bilateral trade between the U.S. and China exceeded $700 billion (U.S. Census Bureau, 2023). This massive trade volume acts as a buffer against full-scale conflict, as disruptions would severely damage both economies. Similarly, U.S. companies remain deeply embedded in Chinese supply chains, and China holds over $800 billion in U.S. Treasury securities, creating mutual deterrents.
In Europe, the EU’s economic reliance on Russian energy presented both opportunities and risks. Prior to the Ukraine war, over 40% of the EU’s gas imports came from Russia (Eurostat, 2021). This dependence influenced foreign policy decisions and delayed collective responses to Russian aggression. However, after the 2022 invasion of Ukraine, the EU recalibrated its economic ties by reducing imports and investing in renewable alternatives, showing how economic leverage can also be reversed when it conflicts with broader security and moral objectives.
Economic sanctions imposed on Iran offer another perspective. The U.S. and its allies used sanctions to exert pressure over Iran’s nuclear program. These sanctions drastically reduced Iran’s oil exports and isolated its banking sector, eventually contributing to the 2015 Joint Comprehensive Plan of Action (JCPOA). Although the agreement later collapsed, the case exemplifies how economic operations can bring adversaries to the negotiating table.
International institutions also play an indispensable role in this economic-diplomatic dynamic. The IMF’s conditional lending, for example, requires structural adjustments and political commitments that often align recipient states with broader global governance norms. In Africa, countries such as Ghana and Kenya have received substantial aid packages linked to good governance and peacebuilding efforts.
Multilateral trade frameworks such as the WTO and regional blocs like ASEAN foster regular diplomatic engagement, provide conflict-resolution platforms, and penalize states that breach economic norms. These mechanisms create predictable environments where peace is economically rewarded, and aggression is penalized.
However, the effectiveness of economic operations in promoting peace is not universal. Some states, like North Korea, have adapted to sanctions through illicit trade and support from sympathetic allies. Additionally, economic pressure can fuel nationalism, as seen in Venezuela, where sanctions have entrenched authoritarian behaviour rather than moderated it. Thus, while economic operations serve as strong incentives or deterrents, they are not infallible solutions.
CONCLUSION AND FINAL RECOMMENDATIONS:
In an era of growing global interdependence, the strategic use of economic operations has emerged as one of the most effective tools for maintaining peace and diplomacy. The evidence presented in this paper demonstrates that when states are economically interconnected, the cost of conflict becomes prohibitively high, leading to a natural inclination toward peaceful negotiation and cooperation.
Economic interdependence, whether through trade, investment, energy, or aid functions as both carrot and stick in the international arena. While cooperative economic frameworks reward peaceful behaviour, punitive tools like sanctions and conditional aid deter aggression and non-compliance. Institutions such as the WTO, IMF, and regional organizations amplify these mechanisms by institutionalizing norms and providing forums for dialogue.
However, reliance on economic operations is not a silver bullet. The effectiveness of these tools is contingent on enforcement consistency, global consensus, and the internal political dynamics of the targeted state. Moreover, economic diplomacy must always balance immediate strategic goals with long-term ethical considerations, as sanctions and aid programs can have unintended consequences on civilian populations.
RECOMMENDATIONS:
• Strengthen Multilateral Economic Institutions: Global and regional organizations should be empowered with greater enforcement authority to ensure adherence to peaceful norms through economic means.
• Use Sanctions Strategically and Humanely: Sanctions should be precisely targeted at elites and institutions responsible for aggression rather than the general population to avoid humanitarian crises.
• Promote Regional Economic Integration: Encouraging economic blocs and trade partnerships can serve as long-term stabilizers in volatile regions.
• Integrate Economic Diplomacy with Conflict Prevention: Economic incentives and deterrents should be embedded into diplomatic negotiations to prevent the outbreak of conflict.
• Develop Sustainable Energy Diplomacy: Diversifying energy sources and investing in renewables can reduce dependency on volatile suppliers and decrease leverage in conflict-prone regions.
• Monitor and Regulate Digital Economic Tools: As data and technology become integral to national economies, new frameworks must address digital dependencies and prevent cyber-economic coercion.
• Link Foreign Aid to Peace Metrics: Aid programs should include clear indicators and benchmarks related to peacebuilding and conflict mitigation.
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