By Nathan Balis

India’s economy depends overwhelmingly on maritime routes, with 95% of its trade by volume passing through the Indian Ocean. In an era where economics and national security are increasingly intertwined, this maritime dependence carries extraordinary strategic weight, particularly given India’s position between hostile neighbors in Pakistan and China. Chokepoint crises, whether in the Red Sea or South China Sea, repeatedly demonstrate how maritime disruptions shock the global economy, making sea lane security a central element of India’s strategically ambiguous positioning in today’s divided geopolitical landscape. Understanding India’s maritime strategy requires examining three interconnected elements: the economic stakes of its sea lane dependencies, the security investments anchoring its regional presence, and the port diplomacy and naval power that extend its influence across the Indian Ocean.

The Economics Stakes of Sea Lanes

The economic risks of maritime trade disruption are well-established: higher shipping costs, surging insurance premiums, inflationary spillovers into energy and food prices, and supply chain disruptions that slow growth. While these shocks reverberate through every trading economy, they hit particularly hard in highly exposed economies like India’s, where maritime routes sustain economic activity.

The 2023 Red Sea Crisis illustrated India’s maritime vulnerability. Regional instability disrupted a strait through which India passed roughly 80% of its European exports (the EU accounts for about 15% of India’s goods exports). Freight costs exploded, with Kolkata to Rotterdam shipments surging from $500 to $4,000. While this crisis represented a rare case of overt Indian geopolitical alignment with Israel, which prompted Houthi aggression against its vessels, it nonetheless underscored India’s exposure to maritime instability. The timing proved particularly damaging given the already ongoing war in Ukraine, as India had surged its imports of Russian crude oil, leveraging its refining capacity to re-export petroleum products to Europe and bypass Russian sanctions. This petroleum export flow dropped 38% due to the crisis.

The “Malacca Dilemma” is often framed as a Chinese vulnerability, but India faces an equally acute dependence, as 60% of its sea-based trade passes through the strait, including nearly all its liquefied natural gas (LNG) and 80% of its oil imports.

Maritime Security Strategy

1. Policy Frameworks

India’s Act East Policy, announced in 2014, represents the strategic evolution of its 1990s-era Look East approach. Where the earlier policy focused primarily on economic engagement, Act East adds substantial security layers that explicitly aim to counter Chinese regional influence geoeconomically. The policy seeks to deepen economic ties with Southeast Asia while projecting influence eastward through security partnerships, maritime diplomacy, and connectivity projects.

India reinforced this framework in 2019 with the Indo-Pacific Oceans Initiative (IPOI), a multilateral platform that explicitly prioritizes maritime security and cooperation.

2. Andaman and Nicobar Command

The most concrete manifestation of these policy frameworks is the Andaman and Nicobar Command (ANC), established in 2001, just 100 nautical miles northwest of the Malacca Strait. As India’s only tri-service command, the ANC integrates Navy, Air Force, and Army assets under a single Commander-in-Chief (CINCAN) that provides unified operational command at one of India’s most strategically valuable positions.

The ANC’s mission encompasses maintaining domain awareness over the eastern Indian Ocean, securing sea lanes, conducting anti-piracy and disaster response operations, and providing surveillance coverage across the Malacca, Lombok, and Sunda Straits. It also serves as a staging point for joint exercises with partner navies, including the U.S., Japan, Australia, France, Singapore, and Indonesia. Effectively, the ANC functions as India’s forward operating base at its most crucial chokepoint.

3. Infrastructure Expansion

Over the past decade, India has significantly expanded ANC-supporting infrastructure. INS Baaz, a naval air station established in 2012 at the southern tip of Great Nicobar Island, is India’s closest airfield to the Malacca Strait at roughly 300 nautical miles. Currently being upgraded to handle P-8I maritime patrol aircraft and potentially fighter jets, INS Baaz extends India’s surveillance and rapid response capabilities directly into the strait’s northern approaches. Supporting installations include INS Kohassa and INS Utkrosh, which provide rotary-wing and light aircraft operations.

India has also developed extensive dual-use infrastructure, including jetty expansions, fuel storage facilities, radar stations, and communications networks. Future plans include a major transshipment port and airfield on Great Nicobar Island that will serve as both a civilian commercial hub and strategic military facility.

4. Multilateral Exercises

Complementing this physical infrastructure, India’s Malabar naval exercises with the U.S., Japan, and Australia serve as both strategic signaling and interoperability building. The exercises’ locations include the Philippine Sea and waters off Japan; an implicit message to China that the Quad nations are capable of coordinated naval operations across the Indo-Pacific, including in areas of core Chinese interest.

This cooperative posture serves two purposes: it acts as a counterweight to Chinese regional aggression while embedding a crucial economic logic into India’s security framework. From the Indian perspective, protecting sea lanes is fundamentally about safeguarding economic stability, and not merely power projection.

Port Diplomacy and Regional Connectivity

Beyond developing its own major ports, India has pursued a deliberate strategy of international port partnerships that provide strategic regional access. This approach operationalizes Prime Minister Modi’s SAGAR vision (Security and Growth for All in the Region), which sets a framework for maritime cooperation while directly countering China’s “String of Pearls” strategy.

Indian strategists widely perceive this network of port investments encircling India as a containment threat, which prompted India to develop its own “Necklace of Diamonds” strategy, in a counter-network of port access agreements. Five ports illustrate this strategy’s geographic scope and logic. 

1. Chabahar Port

Chabahar Port, located on Iran’s southeastern coast along the Gulf of Oman, represents India’s most important port access agreement near the mainland. Serving as India’s primary gateway to Afghanistan and Central Asia, the port allows India to bypass Pakistani territory entirely—a capability that has become increasingly indispensable given hostile relations. Since Modi’s 2016 deal, India has invested over $500 million in the port itself, part of a larger $8 billion commitment to Iran’s Chabahar Special Economic Zone that includes road and rail networks connecting to iron and steel mining projects in Afghanistan.

Chabahar’s true purpose, however, lies in countering the China-Pakistan Economic Corridor (CPEC). Launched in 2015, CPEC forms the flagship project of China’s Belt and Road Initiative (BRI), a 3,000-kilometer infrastructure network linking western China directly to Pakistan’s Gwadar Port on the Arabian Sea. Gwadar provides China with a land-sea bypass route that avoids the Malacca Strait entirely, while simultaneously giving Beijing a permanent presence in India’s maritime sphere. Modi’s 2016 Chabahar announcement was intentionally responsive, coming just one year after CPEC’s inception. Both China and India employ similar “port diplomacy” frameworks in a striking parallel, where infrastructure investments are made in economically struggling neighbors whose governments welcome the capital.

2. Duqm Port

Oman, the first Gulf nation to formalize defense relations with India, is a natural partner for Indian port diplomacy. The relationship has incrementally strengthened, with India stationing its INS Mumbai guided-missile destroyer at Duqm for years before securing formal access for both Navy and Air Force assets in 2018.

The arrangement is mutually beneficial. Oman gains a capable security partner in a region frequently destabilized by piracy, militant attacks, and regional conflicts, as India has run anti-piracy operations and protected commercial shipping from Houthi attacks. India, in turn, gains strategic access in the Arabian Sea outside the Strait of Hormuz, extending its reach westward and providing a logistics hub for sustained Gulf operations.

3. Sabang Port

Sabang Port is a valuable example of the gap between aspiration and political reality. Located at the northern tip of Indonesia’s Aceh province, directly at the northern entrance to the Malacca Strait, Sabang would provide India with a forward position far closer to the chokepoint than the ANC. Indonesia extended an invitation in 2018 for India to develop the port and city, and Indian naval vessels have been granted access.

However, meaningful development has stalled, as investment proposals remain under review and appear unlikely in the near term. The Indonesian strategic community has firmly rejected Indian characterizations of Sabang as a potential military base, emphasizing Indonesia’s long-standing alliance-free foreign policy. Indonesia has already raked in over $35 billion worth of Chinese investment through the BRI and is unlikely to provide India with any military exceptionalism. Until India and Indonesia reach formal agreements with long-term visibility, Sabang remains largely aspirational. 

4. Sittwe Port

Sittwe Port in Myanmar’s Rakhine State represents a unique case in India’s port diplomacy, as one focused on internal connectivity rather than expansive power projection. Part of the broader Kaladan Multi-Modal Transit Transport Project (KMTTP), the port came under full control of India Ports Global in 2024. The project aims to connect Kolkata to Myanmar through combined sea and land routes, reinforcing supply lines to India’s northeastern states. This addresses the critical vulnerability that is the Siliguri Corridor (“Chicken’s Neck”), which represents the sole land connection between mainland India and its Seven Sisters states. This 20-kilometer-narrow corridor, squeezed between Nepal, Bhutan, Bangladesh, and China, could be severed in any conflict scenario, effectively isolating the region. Sittwe Port provides a maritime bypass, allowing India to supply its northeastern territories through Myanmar even if land routes are compromised.

While India’s port diplomacy generally aims to counter external threats and chokepoints, Sittwe illustrates a case of arguably superior importance, where maritime strategy works towards inward territorial cohesion.

5. Changi Naval Base

At the southern entrance to the Malacca Strait, Singapore’s Changi Naval Base provides India with another key access point as part of a long-standing defense relationship. Singapore positioned itself as among the earliest supporters of India’s 1990s Look East policy, and as Indian Defense Minister Mukherjee noted in 2006, Singapore had become “the hub of [India’s] political, economic and security strategy in the whole of East Asia.”

Military cooperation formalized in 2017 when both nations signed an agreement allowing reciprocal access to naval facilities for logistics and resupply. Combined with access to Sabang Port (should that materialize), Changi would provide an Indian presence at both the northern and southern entrances to the Malacca Strait, effectively bracketing the chokepoint with logistical hubs. Even without Sabang’s full development, Changi alone extends India’s sustained operational range into Southeast Asian waters.

The Economics of Naval Power

1. Naval Shipbuilding and Industry Growth

Indigenization forms the cornerstone of India’s naval modernization strategy, embodied in the “Aatmanirbhar Bharat” (self-reliant India) doctrine. This approach serves to both reduce dependence on foreign defense suppliers while capturing the economic benefits of domestic shipbuilding. Currently, the construction of 60 naval vessels is projected to generate over 800,000 jobs and circulate more than $35 billion through the Indian economy. Success stories like the indigenously built INS Vikrant aircraft carrier and INS Arihant and Arighaat ballistic missile submarines demonstrate India’s advancing shipbuilding capabilities.

Nearly 70% of the Navy’s capital expenditure now flows to indigenous projects, while approximately 90% of Maintenance, Repair, and Overhaul (MRO) operations are performed by Indian contractors, primarily Micro, Small, and Medium Enterprises (MSMEs). The economic multiplier effect means each shipyard worker creates approximately 6.4 additional jobs in ancillary industries, as the complexity of modern naval construction reverberates demand across the electronics, steel, maritime equipment, and defense sectors. This multiplier effect operates not just through capital expenditure on new ships but also through continuous MRO spending, pushing sustained economic activity.

These investments are reflected in the shipbuilding industry’s growth, from approximately $90 million in 2022 to over $1.1 billion in 2024, with projections reaching $8 billion by 2033.

2. Returns on Investment:

India’s blue-water naval capabilities have produced returns across multiple sectors, and while this analysis has focused primarily on strategic chokepoints, the Navy’s operational contributions extend to trade route security, anti-piracy operations, humanitarian assistance, and nuclear deterrence through its ballistic missile submarine fleet.

Operation Sankalp, India’s sustained Gulf deployment, escorted 624 lakh tons of cargo aboard 503 Indian-flagged merchant vessels in 2023. In 2024 alone, the Navy deployed approximately 30 ships to the region, protecting some 230 merchant vessels carrying over $4 billion in cargo. This capability has established India as a “net security provider” in the Gulf of Aden and Arabian Sea, as it has directly prevented cargo losses from attacks and helped stabilize surging maritime insurance premiums during periods of instability. 

Unsurprisingly, India’s incentives for this protection are substantial. In FY 2019-20, over 60% of India’s oil imports (worth some $66 billion) originated from Persian Gulf producers. Following the Ukraine conflict, India’s dependence on seaborne energy imports likely surged as did Russian oil supplies (arriving via maritime routes). With India importing roughly 85% of its oil needs, and nearly all of that arriving by sea, naval protection of energy supply lines directly sustains economic stability.

3. Budget Allocation and Structure:

In India’s FY 2024-25 defense budget of approximately $75 billion, the Navy received just 19% of the total, representing the smallest allocation among the three services. This budget sustains a blue-water navy of approximately 130-150 ships, including two aircraft carriers and two ballistic missile submarines. While modernization funding has increased in both absolute terms and as a percentage of the naval budget, most expenditures still flow to recurring costs of salaries, pensions, and operational maintenance. This structural constraint limits capital available for new platforms and capabilities, directly hindering the Navy’s ability to operate from the Persian Gulf to the South China Sea. This reflects a fundamental tension in India’s security strategy, where it faces primarily land-based adjacent threats from Pakistan and China, which drives Army and Air Force prioritization, yet its economic security depends overwhelmingly on maritime trade routes.

Strategic Synthesis

India’s maritime strategy reveals a sophisticated understanding of 21st-century geoeconomics, where naval power functions less as traditional military projection and more as economic lifeline protection. This article demonstrates how India has built a comprehensive maritime security framework through three mutually reinforcing elements: forward military infrastructure, port diplomacy, and a modernizing indigenous naval-industrial base.

India’s achievements are thus far concrete. The ANC provides a robust forward presence close to the Malacca Strait as a unified tri-service command. The port diplomacy network extends India’s operational reach across critical flashpoints: Chabahar counters CPEC, Duqm provides Arabian Sea access outside the Hormuz chokepoint, Changi brackets the Malacca strait from the South, and Sittwe fortifies the strategically vulnerable Seven Sisters’ link to the mainland. These deliver power projection without the political complications of permanent overseas bases.

By prioritizing indigenous shipbuilding, India has transformed naval modernization from a pure security expenditure into a wider economic development program. With multiplying effects across ancillary industries, economic circulation simultaneously builds the platforms that protect billions in annual trade. Multilaterally, India has positioned itself as the regional “net security provider” through the SAGAR framework and Quad partnerships. The Malabar exercises demonstrate interoperability with leading navies, while anti-piracy operations in the Gulf of Aden protect public goods, enhancing India’s regional standing. Importantly, India maintains this cooperative posture without abandoning its strategic autonomy and avoiding formal alliance commitments that constrain its diplomatic flexibility.

Yet formidable challenges constrain India’s ambitions, as China’s PLA Navy poses the most acute threat with a growing numerical advantage. China commissions warships at a pace India cannot match, supported by a shipbuilding industrial base that dwarfs India’s capabilities and dominates the global market. China’s BRI compounds this with strategic encirclement, as its “String of Pearls” has created a network of forward operating locations surrounding India.

CPEC and Gwadar Port represent important concerns, placing Chinese-backed (and controlled) infrastructure directly on India’s maritime doorstep. Domestically, the Indian Navy’s lacking budget share reflects a fundamental geostrategic dilemma: major land-based threats from Pakistan and China mean the Army and Air Force consume most defense resources, even as India’s economic security depends on maritime trade. Capital expenditure for new platforms competes with recurring costs, holding back the necessary acquisition pace. Structural vulnerabilities remain, as a majority of India’s seaborne trade still transits the Malacca Strait, over which it does not have control. The Siliguri Corridor remains a weakness despite access to Sittwe port, with the entire northeastern territory depending on either a narrow land corridor or maritime coordination through Myanmar.

Nonetheless, India’s maritime positioning suggests strategic awareness rather than complacency through the integration of economic imperatives with security investments. As it accelerates its current trajectory, India will seek to secure a position of regional prominence to protect its economic interests. This will require sustained prioritization of maritime capabilities despite competing land-based security demands. India’s maritime strategy reflects the reality that naval power is not optional expenditure but essential economic infrastructure. The ~$14 billion annual naval investment spent on protecting over $850 billion in maritime trade represents a ~1.7% insurance premium on economic survival.

For India, this era of increasing economic statecraft means the ability to safeguard sea lanes directly determines the nation’s capacity for growth, energy security, and national autonomy. The strategy’s success will largely determine the extent to which India develops as a truly independent pole in the Indo-Pacific or remains vulnerable to coercion through maritime interdiction.

References

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Other References:

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https://www.icwa.in/pdfs/IndoPacificOceansInitiative.pdf

https://byjus.com/free-ias-prep/sabang-port-upsc-notes

https://maritimeindia.org/the-sabang-and-aceh-andamans-initiatives-beyond-base-access-and-balancing

https://www.orfonline.org/expert-speak/shifting-tides-indias-port-dominance-in-myanmar

https://en.tempo.co/read/2043827/chinas-investment-in-indonesia-hits-us35-3-billion

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https://defence.in/threads/pm-modi-touts-rs-3-trillion-economic-benefit-from-60-naval-ships-under-construction-expected-to-generate-8-40-000-jobs.12334

https://www.drishtiias.com/daily-updates/daily-news-editorials/moosting-india-s-shipbuilding-industry

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https://www.bu.edu/gdp/files/2022/07/GCI_WP_021_FIN.pdf

By Nathan Balis

The China-Pakistan Economic Corridor (CPEC) — the $62 billion flagship project of China’s Belt and Road Initiative (BRI) — entered its second phase late last year, dubbed CPEC 2.0. Designed to connect Pakistan’s Gwadar and Karachi ports to China’s Xinjiang Uyghur Autonomous Region, CPEC has been one of Beijing’s most ambitious geoeconomic undertakings. For China, it offers strategic access to the Arabian Sea; for Pakistan, a potential route out of economic stagnation. This analysis examines how the launch of CPEC 2.0 signals China’s continued commitment to the project despite Pakistan’s rising political instability, economic fragility, and internal resistance — all of which test the corridor’s long-term sustainability.

Historical Background:

Few bilateral relationships rival the strategic depth of China and Pakistan’s. Islamabad was among the first to recognize the People’s Republic of China and one of only two nations to stand by Beijing after the 1989 Tiananmen Square crackdown. The two have consistently backed each other’s positions — from Kashmir and Xinjiang to Taiwan and Tibet — forging a political alignment that laid the groundwork for CPEC’s birth in April 2015.

This relationship provided the foundation for CPEC’s inception, when Chinese President Xi Jinping unveiled his “1+4” vision for Pakistan, focusing on improving Gwadar Port, energy and transportation infrastructure, and industrial cooperation. These initiatives directly addressed Pakistan’s chronic energy shortages and sought to improve highway access to its ports, particularly from Pakistan’s underdeveloped western regions. Key achievements thus far have included the development and construction of Gwadar’s seaport and airport, over 8,000 megawatts of additional power capacity through multiple power plants, and an extensive road network spanning nearly 1,000 kilometers.

CPEC 1.0 and Its Strategic Logic

CPEC serves multiple strategic aims for China. First and foremost, it provides a shorter, land-based alternative to import oil from the Middle East via Gwadar Port, reducing China’s dependency on the Strait of Malacca — a vulnerable chokepoint that sees 80% of its energy imports and could be blockaded in a potential conflict with the U.S. or India. Known as the “Malacca Dilemma,” this dependency has long troubled Chinese strategists.

The corridor also advances China’s internal goals. Economic integration of the Xinjiang region via CPEC is seen as a soft power method to stabilize it and reduce separatist sentiments. Externally, CPEC enhances China’s commercial and naval reach into the Indian Ocean. It supports China’s broader String of Pearls strategy — building a network of commercial and military assets across the Indian Ocean to project power and secure sea lanes.

For Pakistan, CPEC has been marketed as an economic game-changer. It has improved infrastructure, addressed electricity shortages, created hundreds of thousands of jobs, and expanded regional connectivity with Central Asia. Yet concerns remain. Beijing has grown wary of the Pakistan Army’s increasing control over CPEC execution, which raises fears of militarized economic policy. Moreover, insurgents in the Pakistani province of Balochistan have attacked Chinese assets, viewing the project as neo-colonial and exploitative. Financially, Pakistan’s mounting debt burden, of which China is the largest bilateral creditor, has raised alarms. As of 2024, approximately 22% of Pakistan’s $131 billion external debt is owed to China, according to the IMF. Although both governments deny it, Pakistan’s financial dependence has fueled accusations of Chinese debt-trap diplomacy, where opaque loans and economic leverage provide Beijing with disproportionate strategic influence.

CPEC 2.0: New Goals, Same Stakes

Despite these challenges, China is doubling down. CPEC 2.0 marks a strategic pivot from basic infrastructure development to higher-value economic integration through:

–   Developing Special Economic Zones (SEZs) to boost manufacturing, exports, and attract foreign direct investment (FDI) into Pakistan.

–   Facilitating technology transfer to modernize Pakistan’s agricultural sector and increase value-added exports to China.

–   Expanding fiber-optic and digital infrastructure to link Pakistan to China’s Digital Silk Road.

–   Introducing public-private partnerships (PPPs) and local financing to reduce debt dependence on Chinese state loans.

This shift mirrors China’s evolving geoeconomic toolkit: rather than just building infrastructure, it now seeks to shape entire ecosystems of industrial and technological development. As of 2023, bilateral trade between China and Pakistan stood at $23 billion, with China as Pakistan’s largest trading partner and biggest source of imports — further deepening economic interdependence.

However, major questions remain. Pakistan’s political system, being plagued by military dominance and bureaucratic inefficiency, has historically struggled to manage complex reforms. Whether it can effectively oversee SEZs under CPEC 2.0 remains doubtful. Past efforts have faltered due to land disputes, bureaucratic gridlock, and lack of local buy-in. Likewise, the promise of genuine tech transfer often falls short in China’s BRI projects, raising doubts about the long-term industrial benefit for Pakistan.

Regional Implications

By committing to CPEC’s second phase, Beijing has signaled that it views the corridor as a critical geoeconomic opportunity with far-reaching regional implications:

1. Mitigating the Malacca Dilemma

China has thus far been unable to effectively solve its Malacca Dilemma, where rising tensions in Taiwan and the South China Sea have only emphasized the chokepoint’s importance. CPEC 2.0 demonstrates the premium Chinese strategists place on diversifying trade, military, and logistical routes through friendly territory.

CPEC’s significance is further elevated when compared to other faltering alternatives. While the China–Myanmar Economic Corridor (CMEC) once offered a similar path, Myanmar’s 2021 military coup and subsequent instability have slowed progress dramatically. In contrast, despite Pakistan’s volatility, CPEC now stands as China’s most viable westward corridor, offering strategic redundancy and trade security. It demonstrates the increasing importance the CCP places on solving the Malacca Dilemma and developing alternative economic networks.

2. Check on India

India views CPEC as a violation of its sovereignty, since parts of the corridor pass through Gilgit-Baltistan, a disputed region in Jammu and Kashmir. China’s persistent development in this area reinforces Pakistan’s territorial claims, undermines India’s position in bilateral and multilateral forums, and forces India to militarize its northern frontiers, draining strategic bandwidth.

Furthermore, China’s deepening stake in Pakistan’s economy gives Beijing a veto-like influence over Islamabad’s India policy. CPEC 2.0 thus emphasizes its function as a geopolitical buffer zone, constraining India’s freedom of maneuver both regionally and globally.

3. Countering the U.S. Indo-Pacific Strategy

CPEC is also China’s counterweight to the U.S. Indo-Pacific Strategy (IPS), the Quad alliance, and the newly announced India–Middle East–Europe Corridor (IMEC). China aims to promote a regional China-centric trade and logistics network that challenges the dominance of U.S.-backed trade corridors, while its Digital Silk Road initiatives divert countries from U.S.-led tech ecosystems.

Finally, the continuing development of Gwadar Port further raises U.S. concerns over the potential future logistics or dual-use naval base for the Chinese navy (PLAN). This would give China a strategic node in the Indian Ocean that would directly challenge the U.S. 5th Fleet based in Bahrain and Diego Garcia — particularly given its proximity to the Strait of Hormuz, another vital choke point of global shipping.

Conclusion

While CPEC has thus far exemplified the CCP’s geoeconomic strategy through the BRI, the launch of its second phase in 2024 underscores a renewed and evolving set of strategic objectives. Its renewed momentum quashes speculation of Chinese retreat and underscores Beijing’s strategic calculus in the region: to secure access to the Arabian Sea, check Indian influence, and counter the U.S.’s presence in the region.

CPEC has already delivered tangible economic gains for Pakistan — from power generation to port development — and shows no signs of slowing, despite mounting debt concerns and local unrest. In fact, China’s willingness to continue investing amid instability may reflect the very logic of its so-called debt-trap diplomacy: creating long-term political leverage through economic dependency.

Understanding China’s evolving relationship with Pakistan — and the deeper logic behind CPEC’s expansion — is essential for evaluating both regional dynamics and the future of geoeconomic competition across Asia.

By Nathan Balis 

During the last two decades, China has outpaced the U.S. in Africa, building a vast economic footprint through trade, investment, and infrastructure. While Beijing’s engagement is slowing, Washington’s response remains tepid — risking a long-term loss of influence on the continent. The Biden administration has taken steps in the right direction, increasing engagement and investment, but these efforts remain insufficient. Meanwhile, a return to the transactional foreign policy of the Trump era — marked by skepticism of long-term development aid and attacks on USAID — would only weaken America’s ability to build lasting economic partnerships on the continent. To compete effectively, the U.S. must commit to sustained, strategic investment that fosters genuine economic growth and stability in Africa.

In 2000, General Secretary Jiang Zemin of the Chinese Communist Party (CCP) announced the Go Out policy as a national strategy, incentivizing its enterprises to invest overseas. In 2013, Xi Jinping launched the Belt and Road Initiative (BRI), seeking to establish global trade routes, including in Africa, by investing in infrastructure projects such as railways, ports, highways, and energy facilities. In addition, the Forum on China-Africa Cooperation (FOCAC) has met every three years since 2000, creating three-year action plans that include Chinese pledges of loans, grants, and export credits.

China is now sub-Saharan Africa’s largest bilateral trading partner, with 20% of the region’s exports going to China and about 16% of imports coming from China, according to the International Monetary Fund (IMF). Simultaneously, China has become the largest bilateral creditor to Africa. China’s share of total sub-Saharan African external public debt grew from 2% before 2005 to 17% by 2021, according to the World Bank. Furthermore, China’s foreign direct investment (FDI) in the region has surged, accounting for nearly 23% of annual FDI inflows in 2021. Through three principal geoeconomic instruments — trade, investment and credit — China has achieved a staggering level of influence across the continent.

Yet since 2017, Beijing’s economic engagement with Africa has lost momentum. China’s lending to sub-Saharan Africa has dwindled, dropping from nearly $29 billion in 2016 to under $1 billion in 2022—its lowest level in two decades. A struggling real estate sector, demographic pressures, and external shocks like COVID-19 and trade tariffs have all weighed on growth. The slowdown has consequences: the IMF estimates that a one percentage point dip in China’s growth rate drags Africa’s average growth down by 0.25 points within a year. Additionally, China’s shift toward green energy and Russian oil is squeezing African exporters by reshaping trade flows.

This shift presents the U.S. with an opening to expand its economic presence in Africa while promoting better lending standards and financial transparency. Chinese lending to the region increasingly undermines debt transparency, including terms that bar debtors from revealing terms or even the existence of certain loans. Debt transparency is crucial to mitigating risks of armed conflicts, trade fragmentation, inflation, and weak growth. Additionally, China frequently retains the right to demand repayment at any time, enabling its use of funding as diplomatic leverage.

With China retreating from major infrastructure projects, Washington has a prime opportunity to step in. The Carnegie Endowment for International Peace (CEIP) has identified three key sectors — health, clean energy, and transportation — where the U.S. could make the most impact. Strategic investments in these sectors would not only support Africa’s development priorities but also reinforce America’s economic leadership by:

1.    Leveraging the Development Finance Corporation (DFC): By offering better financing terms for African governments and businesses, the U.S. would unlock investment in sectors where Chinese engagement has slowed, such as infrastructure.

2.    Strengthening trade partnerships: The African Continental Free Trade Area represents a massive opportunity. Washington should explore ways to align U.S. trade policy with Africa’s regional trade initiatives and diversification objectives more closely.

3.    Developing early-stage pipelines: Unlike China’s state-driven economic model, U.S. firms often struggle to find viable, well-structured projects. Early-stage collaboration with African governments could improve project pipelines and create more opportunities for U.S. private-sector investment.

4.    Scaling up health and humanitarian assistance: Expanding programs in vaccine distribution and medical infrastructure strengthens diplomatic and cultural ties while opening doors for economic collaboration.

President Biden’s recent visit to Angola and his administration’s $600 million railway investment mark a step in the right direction but remain negligible compared to China’s multi-billion-dollar commitments. U.S.-Africa trade, currently valued at $69 billion, still lags far behind China-Africa trade, which stands at $262 billion.

Despite Trump’s late-term embrace of foreign aid, most notably through the creation of the DFC, his recent attacks on USAID and unnecessary antagonization toward the South African government are strategic missteps. The abrupt termination of numerous global programs, including critical health initiatives in countries like Uganda, undermines U.S. soft power and creates a void that Beijing is eager to fill. As China’s influence grows, African nations have increasingly aligned with it on key global issues, such as Taiwan, with 53 of 54 African nations recently signing a joint statement supporting China’s reunification efforts. If Washington hopes to maintain support and credibility in global conflicts, it must recognize that economic leadership in Africa is not just about development; it’s about securing partnerships in an era of intensifying great-power competition.

By Owen Miller

Since Russia’s forceful annexation of Crimea and the advent of the Russo-Ukrainian War in 2014, Western powers have been continuously sanctioning Russian goods and finances. When Russian forces directly invaded Ukraine in a major escalation in 2022, Western governments promised economic sanctions that would cripple the Russian economy. Many government officials called it an economic “nuclear bomb” that would send the entire country into free-fall. Two years later, Ukraine is still fighting for its sovereignty and the Russian economy has not seen the collapse that much of the world has hoped for. Russian President Vladimir Putin has repeatedly said that Russia has had plenty of growth, while Europe is disproportionately suffering from sanctions. With much of their pre-war exports and finances sanctioned, how realistic is Russia’s supposed economic health?

Pre-invasion, energy exports to the European Union and the U.S. were a cornerstone of the Russian economy. Many analysts attributed Russia’s energy export to a form of Dutch disease, where a major part of a country’s economy is dependent on one sector. In 2021, about 20% of Russia’s GDP was attributed to energy exports. At the beginning of Russia’s invasion of Ukraine, global energy prices soared, and Russian companies saw a surge in energy profits as Europe remained dependent on Russian energy. However, these tailwinds were short-lived. Western powers quickly diversified their energy imports away from Russia and sanctioned Russian industries. As a response, Russia turned eastward, shifting its exports to countries such as China, Turkey, and India, who were all ready to take advantage of cheap Russian energy. Despite this strategic realignment to non-Western customers, government revenues from energy exports have still decreased by over 40% since 2022, as the value of the lost European market has not been fully replaced.

In addition to sanctions on energy exports, Russia’s financial system was effectively cut off from the global economy. In 2022, most Russian banks were banned from using the international Society for Worldwide Interbank Financial Telecommunications (SWIFT) payment system, and Russia lost access to US dollars and other key global currencies. As a result, Russia has had to turn to conducting international trade in Russian rubles and Chinese yuan. The ruble has experienced high volatility, which is a weight on the Russian economy as consumers and businesses lose faith in Russian financial institutions. This instability, combined with handling trade in uncommonly used currencies, has made Russian imports and domestic business harder to conduct due to higher premiums and costs.

The war and the compounding effects of sanctions have led the Russian government to adopt increasingly unsustainable fiscal policies. At first glance, Russia’s reported GDP growth of 3% for 2024 seems promising, but the vast majority of this growth is a result of massive government military spending. This spending is not conducive to long-term growth and stability. Military spending is chewing into Russia’s emergency reserves and leaving the country vulnerable to an economic downturn. 

Furthermore, military spending is now over a third of all government expenditures, while government revenue from energy and trade is massively down. As a result, the government is running a large deficit and using emergency reserves, such as the National Wealth Fund, to cover for its losses. These are quickly being depleted, and thanks to U.S. and E.U. sanctions, $300 billion in Russian sovereign reserves – nearly half of all Russian reserves pre-war – have been confiscated. Combined, Russian deficit spending and the depletion of their reserves have  led to very high inflation rates. Russian consumers will experience a nearly 7% inflation rate this fiscal year, which is about double the pre-war amount. Russia’s ability to finance itself has been cratered by sanctions, which is detrimental to its long term growth and consumer health.

Sanctions against Russia have fallen short of the impact many had anticipated, but they have succeeded in cutting off large portions of the Russian economy from the rest of the world. Additionally, sanctions have made domestic business operations increasingly difficult. The government’s massive expenditures are propping up the short-term economy, but they are unlikely to translate into sustainable long-term growth. Therefore, despite sanctions not having the magnitude of predicted effect, they are still having a noticeable negative impact on the long-term prospects of the Russian economy.

Sources

https://www.wilsoncenter.org/blog-post/sanctions-are-working-just-ask-russias-friends

https://www.brookings.edu/events/sanctions-on-russia-whats-working-whats-not/

https://www.cfr.org/in-brief/two-years-war-ukraine-are-sanctions-against-russia-making-difference

https://wits.worldbank.org/CountryProfile/en/Country/RUS/Year/LTST/TradeFlow/E

xport/Partner/by-country/Product/27-27_Fuels