Dragonstrike Revisited

Recently I was asked to umpire an economic wargame that sought to model the impact upon the global markets of a diplomatic incident in the South China Sea. The markets in question were the financial markets, the shipping markets, and the real economy. The time frame was short - about six months in game time - and the horizon was the very near future. This framework was very familiar to me because it came close to the scenario outlined in the book 'Dragonstrike'.

Dragonstrike was a scenario written by Humphrey Hawksely and Simon Holberton in 1997. It was set in the then near future (February 2001) and was about the rise of China as a modern great power. In the book, China fabricates a diplomatic incident in the South China Sea to disturb the financial markets, from which it gains a significant financial and commercial advantage.

The book has been quite influential in my thought. It brought to my attention the possibility of the rise of China, years before the concept of the BRICs took root. It brought to my attention the disputed nature of the islands and reefs in the South China Sea, and their importance. It added the Paracel Islands and the Spratly Islands to my strategic awareness. And it inspired a whole raft of spin off games, ranging from our 1999 megagame modelling the issue (100+ players using the Senkaku Islands as a flash point) to our 2004 matrix game examining some of the features of the issues involved (how could the EU have an impact on events in the South China Sea?). In their day, each of these games had their influence, some of which still can be seen today.

When I was offered the chance to revisit Dragonstrike, I jumped at it. It allowed me to focus on an update of the material, to see how things have developed over the past 20 years, and to project ahead along the current trajectories. There were about 30 players, which made the event a bit too small for a megagame and a bit too large for a matrix game, so we developed a hybrid form of game that contained elements of both.

The client gave us a fairly tight brief. The Thucydides Trap is to be sprung, but the conflict was not to include either kinetic or cyber means. The conflict would be conducted entirely in the financial markets, with consequential impacts on the shipping markets and the real economy. We were to assess those impacts on a number of key indices as outputs of the game. The players were senior members of the security and financial community in New York, London, and Hong Kong; and we were to assume that they had a good acquaintance with the subject matter. Our role was to stir the pot to see what happened.

The game progressed more or less along the lines of my expectations. We spent a good deal of time focussing on relatively inessential matters, but I found that quite useful. In a conflict, it is often the case that the inessential captures the attention of the press and the public mood. That provides a degree of misdirection which creates the opportunity for the actors to do some unpalatable things. A good day to bury bad news, as they say.

I did come away from the game with some useful takeaways. The China team wanted to dispose of their holdings of US Treasuries to de-stabilise the bond market sufficiently to induce a sharp downturn in the US real economy. We had a long and well informed discussion about their ability to do this, and what defensive measures the monetary authorities in the US might be able to take to counter the move. This is a theme to which I shall return at a later date.

The US team wanted to exclude the China and Russia teams from the global payments system. This called forth an interesting discussion about their ability to do so and the potential consequences of such an action. The conclusion that I drew from this is twofold. First, sanctions can only be effective if they are applied by all of the major players. If a single player, such as the US, attempts a sanction regime unilaterally, it will do more harm to that single player than the intended target of the sanctions. If sanctions are to work, then they need support of friends and allies. Second, if sanctions are over-used, then they create an incentive for the targets of the sanctions to develop alternative systems to render them ineffective. Once sanctions become a tool in general use, their effectiveness will diminish quite rapidly. 

There was a discussion around the shipping markets. In particular, there was a discussion about the degree to which the Chinese team could purchase spare shipping capacity to keep up the trade flows in the real economy. The discussion  about containerised shipping capacity wasn't settled in the game. It was only afterwards that I found out that the pre-purchase of options on shipping capacity is possible, and would be made visible in the movements of the Shanghai Container Index. The discussion, however, drifted into the 'Belt and Road Initiative' and gave me an important insight into the strategy of China. The strategic perspective is continental and looks westward into the Eurasian land mass. The conventional wisdom about the strategic perspective is that it is oceanic and faces eastward. If so, we ought not to worry about conflict between China and the US, but be concerned about conflict between China and Russia. This puts Russian strategic concerns into a new light.

The original Dragonstrike gave me enough to think about for 20 years. The more recent update has extended that process. It is unlikely to resolve itself in my time because it has the potential to run for quite a number of decades yet. It is a space that we need to keep watching and updating.

Stephen Aguilar-Millan

© The European Futures Observatory 2018