Market Power Politics

Abstract

This book explores how market power competition between states can create disruptions in the global political economy and potentially lead to territorial aggression and war. When a state’s firms have the ability to set prices in a key commodity market like oil or natural gas, state leaders can benefit from increased revenue, stability, and political leverage. Given these potential benefits, states may be motivated to expand their territorial reach in order to gain or maintain such market power. This market power motivation can sometimes lead to war. However, when states are economically interdependent, they may be constrained from using force to achieve their market power goals. This can open up an opportunity for institutional settlements. However, in some cases, institutional rules and procedures can preclude states from reaching a settlement in line with their market power ambitions. When this happens, states may opt for strategic delay and try to gradually accumulate market power over time through salami tactics. To explore how these dynamics play out empirically, the authors examine three cases of market power competition in hard commodity markets: Iraq’s invasion and occupation of Kuwait to seize market power in the oil export market, Russia’s territorial encroachment into Georgia and Ukraine to preserve and expand its market power in the natural gas market, and China’s ongoing use of strategic delay and gray zone tactics in the South and East China Seas to maintain its dominant position in the global market for rare earth elements.