Back in 2019, I helped publish a rather controversial piece of editorial. It was about asymmetric warfare — the strategy of causing a lot of damage with a cheap and simple weapon. Preferably triggering a disproportionately expensive and ineffective response from your enemy.
The aim of asymmetric warfare is to try and bleed your adversary dry financially instead of literally. It’s an economic form of war disguised as a violent one. And that means investors are the collateral damage.
Our analysis compared the consumer drone to the AK-47, the most famous tool of asymmetric warfare. That comparison might seem like a bit of a stretch. At least, it did at the time. Consumer drones had achieved little more than shutting down the UK’s Gatwick airport for a few days before Christmas. And a few papercuts after.
But, in hindsight, our prediction proved accurate. Cheap consumer drones had the same jarring impact on the nature of warfare as the AK-47 did in its day.
Give a boy a gun…
The AK-47 turned anyone, including children, into effective combatants. As the story goes, a child with an AK-47 can stop a platoon of professional soldiers for a surprisingly long time. It takes a lot of time, effort, risk and resources to combat anyone holding that gun.
But the drone has gone one better. It achieved something military strategists have considered impossible for millennia. Drones turned nerds into effective front-line soldiers.
The impact of cheap consumer drones on warfare is in the news every day now. In Israel, Ukraine and the Red Sea, drones are playing a crucial role. There’s even been mentions of ‘The Drone Wars’ — a reference to the Star Wars film.
The battle seems to be between America’s high-tech, highly expensive and heavily armed drones, and the sort you can buy off the shelf, but with a grenade strapped to it. So far, the likes of the Houthis seem to be winning with their Walmart versions.
This analysis, however, completely misses the point. The purpose of drone warfare is not to be found on the battlefield at all. It’s macroeconomic.
Go back to what happened at Gatwick Airport in 2018. A drone was sighted near the runway, twice. And so, the busiest runway in the world was shut down for a total of 33 hours, just before Christmas. Over three days, 1,000 flights were cancelled, and 150,000 passengers’ travel plans went up in smoke.
Think about the costs of this. They are highly asymmetric. One naughty child with a Christmas toy can wreak tens of millions of dollars in damage, even by mistake.
And after the dust over Gatwick had settled, it wasn’t even clear whether there had been a drone at all. Perhaps it was all a hoax.
Now that’s asymmetric warfare at its best.
A cost benefit analysis terrorists
cannot ignore
As our founder Bill Bonner explains here, such asymmetric costs are precisely what terrorists like Osama Bin Laden and other enemies of the West are gunning for. They want to bankrupt the West, not beat it on a battlefield.
And the strategy works. This brief, but rather telling conversation between an American and a North Vietnamese general after the Vietnam War makes the point:
‘“You know, you never beat us on the battlefield,” I told my North Vietnamese counterpart during negotiations in Hanoi a week before the fall of Saigon. He pondered that remark a moment and then replied, “That may be so, but it is also irrelevant.”’
According to the rules of Asymmetric Warfare, if you can trigger a vast overreaction from your enemy, you are winning.
And we all know what that looks like at airports around the world. The US’s TSA budget is expected to be almost $12 billion next year, for example.
Matthew Van Wagenen and Arnel P. David write in RealClear Wire:
‘The recent aerial attack on Israel and the war in Ukraine expose this vulnerability. Iran’s 300-plus airborne weapons that targeted Israel amounted to less than $200 million while the Western response exceeds billions of dollars. In Ukraine, multimillion-dollar weapons platforms are destroyed by uncrewed aircraft systems that range from hundreds to thousands of dollars, and Russia’s prized Black Sea Fleet has been devastated by inexpensive maritime drones. Defense analysts estimate that the cost ratio is easily 100 to 1.’
The Houthis are using cheap drones and drone boats to challenge the most powerful navies in the world. And are getting away with murder.
It’s not just drones, of course. The response to Hamas’ hang gliders featured some of the most expensive military hardware in the world. It’s the price difference that’s the key.
And so, drones will be terrorists’ new weapon of choice. And they will be an economic weapon, well disguised as a violent one.
Investors need to take note given it’s their markets that terrorists are seeking to undermine. That’s their transmission mechanism for turning violence into financial damage for their enemies.
And their strategy may soon win the war. Bond markets of Western governments are wobbling already. But governments are planning enormous defence budget spending increases. Can governments really afford to defend themselves? Not from cheap drones.
More guns will mean less butter. And that’s why investors must be prepared for what happens next on the home front.
Until next time,
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Nick Hubble,
Editor, Strategic Intelligence Australia
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