How Money Moves the World: Why Economics is the New Geopolitics?

In the 21st Century, the global power structures have dramatically changed, with geopolitics now being decoupled from geoeconomics, turning into the new grammar for global competition. While geopolitical tools such as alliances, arms, and ideologies have historically been important components of statecraft, economic tools have taken centre stage.

Illustration by The Geostrata

Edward Luttwak contemplated the state’s shift of “geo-economics”, which he described as “the logic of conflict in the grammar of commerce”. In the present day multipolar world, it is less about the geopolitics of states and more about the flow of capital, connectivity corridors, resources control, and technological infrastructure that are remapping the planet. 

GEOECONOMICS DEFINED

Geoeconomics is the strategic use of economic instruments to achieve geopolitical objectives. This comprises state-sponsored investments, development aid, trade agreements, financial sanctions, and infrastructure diplomacy.

Geoeconomics, as argued by Soren Scholvin and Mikael Wigell (2018), is “power politics by economic means”, wherein the deployment of economic tools is consciously linked to political and strategic outcomes. 

In this regard, China’s Belt and Road Initiative (BRI) represents the archetype of modern geoeconomic strategy. Far from being merely a commercial enterprise, BRI signifies how States can extend influence through ports, pipelines, railways, and digital networks. In a world where “connectivity is power” as argued by Parag Khanna, geoeconomic translates infrastructure into influence. 

CASE STUDY: CHINA-IRAN RELATIONS AND THE BRI

China-Iran relations under the Belt and Road Initiative (BRI), as analysed by Madani in “Beyond Geopolitics”, exemplifies a strategic partnership defined not by ideological alignment or alliance-building, but by economic statecraft.

The 25-year strategic agreement between the two countries, which is valued approximately $400 billion, signals China’s intent to deepen its economic footprint in a high risk yet strategically vital region. The immense geoeconomic significance provided by Iran's geographic position, bridging Central Asia and the Persian Gulf, gives China the westward land-based connectivity plans, particularly the China- Central Asia- West Asia economic corridor. 

Iran, further, remains a valuable geoeconomic asset for China, despite political instability, economic mismanagement , and Western sanctions. It offers access to vital energy corridors and alternative transit routes that help reduce China’s overdependence on maritime chokepoints like the Strait of Malacca. Additionally, infrastructure initiatives such as Tehran-Mashhad railway and potential investments in ports like  Bandar-Abbas reflect China’s long-term strategic calculus over short-term commercial gain. The distinguishing factor between the China-Iran partnership is China’s alternative investment logic.

Unlike Western financial institutions, China pursues embedded, long-horizon projects underwritten by Beijing and sovereign funds-prioritising strategic influence over immediate returns.

In the case of Iran, China offers an economic lifeline and counterbalance to Western pressure, albeit at the cost of increased dependency. The China-Iran BRI engagement exemplifies how geoeconomics, more than geopolitics, is shaping the architecture of regional influence, regional integration, and global power projection in the 21st century. 

COMPARATIVE EXAMPLES: CPEC, AFRICA, AND LATIN AMERICA

The footprints of China’s geoeconomic tools extend beyond Iran, in countries like Pakistan, Africa, Latin America.  Pakistan’s China-Pakistan Economic Corridor, valued at over $60 billion, secures energy transit, maritime access via Gwadar Port, and boosts influence in South Asia while bypassing Indian territorial control. In similar fashion, China has built railways in Kenya and Ethiopia, financed dams in Zambia , and constructed smart cities in Egypt.

These ventures integrate African economies into China’s trade networks while fostering political allegiance. Further, China’s investments in lithium in Bolivia and rare earths in Argentina show resource-driven geoeconomic in action, geared towards technological supremacy in the electric vehicle and semiconductor sectors. 

The underlying pattern in these examples suggest that China targets regions with strategic geography or essential resources, deploying capital to build dependency, reduce Western influence, and build alternative economic architecture. 

GEOECONOMICS AND THE EROSION OF WESTERN HEGEMONY

The fading relevance of traditional Western financial institutions like the IMF and the World Bank is one of the most obvious evidence of the decline of the old order. These institutions have acted as gatekeepers of global economic governance for decades, often attaching strict political conditions, as well as conditionalities for structural adjustment on the loans they share. Today, we see more alternatives emerging that reflect a multipolar world that pushes back against the dominance of the previously existing institutions.

For China's AIIB and NDB, alongside the Belt and Road Initiative (BRI) as a broader undertaking, macroeconomic intervention of development finance without the political costs attached would surely be seen as an emerging global order.

For many countries in the Global South, these alternatives offer a degree of independence and partnership that often the Western order did not provide.

Meanwhile, Western powers have also heavily embraced geoeconomic tools themselves. The sanctioning approaches of the U.S. and the EU showcase this movement away from broad, multilateral free trade agreements to more targeted political and economic agreements between states.

RISKS INVOLVED

Geoeconomics poses very real challenges despite its prospects for change. The investments enabled through geoeconomics,such as China's large-scale Belt and Road Initiative are always fraught with risk. Political instability, regulatory weaknesses, corruption, and security weaknesses present all kinds of challenges to project viability in the long-term.  Iran is a particularly revealing example. It has abundant energy reserves, an important geostrategic position, and still bears the brunt of wide-ranging sanctions. 

However, most of its internal dynamics—such as volatile domestic politics and international isolation—add a significant layer of risk.  Such limitations illustrate the limits to economic statecraft in parts of the world where hard power is still intertwined with soft infrastructure. 

All in all, geoeconomics has come to represent the grammar of contemporary geopolitics.  States (and non-state actors) that master the new grammar by financing infrastructure, developing regulatory norms, and constructing webs of economic interdependence will increasingly shape the shifting maps of global power in the years to come.

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BY TANU NAGAR

TEAM GEOSTRATA

info@thegeostrata.com