The Oxford English Dictionary defines economic warfare or economic war as involving "an economic strategy based on the use of measures (e.g. blockade) of which the primary effect is to weaken the economy of another state".
In military operations, economic warfare may reflect economic policy followed as a part of open or covert operations, cyber operations, information operations during or preceding wartime. Economic warfare aims to capture or otherwise control the supply of critical economic resources so that the military and intelligence agencies can operate at full efficiency or deprive enemy forces of those resources so that they cannot function properly.
The concept of economic warfare is most applicable to conflict between nation states, especially in times of total war - which involves not only the armed forces of an enemy nation, but mobilization of that nation's entire economy towards the war effort. In such a situation, causing damage to the enemy's economy directly damages the enemy's ability to fight the war.
Union forces in the American Civil War had the challenge of occupying and controlling the 11 states of the Confederacy. It was a vast area - larger than Western Europe - with a modern economy that proved surprisingly vulnerable. They were faced with guerrilla warfare supported by a large fraction of the Confederate population, the provided food, horses, and hiding places for official and unofficial Confederate units. Before the war, most passenger and freight traffic moved by water, through the river system or coastal ports. Travel became much more difficult during the war. The Union Navy took control of Much of the seacoast, and the main rivers such as the Mississippi River and the Tennessee River, using fleets of powerful small gunboats. Land transportation was contested territory, as Confederate supporters try to block shipments of munitions, reinforcements and supplies through West Virginia, Kentucky, and Tennessee, to Union forces to the south. Bridges were burned, railroad tracks torn up, telegraph lines were cut. Both sides did this, effectively ruining the infrastructure of the Confederacy.
The Confederacy in 1861 had 297 towns and cities with a total population of 835,000 people; of these 162 with 681,000 people were at one point occupied by Union forces. In practically every case, infrastructure was damaged, and trade and economic activity was disrupted for a while. Eleven cities were severely damaged by war action, including Atlanta, Charleston, Columbia, and Richmond. The rate of damage in smaller towns was much lower, with severe damage to 45 out of a total of 830.
Farms were in disrepair, and the prewar stock of horses, mules and cattle was much depleted; 40% of the South's livestock had been killed. The South's farms were not highly mechanized, but the value of farm implements and machinery in the 1860 Census was $81 million and was reduced by 40% by 1870. The transportation infrastructure lay in ruins, with little railroad or riverboat service available to move crops and animals to market. Railroad mileage was located mostly in rural areas and over two-thirds of the South's rails, bridges, rail yards, repair shops and rolling stock were in areas reached by Union armies, which systematically destroyed what they could. Even in untouched areas, the lack of maintenance and repair, the absence of new equipment, the heavy over-use, and the deliberate relocation of equipment by the Confederates from remote areas to the war zone ensured the system would be ruined at war's end.
The enormous cost of the Confederate war effort took a high toll on the South's economic infrastructure. The direct costs to the Confederacy in human capital, government expenditures, and physical destruction from the war totaled perhaps $3.3 billion. By 1865, the Confederate dollar was worthless due to high inflation, and people in the South had to resort to bartering services for goods, or else use scarce Union dollars. With the emancipation of the southern slaves, the entire economy of the South had to be rebuilt. Having lost their enormous investment in slaves, white planters had minimal capital to pay freedmen workers to bring in crops. As a result, a system of sharecropping was developed where landowners broke up large plantations and rented small lots to the freedmen and their families. The main feature of the Southern economy changed from an elite minority of landed gentry slaveholders into a tenant farming agriculture system. Disruption of finance, trade and services, as well as transportation nodes, severely disrupted the prewar agricultural system, forcing Southerners to turn to barter, ersatz, and even spinning wheels. The entire region was impoverished for generations.
The British used the greatly superior Royal Navy to tightly blockade Germany and closely monitor shipments to neutrals so they could not be transshipped into Germany. Germany could not find enough food--its younger farmers were all in the Army--and the desperate Germans were eating turnips by the winter of 1916-17. US shipping was sometimes seized; Washington protested. The British paid monetary compensation so that the American protests would not escalate into serious trouble.
Clear examples of economic warfare occurred during World War II when the Allied powers followed these policies to deprive the Axis economies of critical resources. The British Royal Navy again blockaded Germany, although it was much harder to do than in 1914. The United States Navy, especially with submarines, cut off shipments of oil and food to Japan.
In turn, Germany attempted to damage the Allied war effort via submarine warfare--the sinking of transports ships carrying supplies, raw materials, and essential war-related items such as food and oil.
Neutral countries continue to trade with both sides. The allies made a special effort to cut off sales to Germany of critical minerals such as wolfram (a tungsten ore; used to make steel armor) and mercury from Spain and Portugal. Germany wanted Spain to enter the war but rejected its terms, which included control of French colonies in Africa. It was essential to keep Germany and Spain apart, so Britain used a carrot and stick approach. Britain provided oil and closely monitored Spain's export trade. It outbid Germany for the wolfram--the price soared and by 1943 wolfram was Spain's biggest export earner. Britain's cautious treatment of Spain brought it into conflict with more aggressive American policy. Washington cut off oil supplies in 1944, but then agreed with London's requests to resume oil shipments. Portugal feared a German invasion, but when that became unlikely in 1944 it virtually joined the Allies.
Christian Harbulot, director of the Economic Warfare School in Paris, provides an historical reconstruction of the economic balance of power between states. In this study, he demonstrates that the strategies that states put in place in order to increase their economic power - and their impact on the international balance of power - can only be interpreted through the concept of economic warfare.