Dryad Global Annual Report 22/23: How likely is a Chinese maritime blockade of Taiwan?

Dryad Global's CEO Corey Ranslem talks to Greg Poling, a Senior Fellow and Director at the Southeast Asia Program and Asia Maritime Transparency Initiative. They discuss the likelihood of a Chinese maritime blockade of Taiwan - and the conditions that would trigger one.

This is the million-dollar question. It’s not particularly likely this year or next but looking back over a decade reveals that there's a not-insignificant chance of Chinese military action against Taiwan. 

This could take many forms: 

• A full-scale invasion: the least likely but the option that could create the most escalatory possibilities. 
• Either a complete maritime blockade or a blockade of ports like Kaohsiung. 
• Most concerning, Chinese military action against smaller, more vulnerable Taiwanese outposts in the South China Sea, such as those on Pragas Reef and Itawamba 

In any given year, these would all be low-risk possibilities, but with a fairly high-impact - so it’s irresponsible not to plan for such low-likelihood high-impact events. 

From the perspective of the maritime industry and commercial shipping - how likely is it that China would impede the lawful passage of commercial shipping in the Taiwan Straits in response to an escalation on either side? 

China may not try to block all transit through the Taiwan Strait. But they certainly could try to blockade key Taiwanese ports around Taipei and Kaohsiung. 

More likely is that in the case of a conflict, seaborne trade will autonomously choose to divert around potential combat zones. And even if companies were not so inclined, their skyrocketing insurance premiums will ensure that they will be forced to divert around the Strait. 

In the event of an escalation, we would see high risk areas posted by the maritime organisations, or insurance increases in JWC (Joint War Risk Committee) designated regions. This could be prohibitive enough for shipping companies and maritime interests to cease trade with Taiwan outright - which could have larger economic impacts. 

In this context, companies and governments need to be a bit more sophisticated than simply asking about isolated events: “Will there be a blockade of the Strait of Malacca?” “Will there be a blockade of Taiwan’s Straits?” 

In reality, the spigot of trade into the Indo-Pacific won’t be completely turned off in any of these scenarios - but certain ports, certain countries and thus certain parts of whole supply chains will become no-go zones. 

In the case of a Taiwan blockade, obviously Taiwan would become one of these zones - and in this case, the trade implication is for semiconductors. In the South China Sea contingency, not all maritime traffic will be lost - but traffic coming to and from Thailand and Singapore will cease - so what are the consequent losses? 

A Japanese auto manufacturer could lose its entire supply chain in Thailand. Major Fast Moving Consumer Goods manufacturers, like Samsung, would lose all their modern handheld production in Vietnam because there would simply be no way in or out without going through JWC waters, in the event of a Taiwan blockade. 

Any South China Sea blockade would economically impact China - so would they consider whether blockading or trying to prohibit trade served their own long-term economic stability? 

The so-called Malacca Dilemma - the idea that the US or Allies would close the Malacca Strait in order to choke off China’s access to vital resources, particularly energy from the Middle East - still looms large in the strategic thinking of some in Beijing and some in China’s military circles - even if it’s not an economic reality. The Choi gas pipeline continues to operate, built by China and running from the Burmese port of Chok-Piu up to Yunnan. This can, at maximum capacity, account for around 10% of China’s annual gas consumption - it’s a tiny safety valve, but not one that can replace seaborne trade outright. 

Which security points from this region are most important for commercial shipping, cruise lines and large yachts in 2023? 

Again, the maritime disputes across the Indo-Pacific, and particularly those around the Taiwan Strait, South China Sea and East China Sea, will remain risks for anybody operating in the region for the foreseeable future. We should be realistic about those risks, though - it’s unlikely that China or anybody else will seek to directly block commercial transit through these waterways.