Existential Risk – Why we all need to pay attention to Ukraine 🇺🇦
Why we all need to pay attention to Ukraine 🇺🇦
Tensions in Ukraine could escalate and spiral to become the most significant geo-political conflict in our lifetimes. The risks remain contained at this time, but we shouldn’t underestimate what could happen in a way that would have potentially catastrophic implications, reaching far beyond capital markets and asset prices.
David Lloyd George, the UK Prime Minister from 1916-18 described the outbreak of World War I as “a tragic accident” that none of the powers either wanted or expected, but found themselves backed into a corner, or in his words “ over the precipice” into war. Historian Christopher Clark has blamed political leaders for ‘stumbling into war’ like sleepwalkers. Most of the actual combatants had little idea where Serbia was prior to the ’39 days’ of 1914 that led to hostilities breaking out and even less idea, why the Independence of Belgium was a matter that would tear Europe apart.
Similarly, World War II largely came about because the various political leaders assumed that their shared lack of appetite for a resumption of global hostilities would outweigh any obligation to take up arms because of Germany’s occupation of Poland. There are worrying signs that Ukraine could become the present-day equivalent to Serbia or Belgium or Poland – that the consequences of underestimating the significance of Ukraine could quickly escalate and spiral out of control.
That’s certainly not a base case but it is a risk that while small, is no longer negligible and, bearing in mind that over half the global population were born after 1991, this could prove to be the biggest geo-political risk most people have experienced.
What is Ukraine?
It’s the second largest country in Europe (Russia being the largest), bordering Russia, Belarus, Poland, Slovakia, Hungary; Romania and Moldova
Is it Ukraine or The Ukraine?
That depends. Ukraine is the name given to the independent country, especially by pro-western factions.
The Ukraine is associated with the historic region and with the former Soviet Union or USSR. The USSR was a Federation of states, ultimately under a central, federal government, like the United States of America, which was created following the Russian Revolution 1921, despite the attempts of western powers, especially UK and USA, to prevent it. Ukraine is the second largest country in Europe, after Russia.
Why is Ukraine divided?
The history is complicated – its capital Kiev was the base of the pre-eminent regional superpower during periods from the 10th to 13th centuries, strategically located along the east-west trade routes, ultimately covering huge territory including modern Belarus and parts of Russia. At various times Mongol hordes,
the Grand-Duchy of Lithuania, the Kingdom of Poland, and The Byzantine and Ottoman empires fought over the territory before its annexation by the Russian Empire in the 18th century.
This left a rich multi-cultural tapestry, with many ethnicities, languages, and religions, but also divisions and conflict- even in World War I, Ukrainians were divided, many fought for the Russian Empire, and its Slavic allies, whereas others supported the Central Powers, because of historic ties to Austro-Hungary and Germany (from where Catherine The Great had encouraged immigration into the Ukraine to dilute perceived ethnic Turk influence in The Crimea, a Ukrainian peninsular).
So, it’s not part of Russia?
No. Not since the collapse of the Russian Empire. In 1921, it became, at least in theory, an independent republic, and a member of the USSR. The Ukraine’s referendum, and overwhelming decision to leave the union, was one of the key blows that forced Mikhail Gorbachev to resign as head of and bring about its end of the Soviet Union, whose member states, such as Russia, then chose between joining either its successor (the CIS) or non-alignment. The Ukraine flip-flopped but ultimately chose the latter.
So, it’s separate?
Yes & no. Legally, it is a sovereign republic but for much of the past 1,000 years, the territories and peoples of The Ukraine and ‘Muscovy’ have been linked in various kingdoms, empires, and federations (some centred on Kiev but latterly of course on Moscow).
As well as socio-political complications, there are no clear boundaries– at the end of World War One, the Bolsheviks drove the Polish invaders out of The Ukraine but redrew the boundaries. At the end of World War II (having been razed by the fleeing Nazi occupiers), the Russian Soviet Republic redrew the boundaries once again.
Soviet leader Khrushchev, who hailed from neighbouring Kursk, and who had headed up the Communist Party in Ukraine during the post-war reconstruction, later redrew the boundaries to mollify Ukrainian interests, including ceding the Crimea, where Russia has its only Black Sea naval and submarine bases, to which it was understood that it would always have access. In addition, the main Russian pipeline supplying Europe with gas cuts through Ukraine. So, Ukraine is closely entangled with Russia.
Does it usually get on well with Russia?
Yes & no. Some factions are pro-Russia and other factions aren’t. Moscow obviously prefers The Ukraine to be pro-Russian but western interests would rather Ukraine were pro-west and anti-Russia. This has caused tension since 1991, if not all the way back to 1921….
So, the problems right now are a proxy war between the West and Russia?
Kind of. Since 1991, various democratically elected pro-Russia governments have allegedly been undermined and overthrown by the west and replaced by pro-western regimes, which Russia has argued lack legitimacy.
Why is that such a problem now?
There are various issues; membership of NATO, Membership of the EU, the pipeline (Russia has now built one that doesn’t cross Ukraine but for political reasons, some interests (mainly the American government) don’t want that to be certificated ready for use, and above all, the perceived threat of nuclear attack on Moscow.
Say what? Nuclear attack on Moscow?
Back in the cold war era, conventional ‘wisdom’ was that peace could be kept by Mutually Assured Destruction (anti-bomb campaigners called this a ‘MAD’ idea). In other words, if each side could obliterate the other, then neither would strike because that would guarantee their own destruction at the same time.
In the 1960s, US military command devised a nuclear attack plan on Moscow that was 5,000 times larger than the ‘Little Boy’ bomb that destroyed Hiroshima, because America had felt that it needed to tip the MAD scales back in its own favour after Khrushchev and Brezhnev had commissioned an advanced missile defence system and had sought to use Cuba as a base for Soviet missiles. (Of course, Soviet leadership discovered the plans to drop 100 megatons of nuclear warhead in precision strikes on Moscow, which didn’t help US-Soviet relations).
Wait – Russia developed a defence system to prevent missile attack, so America had to increase its strike power?
That’s how MAD worked. Which is why, the US then focused on negating Soviet nuclear capacity with its own wide-ranging Strategic Defence Initiative (SDI) systems, such as ‘star wars.’ These denuded the Russian nuclear capability, at the same time that the Reagan administrations sought agreement that both sides should, under the various SALTs (Strategic Arms Limitations Treaty), limit strategic nuclear strike capabilities (the opposite of what America itself had done when USSR increased its defensive capability).
These technologies were hugely expensive, at a time when The Soviet Union began to face economic challenges. Squeezed financially, its deterrence was also reduced by SALT and US SDI (with its offshoots, GPALS, BDMO and ERINT- the US military love acronyms, actually I imagine all military love acronyms, you don’t want to be repeating Extended Range Intercept Missile over and over during an existential combat situation and ERINT actually sounds sexier). Alarmingly, the moribund USSR was unable to match US capabilities or resist what it saw as increasing American aggression On top of this, Ronald Reagan telling Gorbachev, who had become something of a pariah in USSR, to “tear down the wall” was seen as an attack, if not invasion.
What’s this got to do with Ukraine?
The American-staged break-up of the Soviet Union – Gorbachev even used a Mont Blanc pen provided by the head of CNN to sign the CNN-scripted resignation letter- occurred in a febrile atmosphere, as Gorbachev handed responsibility for the defence of Moscow to the head of the local government, Boris Yeltsin, and made similar arrangements with the other member states.
This also resulted in each state gaining access to the chemical weapons stored within its own boundaries, many of which mysteriously ‘disappeared.’ Imagine POTUS handing the nuclear codes of missiles around the Pentagon to the Governor of the state of West Virginia in a Russian choreographed ceremony to announce the break-up of the USA, if The Mountain State’ decided to secede from the union, with a huge presence of Russian military and economic advisors on the ground, trying to also influence every other American state, suddenly cut adrift. Whether that’s a suitable analogy, it seems that many people felt that way, even in the Ukraine, where Leonid Kravchuk, a former apparatchik, was elected President.
He subsequently failed to win re-election mainly because voters felt that he had been too accommodating to President Bush by agreeing to remove former Soviet nuclear weapons from Ukraine in return for a $110 million loan to buy American goods.
Wait- so America just paid Ukraine to dismantle its nukes?
Yes. Russia was presumably alarmed. Previously Ukraine had been a buffer where early warning systems could detect and intercept any attack and from where missile deterrents could be focused outwards, less than 750 miles from Berlin. Kravchuk’s former deputy, Leonid (they all seem to be called Leonid or Viktor) Kuchma replaced him and pursued the closer rapprochement with Moscow, that the electorate had chosen.
So, the everything calmed down?
Kind of. Kuchma was re-elected for a second 5-year term in 1999 but, despite electoral popularity became a target for certain media who were allegedly acting as proxies for western interests, unhappy at seeing pro-Moscow candidates win the first 3 elections.
So, all this ‘interfering’ didn’t start with the 2016 US Presidential elections?
Far from it – the UK had been actively engaging in propaganda and fake news operations in Russia and the Soviet Union since 1921, including best-selling spy fiction writer, Bruce Lockhart.
So, what happened?
Kuchma left office in 2005 in return for immunity from prosecution, hoping that his protégé, Viktor Yanukovych would win the ensuing election. Kuchma had reportedly incriminated himself in 500 hours of audiotape, recorded by his bodyguard which came into the possession of the US Ambassador and the FBI.
Did Yanukovych win?
Yes and No. Yanukovych won but there were protests and rioting and it was decreed that a second election should be held. Viktor was the victor. But not Viktor Yanukovych. Instead, it was Viktor Yuschenko, representing a coalition of everyone who wasn’t Yanukovych,
So Yuschenko was pro-west?
Yes & No. He was pro everything and pro nothing. He’s mainly remembered for 2 things, firstly for suffering a disfiguring nerve gas attack perpetrated allegedly by his bodyguard (what is it with Ukrainian bodyguards?), from which he recovered in a somewhat unlikely way, giving rise to conspiracy theories and secondly for flip-flopping and basically agreeing with whoever he was talking to at the time, being pro-west one day and pro-Moscow the next.
So, he got along with everyone?
No. Not really. In fact, nobody seemed to like him, especially his former closest ally in the coalition, Yulia Timoshenko (of the famously braided hair), who increasingly became the chosen representative of western interests.
And she won the next election?
No. the other Viktor did. Yuschenko had appointed his former adversary Yanukovych as Prime Minister when things weren’t going well with Ms. Timoshenko and Yanukovych defeated Timoshenko in the 2010 Presidential Election. Unfortunately, he inherited the situation where Yuschenko had negotiated Ukraine’s accession to the EU, while also ingratiating himself with Moscow, seemingly implying that Ukraine wouldn’t join the EU.
Yanukovych reached the point in 2013 where he couldn’t keep both suitors happy any longer. He chose Moscow. Fighting broke out in Ukraine and Timoshenko (by now imprisoned for corruption charges, some of which might well have been falsified or exaggerated) arranged for parliament to vote to remove Yanukovych from office, even though it had no constitutional power to do so, without first undertaking impeachment proceedings.
Does this ever end?
The condensed version is that Timoshenko’s allegedly western-backed coup overthrew Yanukovych. After a hiatus where a TV scriptwriter stood in, Petro Poroshenko, a confectionary billionaire (known as the chocolate king) who owned (until he sold it at the end of last year) enough Ukrainian media to cultivate a popular image, became President until 2019.
Seen by opponents as a stooge of western interests, who they accuse of having funded his media empire, he ratified Ukraine’s ascent (or should that be descent?) to the EU, causing relations with Russia to take a sharp turn for the worse, especially when he sought to initiate Ukrainian membership of NATO and at the same time managed to get close enough to both Donald Trump and the Biden family that all manner of allegations later circulated about improprieties.
NATO?
Russia is deeply suspicious of NATO – Russian President Vladimir Putin previously discussed with President Clinton, the possibility of Russia joining NATO (never a realistic possibility in American eyes).
He has subsequently dismissed NATO as an American military proxy and does not want the unstable neighbour to become a member of an American proxy. In Russian eyes, America is entirely to blame for The Ukraine’s ongoing civil war. No Russian wants the possibility of NATO troops on the ground there, intervening in this or any other conflict.
He would say that though?
Maybe, but there’s evidence of American operations, with the then CIA Director John Brennan on the ground in Ukraine, taking a seemingly active role in the protests and the war.
What?
Yes. So, from a Russian perspective, the charge list is getting pretty lengthy:
The west sought to prevent the formation of independent post-imperial states back in 1921
The west has conducted propaganda campaigns against the Soviet Union/Russia from inception
The west used Russia as an ally in WWII but then undermined its post-war reconstruction and was complicit in the deaths of millions from starvation
The west planned to drop 100 megatons of nuclear warheads on Moscow in the 1960s
The arms race with the west led to the economic weakening of the Soviet Union, which the west then exploited to bring about the collapse of the Soviet Union
USA tricked the Soviet Union into allowing America a significant nuclear capability advantage
USA tricked Russia by backtracking on undertakings that former Soviet states would never be allowed to join the EU or NATO
USA then tricked Russia again when President George W Bush backtracked on agreements not to target short range missile deployments at Moscow.
The west then destabilized the crucial buffer state, The Ukraine.
USA then fomented the outbreak of civil war in The Ukraine.
America then led the opposition to the new Nord stream 2 pipeline that avoids The Ukraine.
Some of these claims may well be exaggerated and fears may be overdone but I suppose that to understand the Russian perspective, we would need to envisage how we would feel if West Virginia were systematically undermined in such a way that it appointed a pro-Russian, anti-USA Governor and assembly, seceded from the Union, refused to allow infrastructure like oil pipelines to operate through the state, joined the CIS federation, started allowing foreign warheads to be positioned on Virginia soil and joined The Collective Security Treaty Organization (the equivalent of NATO in the former Soviet Union).
A key fracture in relations was President Bush’s reversal of promises not to increase the US/NATO nuclear capability housed in Europe. It’s known that at least 100 American long range war heads are housed in 5 NATO bases, the closest being less than 1,500 miles from Moscow and only 1,200 miles from the Russian border. The American Ambassador to Poland last year proposed the construction of a new NATO nuclear facility in Poland, conceivably within 750 miles of Moscow and just over 300 miles from the Russian border. Ukraine not only borders Russia but at its closest point is within 300 miles of Moscow. The USA is estimated to have almost 6,000 warheads (around 1/3 of which were to be decommissioned). Encircling Russia with long, medium, and short-range weapons is a profound national security issue for Russia, which likely possesses a similar number of missiles but only a fraction of which would have the long-range capability to reach American targets.
The Ukraine has both a strategic and symbolic significance to Russia and the military imbalance that has developed, in which Ukraine is a key battleground, is presumably a key factor in shaping Russian fears and concerns.
While we don’t have to agree with the Russian perspective, we should try to understand it because this is the mindset that could determine how the crisis in Ukraine develops from here, and how Russian leadership responds. If we dismiss it as mere sabre-rattling, we may be understating the most significant geo-political threat since the Cuban missile crisis and the single most significant geo-political event that the politicians of our lifetimes seem to be sleepwalking through.
Disclaimer: The above information has not been independently verified. This investment brief is given for information only and does not represent an investment proposal, recommendation or advice to invest in the shares or business of the subject company. Additional information shall be made available to interested parties subject to the execution of the requisite confidentiality undertakings. The financial information, actual and/or forecast, provide herein is based on management representation.
