Russia, Ukraine and averting the threat of mass starvation.

The threat to global food supplies brought on by the Russian invasion of Ukraine could become a humanitarian catastrophe far beyond the current crisis in Ukraine (and in Russia). Too much of the world is dependent on wheat from Russia and Ukraine, and sunflower oil from Ukraine.

The current path will result in mass starvation. I do not expect this to happen, but avoiding it will bring the "West" into even greater danger of open armed conflict with Russia. I'm hoping Russia will "see reason". Let me explain.

McKinsey has an interesting article on 12 consequences of the Russian invasion of Ukraine. Possibly one of the more worrying charts is the food insecurity chart. This maps countries' dependence on Russian/Ukrainian wheat, and the percentage of calories that come from wheat. The EU27 countries are in what seems to be a 'good' position in that while 22.5% of calories come from wheat, only 1.6% of that comes from Russia/Ukraine. 

 

Egypt must be the most worrying, with 35% of calories coming from wheat, and 54% coming from Russia/Ukraine. That's a staggering almost 20% of all calories consumed by an estimated 100 million people. Egypt will be the country to watch over the coming 6 – 12 months. I hope a solution will be found, or there will probably be serious turmoil in Egypt, spilling over across the region, possibly to southern Europe. 

 

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/war-in-ukraine-twelve-disruptions-changing-the-world

Not included in that chart is sunflower oil, which is also in short supply, and is already disappearing from shelves in France. What is the caloric input that sunflower oil represents? This makes me more worried about early next year, the "hungry season" of medieval Europe, when the harvest is running out and the new plantings have not grown enough to be harvested.  

 

Egypt has to be near the top of my list in terms of places that I'm apprehensive about. How long will last year's harvest last, and the food stocks begin to run low, no matter the price? Suppose the "Strategic Reserves" level remains constant. In that case, we (and they in particular) are in big trouble when the grain shipments do not or cannot happen later this summer; also assuming that there is a reasonable harvest, in itself a debatable prospect.  

Frankly, I'm becoming very worried. 

 

Another graph, this one from "The Conversation" (https://theconversation.com/russia-ukraine-crisis-poses-a-serious-threat-to-egypt-the-worlds-largest-wheat-importer-179242) shows the magnitude of the problem that Egypt faces, remembering that 35% of calories consumed in the country of 105 million people is wheat-based. The scale is million tons of wheat. Egypt is importing 13 million tons of wheat, 11 of that from Russia and Ukraine.

 

Locally, Egypt is producing around 9 million tons. That 9 million metric tons of production in 2021 is the largest harvest to date, and follows most of a decade of 8 – 9 million tons of production.  

 

Since 2015 and 2016, production has grown from 8.1 million to 9 million tons in 2021. Production will need to grow a lot faster than that to keep up even with population growth, let alone reach any government targets for the percentage of needs that are produced locally. 

 

But the Egyptian government is making all the right noises. Al-Monitor has an article that is all happiness, with Egypt on its way to producing 70% of domestic demand. Acreage is growing (by 7% or so, not exactly the increase needed) and new variants, resistant to drought and insects are being introduced (something that does not happen in a season). (https://www.al-monitor.com/originals/2022/03/war-ukraine-pushes-egypt-ramp-wheat-production) 

 

"Reda Mohamed Ali, head of the National Wheat Campaign at the Ministry of Agriculture and Land Reclamation, told Al-Monitor, "The current year registered the highest levels of production and supply of local wheat. The government is applying policies aimed to expand wheat cultivation and raise productivity per feddan [1.04 acres] within the scope of Egypt's Vision 2030. These policies have already begun to bear fruit, as the area planted with wheat increased by 260,000 feddans [270,000 acres] this year to reach 3,654,000 feddans [3.8 million acres]. This is in addition to an increase in productivity per acre by using and developing new varieties that are resistant to drought, insects and salinity."" 

Unfortunately, these are just noises. There is little potential to dramatically increase harvests, especially in an environment in which fertiliser has risen by up to 300% in cost. If anything, there is a risk that harvests will fall considerably without adequate fertiliser.

 

Anyone looking at this who is not afraid is not looking properly. 

 

No matter how much the donor world will want to donate when the crisis hits, if there is nothing to donate, then all the promises in the world will not deliver the food.  

 

Next door to the south, Sudan is in no better shape than Egypt, with its own population of 43 million (and another 11 million in South Sudan). Is Sudan in a better position than Egypt? Roughly 21% of calories come from wheat products, of which50% are imported from Russia or Ukraine. So around 10% of the calories consumed come from warring countries. Yet all of that must pass through Egypt, who can be expected to ensure that their own people are the first to be fed. 

 

 

The food crisis in Sudan will probably begin sooner than in other countries. (https://fews.net/east-africa/sudan/food-security-outlook-update/april-2022). In the maps above, from the Famine Early Warming Systems Network (FEWS NET), orange is "Crisis". The projection is that food assistance will be required through September 2022. What happens after that is anyone's guess, but without imports, there could be a very serious situation. 

 

"An estimated 600,000 tons of locally produced wheat is anticipated to be harvested this season, approximately 33 percent below production last year and 13 percent below the five-year average. The estimated 2021/2022 harvest will likely provide around 23 percent of Sudan's annual wheat requirements." 

Again, the harvests were down last year, and with the costs of fertiliser and inflation in the cost of seeds, there can be little hope of even a five-year average level of harvests this year.

 

At first, we in the West watching our evening news programs will not see it as a food crisis, but as civil unrest aimed at the government because of food prices. That will progress pretty quickly to news reports of starvation in areas, and international appeals for food aid. But where will it come from? With Egypt to the north (and blocking, because even the Red Sea ports require passage through the Suez Canal and Egyptian waters), there will be little hope of delivering large enough stocks to avert a humanitarian crisis. 

 

Political instability will spread north to Egypt, and certainly will not be limited to Sudan. 

 

What happens when food prices skyrocket in Egypt? Can the military hold the people in check? Will they be able to source enough food to feed the people, and how will they stop profiteering and the inevitable social unrest that will come with that? 

A way out of this mess?

 

What will be the response, and what should we expect to see play out over the next three months? 

 

First, nothing but talking until it becomes clear that there is a real danger of mass starvation, political unrest and the potential collapse of Sudan and then Egypt (and probably a few other countries along the way).  

 

In 1981, Iraq invaded Iran starting a war that would last until 1988. In 1984, the "Tanker War" began, with each side targeting the oil tankers that were exporting the opponent's oil. Insurance premiums increased, but tankers continued to enter the Persian Gulf, fill at terminals and leave, taking oil to the world. Eventually, in 1987, to protect exports from Kuwait, Kuwaiti tankers were reflagged as US-flagged ships. This didn't stop attacks on tankers, but it did stop attacks on Kuwaiti tankers. 

 

Anti-ship missile technology has come a long way, and the belligerents are not 'small' military powers.  

 

Any bulk carrier that would venture into the Black Sea today would face steep insurance premiums, even if flagged as a US, UK, or EU member nation. In this scenario, Russia (and Ukraine) will need to think very hard about the potential repercussions of an attack on such a flagged vessel. 

 

Once the food crisis reaches the level of attracting regular and systematic media coverage, I expect a number of bulk carriers (hopefully prepositioned in Turkish waters) to hoist new flags and be escorted by western warships. 

 

This will present Moscow with a stark choice, allow Ukrainian wheat to be exported, or face being responsible for initiating hostilities directly with NATO, and as an extra bonus, be portrayed to the developing world as the cause of their hunger, starvation and unrest. Even if "the people" in the impacted countries do not know it was Russia that has caused the grain shortages, the leader of those countries will know very well who tried to feed them, and who did not.

 

For all his bluster, Putin does not want a war with NATO and does not want a war it cannot win without the use of nuclear weapons, as that will result in the ultimate defeat, a radioactive Russia. Russia may decide that it can continue to bluster and threaten nuclear war, but eventually, the West will be forced to challenge the blockade and export Ukraine's wheat. Russia's remaining option will be to demand that their wheat shipments be given the same priority, a demand the West may well consider worth the bargain 

 

So, I believe the grain will flow. But it will be too late for many. There will be unrest in many countries, and it is possible that more governments will fall (Sri Lanka's government already has fallen due to higher food prices).  

 

But mass starvation caused by Russian and Ukrainian wheat being blockaded will not be the only reason.  

 

The world has a chance to make sure that it does not happen. Do I have confidence that the wheat will flow? I do, but then late last year most of us did not expect Russia actually to invade Ukraine. And almost none of us expected Ukraine to defend itself as well as it has.  

 

The Future of Risk Management

The Role 

What is the future role of Risk Management, and what does this mean for the Risk Manager? Will the world of risk be machine-driven decision-making based on quantitative models and AI algos determining the most cost-effective mechanism for reducing risk? Or will risk be a qualitative function relying on relationships and individual expertise to influence decision-making, identifying potential problems and opportunities? Or, will risk be "everyone's job" and, therefore, we can dispose of the Risk Management function completely? 

I would posit that Risk Management and the Risk Manager of the future are the same as the role today. What may change are the systems, tools and processes used by Risk Management and the enterprise.

However, the core concept is that the role of Risk Management in the future will be the same as the role today. Notably missing from the definition above is the word "Risk". What is in its place are the twin concepts of opportunity and potential problems. This follows the definition I have used for "Risk" for about 25 years - "The possibility of something bad happening, or something good not happening". 

 

Risk Management is the process by which good things are encouraged, and bad things are discouraged from occurring. Simple really. 

 

"Risk Management uses the appropriate tools and processes to continuously learn and grow to ensure effective decision-making vertically and horizontally across the enterprise, focusing as much on opportunities as on identification and mitigation of potential problems." 

There is a huge amount to unpack in there.  

• Appropriate tools and processes 
• Continuously learning 
• Ensuring effective decision-making 
• Opportunities 
• Mitigation of potential problems 

The Risk Manager of the Future, to achieve that, must: 

• Be Curious, 
• Demonstrate Adaptability, and 
• Inspire leaders and decision-makers 

While not breaking down each of these three attributes, I think they are embedded in the discussion below. 

Noticeably missing from the definition above are the words "framework", "risk identification", and "risk assessment". There is a reason for that. Those words belong in the position description and the long-form description of Risk Management, and are focused on the detail of the process and not on the objective of Risk Management. But more about that later. 

 

Let's go back and focus on the keywords and phrases. 

 

Appropriate tools and processes: Risk Management should use tools and processes, and they should be the right tools and processes for the maturity of the enterprise and the maturity of the function. The size of the enterprise will also influence the tools and processes. Risk Registers are important throughout the maturity of the enterprise and function, not because they are the best tool, but because the stakeholder community (up, down, sideways, internal and external) understand the concept of recording and monitoring risks through some form of repository of risks.  

There will be many situations in which modelling such as Monte Carlo will be appropriate and indeed, may be the only appropriate tools. Where there are repeatable processes or large amounts of data to support modelling, that is the appropriate approach. Where the risks and situations are new, unique to the enterprise, or rely heavily on the judgements and choices of a few individuals (Board members, C-suite individuals, marketing specialists, application developers, etc) then quantification of the risk through modelling will be of little value.

Where subjective judgement based on experience and expertise is required, qualitative assessment of risks and determination of appropriate mitigation (by the risk owner) may be the most appropriate response. Such situations should be subject to challenge and review, which is part of the role (today and into the future) of Risk Management. 

Likewise, the "standards" such as ISO31000 (and its precursor the Australia New Zealand standard) provide a source for definitions and concepts, but there is no rocket science in any of them. They are valuable but are frameworks and standards only, not actual useable guidance for the day to day.

The tools and processes used must be appropriate.

 

Continuously learning: this applies as much to the Risk Managers as it does to all in the enterprise who are responsible for activities that may deliver benefits and support the achievement of the objectives and plans. Risks are "owned" by individuals across the enterprise, and they should continually be learning about how to more effectively manage those risks. The owners need to be educating those around them and those impacted by the risk, about the nature of the risk and the mitigation that is in place to reduce counter-objective results. This includes advocating for the budget required to effectively mitigate the risk. Likewise, these "owners" also own the opportunities and are responsible for identifying them and advocating for exploiting them. 

This is as true about strategic risks and opportunities. There are owners of such risks (in many cases deriving directly from opportunities and decisions to exploit or avoid such opportunities). Considering the strategic cannot happen except through continuous learning and consideration, incorporation of new information, and the assessment of trends, both short and long term. 

Included in the area of continual learning must be the development and use of KRIs (Key Risk Indicators) by the owners of the risks, with the support of Risk Management in the development of those KRIs. Monitoring and interpretation of the KRIs are (and will be) a core element of the role of Risk Management. And that will require a continual review of the appropriateness and effectiveness of the KRIs in actually providing effective risk monitoring information, to lead to and support...

 

Ensuring effective decision-making: Effective decision-making is the core of a successful enterprise. Decision-making takes place every day, by everyone in the enterprise, the difference being the criticality and importance, short and long term, of the decisions being made. All decisions include some amount of risk; the risk of misallocation of resources, retention of customers or alienation of customers through service delivery or failure. Suppliers and supply-chain issues result from scheduling or price negotiations, or from factors outside the direct control of the decision-makers. 

Furthermore, it is not enough to ensure effective decision-making at the top of the enterprise, but vertically throughout all levels, and horizontally between business units and teams. Support is provided across and between teams, and the resulting or enabling decisions can deliver or hinder the achievement of objectives.

Each decision contains an overt or implied risk-reward payoff calculation within it. 

Opportunities: Each decision represents opportunities, and that must be one of the primary goals of Risk Management - to encourage the identification and consideration of opportunities and thereby contribute to more effective decision-making. Enterprise success comes from identifying and exploiting opportunities, all the while being cognizant of the potential impediments. Risk Management has a habit of focusing on impediments to success, and that needs to be balanced by an understanding of opportunities and objectives.

While COSO (the original 1993 version) defined the "Objectives - Activities - Risk - Controls" hierarchy, the "opportunities" aspect is lost in the "Objectives". Sometimes Risk Management needs to provide visibility on the opportunities from the "Risk - Control" level. Of course, COSO specifically addressed the failure of control that contributed to the Savings & Loan crisis in the US in the 1980s, so it is not a surprise that the focus was on the need to control risks, and not identify and exploit opportunities. Yet COSO '93 remains probably one of the best frameworks for considering risks and controls.

That has made it more difficult to inculcate a philosophy of constantly looking for the "upside" or opportunities when looking at risks. The Risk Manager of the future will, as they should already be doing, be looking for opportunities to balance the risks, thus reducing the danger of becoming overly controls-focused. 

Mitigation of potential problems: Finally, of course, Risk Management (today and the future role) must consider the range of possible "bad things" (Risks) that can happen and work with risk owners to build and implement effective mitigation strategies and actions. The Risk Manager's expertise in identifying and assessing the range of possible "bad things" is not the same as having expertise in mitigating those risks. That is the purview of the experts operating and managing the activities subject to the risk. 

Now we get to the traditional words and concepts of risk identification, assessment, mitigation, and monitoring. Of course, Risk Management does these, today and into the future. 

Without the identification (and assessment) of the universe of risks that the enterprise faces, it is impossible to know if resources are applied most effectively to reduce the potential for "bad things" to happen, but also to encourage "good things" to happen. This universe must include internal and external risks, immediate and potential long term risks, and of course, a plethora of "emerging" risks.

---------------------

Editorial comment: I've not addressed the voluminous volumes of follow-on COSOs and other standards, for "Verily this vichyssoise of verbiage veers most verbose" (Thank you "V for Vendetta"). The COSO organisation has become just another vested interest in the production of ever newer variations with the primary purpose of demonstrating the intellectual prowess and therefore thought leadership of whichever brand "sponsored" this new COSO.

 

Russian and Ukraine, 6 predictions for the coming decade

The Russian invasion of Ukraine is being called all sorts of things, from the most brutal act of aggression and war crimes this century, to a failed military debacle of unprecedented levels. Few are calling it a success. I suspect the truth is somewhere in between. Certainly, it is a war of aggression, and indeed, the initial phases of the war were a complete debacle for the Russian military. But wars are not fought in a day or week, except in very exceptional circumstances, and a territorial war such as Russia in Ukraine is a long and ugly affair. 

First, Ukraine is a huge country by almost any standard. And Russia is even bigger. This is a country of 40 million people invaded by a country of 150 million, the world’s second-largest military  (Russian) versus the world’s 20-something power. Three months to put the pieces in place for a swift invasion and decapitation strike against the capital. On paper, the war should be over by now.

That was the simplistic view, and the expectation until President Zelensky said, “I need ammunition, not a ride”. At that moment, the war changed fundamentally, and the belligerents changed. 

Like it or not, Russia is now at war with the 900 million people of the NATO and EU countries, even if everyone is pretending that Russia and NATO are not at war, even if the President of the United States says that the US will not enter the war. Russia is now at war with the world’s most powerful economic and military alliance. Putin went to war with #20, and finds himself effectively at war with #1+ most NATO countries, and Ukraine, of course. 

The “West” is not at war with Russia, at least not officially. But it certainly feels like it, without the nukes flying (which is, of course, the reason that the “West” is not actually at war with Russia). The United States was not at war with Nazi Germany or Japan until December 8th, 1941, more than two and a half years after Germany invaded France, and three years after Germany and Russia invaded and divided Poland. Of course not. Yet the United States was arming and feeding the UK and arming the USSR long before officially entering the war. The United States was economically sanctioning and embargoing Japan for the invasion of China. American “volunteer” airmen flew the latest US fighters out of China. But that was most definitely the US at war with Japan.

Fast forward to today, and the “West” is not at war with Russia. 

Russia has invaded Ukraine, and those are the only two countries that, officially, are at war. Putin will avoid actually “dropping” anything onto any NATO country, even though the eastward expansion of NATO (at the request of the new members, not the occupation by NATO) is one of the casus belli for the war. Just as Russia invaded Georgia to stop their attempt to join NATO, Putin has invaded Ukraine not to liberate Russian brothers (and sisters) in eastern Ukraine, but to make sure that there are no doubts about the limits to the eastward expansion of NATO. Certainly, these are not the only reasons. Control of all access to the Black Sea and a land bridge to the Crimea are reasons, as is the idea that "Vlad the Great" has restored Russian glory.

But what I really wanted to discuss is how this plays out over the two to ten-year window. I’m not a military expert, so I cannot predict the next three weeks, though I do have some guesses. The two to ten-year period is what matters now.

Regardless of how the war plays out on the battlefield, I can comfortably make some predictions about the coming years with the caveat of my favourite aphorisms: “It is easy to predict the future, but really tough to get the dates right”.

So here goes.

Russia may prevail on the plains of eastern and central Ukraine. They may break through an exhausted Ukrainian military, regardless of the speed of arrival of supplies. Training crews to effectively use advanced western systems takes much longer than Ukraine has, so they must rely on what they know. This explains the provision of what seem to be antiquated weapons systems (other than the very modern and relatively ‘easy’ to learn and use human-portable anti-armour and anti-air systems). The plains of eastern and central Ukraine are more suited to massed armour and artillery, and less suitable to the hide, strike and disappear small unit tactics.

Russian artillery will “prepare” the battlefield, and the armour (and APCs – armoured personnel carriers) may be able to exploit the more expansive tree-less spaces. The Russians, hoping for a quick decapitation strike against Kyiv forgot how their armies fight, and it cost them. They are trying to rectify that now.

The ability of Ukraine to prepare the battlefield to suit its defence will determine the outcome on the field. The Russians might be stopped, or they might take half or more of Ukraine. I don’t know. 

What we can predict with confidence is that the cost to both sides will be horrendous in people and military hardware and capabilities.

Putin is not stupid, and his generals will, eventually, tell him the cost that is being imposed on his capabilities. The announcement that he had ordered the military not to storm the Azovstal Iron and Steel Works may well have resulted from some honesty from his generals. He can spend his now reduced resources refighting Stalingrad in Mariupol, or he can seal it off and make those resources available for offensive operations north and moving westward. 

Russian military resources are finite and are being depleted at an alarming rate, at least alarming for the Russians. We can forget pre-war estimates that Russia has 15,000+ tanks. Too many of those are sitting in open fields rusting, with engines that have not been turned over in decades. Better estimates were in the 3,000 - 4,000 functioning tanks. That force has proved itself no match for human portable anti-armour weapons, and estimated loses of tanks alone are as high as a thousand, and at the lower end at least 500 as documented by Oryx. They are counting losses on both sides based on photographic evidence only, numbers that will be much lower than total losses. 

Prediction time

Here is my first prediction 

By the time the shooting is done, both sides will be exhausted. Their respective militaries depleted both of material and personnel. By the end of May, this land war will be done, or at least this first spasm of war will be finished. There will be little residual offensive capacity left. A stalemate may have been reached. 

Even if Putin wanted to invade a NATO country, he would not have the forces required. It is not feasible to completely strip all troops from the east of the country and send them to Latvia, for example. Out of a pre-war 750,000 army, Russia could commit less than a third directly to the war effort. The rest exist to maintain state authority and to deter potential adversaries, including internal. And a credible force is required to keep the former Soviet states in the CIS (Commonwealth of Independent States) from completely breaking with Moscow.

The Russian military is spent, and will enter a multi-year rebuilding programme. That rebuilding programme will come at the expense of the rest of the Russian economy and people. With the economic sanctions that are and will continue to be in place, I do not expect the Russian military to be able to rebuild as a modern, or should I say a more modern military. They may be able to reach close to their current latest technology levels, but as they try to catch up with where they were, the rest of the world will be moving further into a higher-tech military world.

And here is my second prediction 

The economic cost of the war will cripple Russia for a decade and more. Worse, Moscow will find that sanctions, as a longer-term weapon, have prolonged the economic war and will destroy Russia from within. Russian economic growth for the coming decade will be stagnant at best, and in all probability, a decade from now, the Russian economy will be significantly smaller than it is today. 

Oil and Gas exports will be the only shining light, and that will dim over time. Russia’s ability to use energy as a tool to blackmail Europe will be gone by the coming winter. The crash programme to decouple from Russian energy will be well underway by the end of summer, and to keep Europe focused, the United States will be delivering gas to Europe for the coming winter. Nuclear power plants scheduled for decommissioning will have their lives extended. France, with 80% of domestic power generation coming from nuclear power, will find itself exporting both electricity and engineering expertise.

It may be a cold winter in Europe, but it will be colder in Russia. This year, and for the foreseeable future.

As I wrote recently sanctions are a long-term weapon. And in the case of Russia, sanctions are going to contribute to a brain drain over the coming decade. Simply put, no matter what the quality of the software developed, the equipment and technology innovations, there will be little probability that Russia will be able to match the investment capability of an interlocking international system. 

Moscow has other problems that will result from the sanctions.

This leads to my third prediction

Former satellite states in Central Asia will drift away from Moscow. As long as Russia is their only market, and it will be if sanctions are tight enough, they will be stuck in the same economic toilet bowl that will be Russia. This is going to result in a lot of introspection and a lot of external persuasions – to leave Moscow’s orbit and find their own way. China, the Middle East, or the West? Or a combination.

If they are to avoid a decade of depression, they may choose to disengage somewhat from Russia. The more ruthless the Russian occupation of the parts of Ukraine that they gain or retain control over, the greater the isolation of Russia itself, and for those countries that align themselves with Russia. This will drive a wedge between the CIS states and Russia. And it will be a wedge that will be exploited by western countries looking for markets and looking for resources. The "Great Game" will recommence, if it ever really ended.

Closer to home, Russia will have difficulty keeping hold of Belarus, a country that already looks westward, yet is ruled by President (for life) Aleksandr Lukashenko. The elections of 2020 that returned him for a sixth term resulted in civil unrest that seemed to come close to overthrowing the government. Belarus has remained out of this war, at least, it has not committed actual combat troops to the fight. The next decade will be challenging for Belarus as the economic fallout increases and the authoritarian rule becomes more oppressive, all the while the people continue to watch their Polish and Ukrainian neighbours prosper.  

My fourth prediction: China

China has been “sitting on the fence” ready to be Russia’s friend, but also carefully considering its own position going forward. Certainly, China is watching the reaction of the west and the performance of Russia and Ukraine, with an eye on what to expect, should / when they decide it is time to bring Taiwan under Beijing’s control. Had Ukraine capitulated quickly, or if the west had splintered as Putin hoped (it is not too late), Beijing might read that it could manage the international reaction to an invasion of Taiwan.

The west has not faltered, while at the same time, they have not allowed themselves to be drawn into the shooting part of this war, yet. Ukraine did not collapse, and a people with less than 40 years of independent statehood have shown just how hard they will fight to protect their independence and identity. This may impact China’s calculations about the ease or difficulty of a Taiwan invasion. They know they will not be greeted as liberators, showered in flowers.

China also knows that its economic future is tied to the west; the United States, and Europe. While the “Belt and Road Initiative” may aim to open new markets in Asia and Africa (and South America), China’s reliance on the massive American and European markets is critical to their continued economic growth. Russia, while an ally of sorts, simply does not currently and will never have the economic clout to displace those other markets and investors. China knows this.

So like the CIS countries, China will be calculating the cost of sanction-busting, and may determine that the cost is too high. Certainly they will get away with buying Russian oil and gas. There is only so much global capacity, and if the west rejects Russian oil and gas, they will need to replace it, and that means competing with China. Turning a blind eye to China importing Russian oil and gas will free up other suppliers, allowing Europe and the US to disconnect completely from Russian energy. China will buy that oil and gas anyway, so the west will turn a blind eye.

This will keep money flowing into Moscow’s coffers, but Moscow will find itself selling at a discount to retain the Chinese market, and the costs of delivery to the Far East are significantly higher than delivery to Europe. China will buy, and the money will flow, but the total value will be far less than before sanctions and far below what will be required to both rebuild the Russian military and resuscitate the Russian economy.

My fifth prediction

Ukraine, or what is left of it territorially, will undergo a decade of rapid economic development and may, within five years, have reached a pre-invasion level of economic prosperity. It will only grow from there. International aid and development will flow into Ukraine for two main reasons; Western guilt at not having done enough to stop the destruction that Russia has wrought on Ukraine, and as a way of ensuring that a well-developed Ukraine is ready and able to join the EU. 

Furthermore, Ukraine will find a way, as will NATO, to become a de facto member of NATO and eventually, an actual full member. It is only a matter of time. And a crippled Russian military will not be able to bluster as they did in Georgia and Crimea. Western military aid will continue to flow after the war, with the nature changing to a greater emphasis on training in modern western systems, newer armoured vehicles and modern MBTs (Main Battle Tanks) to replace the Soviet legacy vehicles. These will be the tanks that took on Saddam Hussain’s huge Soviet-era and supplied armoured vehicles, the entire range of T-xx tanks that have not served Russia very well in this invasion.

Ukraine will become a full member of the European family with the economic benefits and security guarantees Zelensky and Ukraine desperately needs.

And finally, my Sixth prediction

In 2020, the increase in the price of natural gas was already having an impact on the cost of fertiliser. Inflation started before the invasion, but has been exacerbated by the economic dislocation that is a result of the disruptions due to the invasion of Ukraine, and now threatens to have a major impact on global food security. Russia is one of the largest exporters of potash used in the production of nitrogen fertilisers, and Russia provides natural gas used in fertiliser production. Ukraine and Russia are major exporters of wheat. The current ware in threatening this year’s planting in Ukraine and Russian control of the Black Sea coast is stopping Ukrainian exports of wheat.

Fertiliser prices are having a negative impact on the economics of farming across the globe, and the interdiction of the flows of foodstuffs will further impact the cost of wheat. There are too many importing nations that already have strained national budgets, making subsidies on domestic sales of basic foodstuffs more difficult to sustain. 

Therefore, over the coming one to three years, we should prepare for significant instability in the developing world. North Africa is in danger once again, as are the Horn of Africa, and West Africa. Parts of South Asia may see food security based instability.  

More generally, inflation has been rising in developed countries as a result of supply chain issues and Covid-19 related stimulus programmes, and central bank responses threaten recession in the coming two-year window. Much beyond that 

Sanctions, what are they good for?

Sanctions. We are told that the US and Europe have imposed the toughest sanctions to date on Russia and individual oligarchs. Maybe, but that might be hyperbole at best. There is this idea that with tough enough sanctions on individuals, those oligarchs may overthrow Putin or at a minimum dissuade people from going into the service of a state that, through sanctions, will limit their futures. This, of course, is rubbish and wishful thinking on the part of pundits. Indeed, overthrowing the state or leadership is not the purpose of sanctions.

Yes, the oligarchs will lose some of their wealth and will have difficulty travelling to their mega-yachts, but that is all. Most of them are smart enough to have engaged expensive and cunning firms whose speciality is hiding the money. “Where’s the money, Lebowski?” Well, the Dude has no idea where the money is, and neither do most governments. Certainly, there will be a few high profile examples of frozen assets and seized mega-yachts. Meanwhile, the vast majority of their assets will remain safe, protected by offshore companies with convoluted and obscured ownership structures, holding assets in trust for other obscure companies in different jurisdictions, with paper trails so complex they make the Camino de Santiago de Compostela look like an afternoon hike.

No, these people are not going to overthrow Putin, and most of them will not even get near enough to tell Putin what he needs to hear, because they certainly are not going to bite the hand that feeds them. If they do get close enough to actually talk to the great man himself, they will provide supportive comments and agree with his assessment of progress in Ukraine. When they are asked (if they are) about any impact of sanctions on them, their answers will be “nothing we cannot handle, for the greater good of Mother Russia (and the great leader, of course)”.

And if they do get near Putin, it will be because he has asked them to come to him, with the double objective of gauging their loyalty and promising them loot from Ukraine to replace any losses they have suffered from the sanctions. So sanctions on oligarchs will not push them to foment revolution or call for his ouster. 

The purpose of sanctions is to undermine an adversary's long-term productive capacity and reduce their capacity to engage in, or prevail in, a long term struggle. The American North triumphed over the South not because they had “God on their side”, everyone has God on their side, but because they could, and did, outproduce the South for years on end. Blockades reduced export revenues from cotton, thus reducing the amounts available to purchase the arms and ammunition that they could not produce. The blockades then also reduced the ability of the purchased arms and ammunition to reach the Southern shores and, therefore, the Southern armies.

The First World War (The “War to End All Wars”) eventually was won by the Allied Powers through a blockade and the eventual starvation of Germany (and the other Central Powers). The Second World War carried on the tradition of out-producing to victory. Effectively, the Allies played for time until the US officially entered the war. At that point, the result became inevitable.

Saddam Hussain was not toppled by sanctions, though the people of Iraq suffered horribly. Sanctions arrested and degraded his productive capacity to rebuild his armies after the Gulf War, and kept him and Iraq in a state of ongoing capacity degradation. The invasion of 2003 was, while a major war, a forgone conclusion. Iraq simply did not have, after many years of sanctions, the productive capacity to maintain its existing military, let alone modernise or expand its capabilities.

Today we see much the same dynamic as in the early stages of WWII, with the US providing arms and supplies while officially not being actively involved in the hostilities. There was little probability that the UK and even the USSR could have staved off a German victory without American factories and farms.

The US (and NATO allies) are not (yet) officially fighting in this war. But they are supplying arms and at least as important, detailed Intel, to Ukraine, enough it seems so far to keep them from capitulating. The US is considering the first “lend-lease” agreement since WWII, when American factories kept the UK and the Soviet Union in the war against Nazi Germany. It is difficult not to consider the irony of a new lend-lease programme specifically aimed at supporting a former Soviet Union country against another former Soviet Union country, and supporting a country accused of being “Nazi” against a country that is claiming to fight to “De-Nazify” the target of its aggression. 

Sanctions are a long-term tool designed to undermine the productive capacity of Russia over a multi-year period. Eventually, Russia will be “starved” to the negotiating table. If Russia can be fought to a standstill on the battlefield, still a very dubious proposition, then we will see the Iraq-ification of Russia, with a weakened military and a dramatically reduced capacity to maintain, let alone build new capability. Already, before the war, production of the T-14 Armata, Russia’s latest design and modernisation of the Main Battle Tank (MBT) concept, was delayed, in no small part due to the cost per unit. Post-Ukraine, Moscow is going to find it even more difficult to find the money to build sufficient T-14s to make a meaningful difference on the future battlefield.

In the case of Iraq, sanctions carve-outs were provided for humanitarian products such as medical supplies and food. Even then, the supplies were limited, and hundreds of thousands of Iraqis died due to the sanctions. But in terms of curtailing Hussain’s ability to rearm and build a larger military that could threaten his neighbours (again), the sanctions were effective. Where there had been a nuclear programme, there no longer was such a programme. The funding did not exist, and the inspections regime ensured that it would not be possible to restart such a programme. 

In Russia’s case, the sanctions will only be effective if enough of the international community participates, or if the US still has the economic and political leverage to enforce a sanctions regime. While both are debatable, the sanctions-busting nations will, other than China, probably be on the fringe of the international economic system. The threat of losing China's support may be one of the few remaining checks on Putin. He can probably get away with the small-scale use of chemical weapons. Battlefield nuclear weapons will be a bridge too far, and could end up with too much pressure being put on China by the rest of the international community. 

And that represents the core difference between Iraq, Germany and the American South; Russia is a major nuclear power. There will be no UN Inspections teams roaming around Russia any time in the near, or even moderate, future. Likewise, there will (I hope) be no use of the Russian nuclear arsenal against Ukraine or any other country. The use of tactical nuclear weapons to clear Ukrainian forces will create the conditions for a true blockade of Russia, and not the faux-blockade of sanctions. 

And as long as Putin does not use nuclear weapons on the battlefield (or beyond), then as the military and political leader, he will not be overthrown. And his KGB roots ensure that he is well-versed in using a security apparatus to identify and quell dissent. Oligarchs will be promised a share of the loot from Ukraine, and that, coupled with their well-honed skills of keeping on the right side of Putin (they have seen what happens when their peers have crossed Putin) will ensure that he is safe from any oligarch revolution.

So the sanctions are part of a long game, and while targeted at individuals as well as Russia collectively, no one should expect Putin to be overthrown, and no one should expect oligarchs to have difficulty enjoying a good meal in the restaurant of their choice (in sanction busting countries, of course).