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 The Post Post-Cold War World Russia-Ukraine War & Its Consequences Bruce Mehlman bruce@mc-dc.com March 15, 2022 follow @bpmehlman Q2 2022 CONTENTS Opening: SURPRISES  Russian Miscalculations  Ukrainian Courage  Western Resolve  Sanctions’ Scope  Divestment Speed  Bipartisanship Holding Middle: UNCERTAINTY  How Far Does Russia Go?  Will War Undermine Recovery?  Will Sanctions Prove Effective?  Food Insecurity = Political Unrest?  Extent of Humanitarian Crisis?  Expansion of Business Divestment?  Do Midterms Undermine U.S. Unity?  Does America Have Staying Power? Endings: NEW ORDER  Putin as Permanent Pariah  Drive to Reduce Dependencies  China’s Sanction-Proofing Imperative  Battlefields Expanded  Era of Business Neutrality Over  Key Trends Accelerated  Questions & Big Picture The Post Post-Cold War World 2 Opening: SURPRISES 3 RUSSIAN MISCALCULATIONS Putin Planned for the Last War (Crimea) 4 … But Putin Miscalculated Overestimated: • Russian military effectiveness • Post-Crimea sanction-proofing • Western division & energy dependence • Chinese support Under-Estimated: • Zelenskyy leadership & Ukrainian will • U.S. ability to rally NATO & the EU • Stakeholder capitalism & MNC reactions • U.S. / UK preempting false flags Surprises: Russia Overwhelmingly Stronger… UKRANIAN COURAGE Zelenskyy Meets the Moment with Guts & Social Media Savvy 5 Surprises: Feb. 8, 2022 408,074 9,270,923 Mar. 8, 2022 5,163,974 15,462,412 2,448,524 “I need ammunition, not a ride.” WWWT (What Would Winston Tweet)? Zelenskyy social media followers skyrocket Surprises: WESTERN RESOLVE “The West has rediscovered its voice. Faced with the raw, primitive onslaught by Russia against a flawed but aspiring democracy like Ukraine, the free world has been aroused.” -- Tom Friedman, NYT, 3/6/22 6 SANCTIONS’ SCOPE 7 Surprises: Massive Impact so far  Russian Stock Market: -35.9%  Russian Inflation: 20%  Value of Currency: -40%  GDP change expected in 2022: -8%  Brain Drain: 43% of Russians age 18-24 wanted to permanently leave before war Unprecedented Sanctions  Cut off largest banks from global financial system (SWIFT)  Froze central bank assets (preventing defense of currency)  Blocked access to technology, spare parts, flights, export markets  Confiscated oligarch property Sources: Ruble; Inflation; MOEX; Russia GDP (central bank); brain drain SPEED OF BUSINESS DIVESTMENT & SUSPENSIONS 8 Surprises: Sanctions’ Strictures + Stakeholder Pressure = Unwinding Decades of Investment in 2 Weeks Source: Yale Management Professor Jeffrey Sonnenfeld running list BIPARTISANSHIP HOLDING “We the United States of America stand with the Ukrainian people.” – President Joe Biden, 3/1/22 State of the Union address to Congress, bipartisan standing ovation 9 Surprises: In the next 2 weeks the House of Representatives voted… 361-69 to aid Ukraine ($13.6B) & fund other priorities and 414-17 to ban Russian oil imports and 424-8 to end permanent normal trading relations with Russia Middle: UNCERTAINTY 10 2008 / 2014: Georgia / Crimea Donbas “independent” Humanitarian Crisis Annex Ukraine? Cyber vs West? Engage NATO? Use WMD? HOW FAR DOES RUSSIA GO? WHERE WILL IT END? Massive Escalation Risks, Few Clear Off-Ramps Uncertainties: WHAT’S PUTIN THINKING? 1. Cut losses to save economy? 2. Battlefield gains to improve negotiating position? 3. Wait for West to grow tired, divided & angry? 4. China will save Russia’s economy? 11 Uncertainties: WILL WAR UNDERMINE RECOVERY? Shortages Worsening Sources: Gas; Inflation; Growth Inflation Persisting Energy Shocking Growth Slowing 12 WILL SANCTIONS PROVE EFFECTIVE? 13 Will Other Nations Throw a Lifeline? Is Energy Exemption Too Big? Are There Banking Backdoors? Will Russian Citizens Know the Truth? Uncertainties: Mohammad bin Salaman Hydrocarbons Precious Stones Iron & Steel Cereals Machinery Wools & Articles Fertilizers Copper & Articles Aluminum & Articles Fish & Crustaceans Sources: Russia 2020 exports; Russian Exports HOW BAD WILL FOOD INSECURITY GET? 1 of every 8 calories traded between countries comes from Ukraine & Russia… 14 Uncertainties: Food insecurity has consistently led to civil unrest, both recently (“Arab Spring”) & historically… War in Europe’s “Breadbasket” Threatens Wider Food Insecurity Sources: Geopolitical Futures via Mauldin Economics; Lagi, Bertrand & Bar-Yam Uncertainties: EXTENT OF HUMANITARIAN CRISIS? 40 10 5 10 10 6.8 6.2 6 5.6 1 3 2.4 2.2 2.1 1.8 WW2 (40's, 50's) Partition of India (1947-48) WW1 (1914-18) Bangladesh (70s) Ukraine (2022) Syrian Civil War Soviet-Afghan War (80s) Venezueala (2014-) Palestine (1947-) Korean War (50s) Indochina (1975-2000) Yugoslavia (1991-01) Iraq War (2000s) Rwanda (1994-96) Iraqi Uprising (1991) Largest Refugee Crises (M) Low Estimate High WAR Food Crisis & Political Unrest Ukrainian refugees Russian emigres Middle East / African refugees Sanctions Millions Displaced, Fleeing to Europe Amidst Populism & Pandemic Sources: Wikipedia; UN (10M displaced internally or refugees) What Could Drive the Largest Refugee Crisis in 50 years 15 HOW FAR WILL BUSINESS DIVESTITURES EXTEND? 16 Uncertainties: DIRECT Stop doing business in & with Russia. INDIRECT Stop doing business with companies who remain in Russia. ADJACENT Stop doing business with other bad global actors guilty of: Genocide? Assassination? Human Rights abuses? Environmental crimes? Pressure to Divest Will Grow, Both in Russia & Beyond WILL MIDTERM POLITICS UNDERMINE U.S. UNITY? Have Politics Ever Stopped at the Water’s Edge? 17 Uncertainties: How Russia-Ukraine Will Feature in 2022 Midterm Election Fights 1. INFLATION: “Bidenflation” -or- “Putin’s Price Hike”? 2. MILITARY: “Afghan failure emboldened Putin” -or- “Biden rallied the West”? 3. ECONOMY: Return of recession & shortages -or- solid growth despite war & pandemic? 4. ENERGY: Green new dealers (foreign oil, high gas $$) -or- climate deniers (deadly weather)? 5. LEADERSHIP: Congress pushed Biden to be tougher every step -or- the most masterful coalition-building since GHW Bush? 6. ANY PEACE DEAL: Appeasement -orsuccess? 1964 LBJ vs Goldwater 2002 GOP vs Max Cleland 2006 Dems vs GOP 1988 Bush vs Dukakis 1984 Reagan vs Mondale U.S. GLOBAL LEADERSHIP MAY BE MOST CHALLENGED AT HOME America Has the Punching Power... Do We Have the Staying Power? 18 The 2019 Global Health Security Index ranked the U.S. best prepared to deal with a pandemic… but it failed to account for low public trust in institutions & government… Sources: GHSI; Trust; Firepower The 2021 Global Firepower index ranks countries’ militaries based on 50 factors including financing, resources, tech, logistical capability & geography… it does not weigh trust & partisanship Uncertainties: Endings: NEW ORDER 19 RUSSIA UNDER PUTIN: PERMANENT PARIAH 20 Putin’s Future Includes: • Re-energized & rearming NATO • Slower growth, higher inflation, less wealth, weaker military (tech access) • Increasingly dissatisfied citizens • Attacks on personal wealth & assets of closest supporters • Fear of coups & unrest End Games: Russians’ Future Entails: • Lower standard of living & growth • Fewer jobs with global companies • Less access to Western goods & services • Fewer markets for Russian workers • Less Freedom & access to information • Fewer opportunities to engage globally Big defeats have catalyzed leadership changes:  1856 (Crimean war)  Alexander II’s liberal revolution  1905 (Russo-Japanese War)  1st Russian Revolution  1917 (WWI)  Bolshevik Revolution  1962 (Cuba)  Khrushchev’s removal  1991 (Afghanistan)  Soviet collapse Life Behind the New Iron Curtain ACCELERATED DRIVE TO REDUCE DEPENDENCIES Greater Self-Sufficiencies, More Reliable Supply Chains (U.S., China, EU, India reassessing globalization’s vulnerabilities) 21 End Games: Energy Technology Critical Materials Food Finance Military CHINA: SANCTION-PROOFING IMPERATIVE China’s Checklist for Sanction-Proofing post-Russia-Ukraine 22 End Games:  Control domestic Internet  Control sea lanes to protect imports  Dominate trade in strategic areas (e.g. critical minerals)  Reduce dependence on exports ($676B trade surplus in 2021)  Become “Too Big to Bail” for MNCs to divest  Diversify $3.2T currency reserves out of Western reach  Greater food security  Greater energy security (China imports >70% of oil consumption, >40% of natural gas)  Reduce dependence on SWIFT banking system, dollar dominance (accelerate efforts to launch a digital RMB, expand CIPS)  Semiconductors self-sufficiency (China imports >80% of chips it needs) Decrease dependencies on U.S. Increase dependencies on China End Games: BATTLEFIELDS EXPANDED Social media rallies allies & shames sideliners Intelligence releases preempt lies & undermine false flags Low-cost drones offset air power inferiority; tanks struggling Massive sanctions increase economic cost of aggression Hackers sow chaos in enemy infrastructure & comms Commercial satellite broadband maintains connectivity 23 New Techniques & Technologies Transforming Warfare THE ERA OF BUSINESS NEUTRALITY IS OVER Subtitle End Games:  Generational: Younger workers & consumers demanding  Technological: Nowhere to hide; Internet = radical transparency & ubiquitous global reach  Activist-Driven: Agents of change leveraging new tools & venues  Investor-Embraced: Managers favoring ESG assets & wielding proxy power  It’s an Age of Disruption: The same trends animating global populism are likewise pushing business leaders to engage & offer solutions Why Businesses Are Increasingly Taking Stands on Societal Issues 24 KEY TRENDS ACCELERATED 25 End Games: Deglobalization Energy Transition Regulating Tech Stakeholder Capitalism • New Urgencies (climate AND national security) • New Priorities (renewables AND domestic production) • New Geography (metals, manufacturing, storage, transmission, distributed systems) • Nationalism (self-sufficiency sought in chips, energy, resources, & military) • Populism (backlash against Big-Global-Elite favors protectionism, regulation, splinternet & isolationist impulse) • Rebalancing (new bipolarity as regions leverage & navigate rising U.S.-China competition) • Cyber security / AI, IoT • Social media (speech, disinfo & de-platforming) • Crypto currencies / DeFi • Activists emboldened, redoubling push • ESG’s Social becomes more global • Businesses adapt (navigate rising nationalism & populism via deeper & local stakeholder engagement) Questions & Big Picture: NOW WHAT? 26 THE HARD QUESTIONS  Are nations greater threats when they are more globally-integrated or more isolated?  Does destroying an enemy’s economy pressure its leadership or rally its public against an external foe?  Does social media empower or undermine tyrants, and who gets to decide who can use platforms?  Should we prioritize decarbonizing or developing Western energy sources?  Are businesses motivated by sanctions’ strictures (cannot get paid in Russia) or morality (divestment is the “right thing to do”)? Putin’s Ultimate Success or Failure Will Inform Us… 27 Sources: Trade (Global Merchandise Exports as % GDP); Immigrants & Race (Census); *except when saving the world… twice GLOBALIZATION TECHNOLOGY Geopolitics World Trade U.S. Foreign Policy Pax Britannia World at War Pax Americana Imperialist Isolationist* Cold Warrior Increased 32% Fell 64% Increased 366% 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 ????? Down 10% Globalist ????? THE POST POST-COLD WAR WORLD 28 ????? Moscow McDonalds Opens 1990 Moscow McDonalds Closes 2022 Post Cold War is one of the nation’s most innovative government relations firms, offering strategic solutions to companies, trade associations, non-profits, and entrepreneurs that help them succeed in Washington. To join our list for future reports: bruce@mc-dc.com RECENT ANALYSES: https://bit.ly/Mehlman-Infographics