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Bruce Mehlmanbruce@mc-dc.comMarch 15, 2022follow @bpmehlmanQ2 2022The Post Post-Cold War WorldRussia-Ukraine War & Its Consequences
CONTENTSThe Post Post-Cold War WorldOpening:SURPRISES Russian Miscalculations Ukrainian CourageMiddle:UNCERTAINTY How Far Does Russia Go? Will War Undermine Recovery? Will Sanctions Prove Effective?Endings:NEW ORDER Putin as Permanent Pariah Drive to Reduce Dependencies Food Insecurity Political Unrest? China’s Sanction-ProofingImperative Extent of Humanitarian Crisis? Battlefields Expanded Divestment Speed Expansion of Business Divestment? Era of Business Neutrality Over Bipartisanship Holding Do Midterms Undermine U.S. Unity? Key Trends Accelerated Does America Have Staying Power? Questions & Big Picture Western Resolve Sanctions’ Scope2
Opening:SURPRISES3
Surprises:RUSSIAN MISCALCULATIONSPutin Planned for the Last War (Crimea)Russia Overwhelmingly Stronger But Putin MiscalculatedOverestimated: Russian military effectiveness Post-Crimea sanction-proofing Western division & energy dependence Chinese supportUnder-Estimated: Zelenskyy leadership & Ukrainian will U.S. ability to rally NATO & the EU Stakeholder capitalism & MNC reactions U.S. / UK preempting false flags4
Surprises:UKRANIAN COURAGEZelenskyy Meets the Moment with Guts & Social Media Savvy“I need ammunition, not a ride.”WWWT (What Would Winston Tweet)?Zelenskyy social media followers skyrocketFeb. 8, 2022408,0749,270,923Mar. 8, 20225,163,97415,462,4122,448,5245
Surprises:WESTERN RESOLVE“The West has rediscovered its voice. Faced with the raw,primitive onslaught by Russia against a flawed but aspiringdemocracy like Ukraine, the free world has been aroused.”-- Tom Friedman, NYT, 3/6/226
SANCTIONS’ SCOPESurprises:Unprecedented Sanctions Cut off largest banks from global financialsystem (SWIFT) Froze central bank assets (preventingdefense of currency) Blocked access to technology, spare parts,flights, export markets Confiscated oligarch propertySources: Ruble; Inflation; MOEX; Russia GDP (central bank); brain drainMassive 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 18-24wanted to permanently leave before war7
Surprises:SPEED OF BUSINESS DIVESTMENT & SUSPENSIONSSanctions’ Strictures Stakeholder Pressure Unwinding Decades of Investment in 2 WeeksSource: Yale Management Professor Jeffrey Sonnenfeld running list8
Surprises: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 ovationIn the next 2 weeks theHouse of Representativesvoted 361-69to aid Ukraine ( 13.6B) &fund other prioritiesand414-17to ban Russian oil importsand424-8to end permanent normaltrading relations with Russia9
Middle:UNCERTAINTY10
Uncertainties:HOW FAR DOES RUSSIA GO? WHERE WILL IT END?Massive Escalation Risks, Few Clear Off-RampsAnnexUkraine?Cyber vsWest?EngageNATO?Use WMD?HumanitarianCrisis2008 / 2014:Georgia / CrimeaDonbas“independent”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:Sources: Gas; Inflation; GrowthWILL WAR UNDERMINE RECOVERY?Energy ShockingShortages WorseningInflation PersistingGrowth Slowing12
Uncertainties:WILL SANCTIONS PROVE EFFECTIVE?Is Energy Exemption Too Big?Russian ExportsAre There Banking Backdoors?HydrocarbonsPrecious StonesIron & SteelCerealsMachineryWools & ArticlesFertilizersCopper & ArticlesAluminum & ArticlesSource: Russia 2020 exportsFish & CrustaceansWill Russian Citizens Know the Truth?Will Other Nations Throw a Lifeline?Mohammad bin Salaman13
Uncertainties:HOW BAD WILL FOOD INSECURITY GET?War in Europe’s “Breadbasket” Threatens Wider Food Insecurity1 of every 8 calories traded betweencountries comes from Ukraine & Russia Sources: Geopolitical Futures via Mauldin Economics; Lagi, Bertrand & Bar-YamFood insecurity has consistently led to civil unrest,both recently (“Arab Spring”) & historically 14
EXTENT OF HUMANITARIAN CRISIS?Uncertainties:Millions Displaced, Fleeing to Europe Amidst Populism & PandemicLargest Refugee Crises (M)WW2 (40's, 50's)Low EstimateHigh40Partition of India (1947-48)10WW1 (1914-18)5Bangladesh (70s)10Ukraine (2022)10Syrian Civil War6.8Soviet-Afghan War (80s)6.2Venezueala (2014-)6Palestine (1947-)5.6Korean War (50s) 1Indochina (1975-2000)3Yugoslavia (1991-01)2.4Iraq War (2000s) 2.2Rwanda (1994-96) 2.1Iraqi Uprising (1991) 1.8Sources: Wikipedia; UN (10M displaced internally or refugees)What Could Drive the LargestRefugee Crisis in 50 yearsWARUkrainianrefugeesSanctionsFood Crisis &PoliticalUnrestRussianemigresMiddle East /Africanrefugees15
Uncertainties:HOW FAR WILL BUSINESS DIVESTITURES EXTEND?Pressure to Divest Will Grow, Both in Russia & BeyondDIRECTStop doingbusiness in & withRussia.INDIRECTStop doingbusiness withcompanies whoremain in Russia.ADJACENTStop doing businesswith other bad globalactors guilty of: Genocide? Assassination? Human Rights abuses? Environmental crimes?16
Uncertainties:WILL MIDTERM POLITICS UNDERMINE U.S. UNITY?Have Politics Ever Stopped at theWater’s Edge?1964 LBJ vs GoldwaterHow Russia-Ukraine Will Featurein 2022 Midterm Election Fights1. INFLATION: “Bidenflation” -or- “Putin’s PriceHike”?2. MILITARY: “Afghan failure emboldened Putin”-or- “Biden rallied the West”?1984 Reagan vs Mondale1988 Bush vs Dukakis2002 GOP vs Max Cleland2006 Dems vs GOP3. ECONOMY: Return of recession & shortages-or- solid growth despite war & pandemic?4. ENERGY: Green new dealers (foreign oil, highgas ) -or- climate deniers (deadly weather)?5. LEADERSHIP: Congress pushed Biden to betougher every step -or- the most masterfulcoalition-building since GHW Bush?6. ANY PEACE DEAL: Appeasement -orsuccess?17
Uncertainties:U.S. GLOBAL LEADERSHIP MAY BE MOST CHALLENGED AT HOMEAmerica Has the Punching Power.Do We Have the Staying Power?81% ofRepublicanssay:“The DemocraticParty has beentaken over bySocialists.”78% ofDemocrats say:“The RepublicanParty has beentaken over byRacists.”Source: PRRI 2020 American Values Survey18
Endings:NEW ORDER19
End Games:RUSSIA UNDER PUTIN: PERMANENT PARIAHLife Behind the New Iron CurtainPutin’s Future Includes:Russians’ Future Entails: Re-energized & rearming NATO Lower standard of living & growth Slower growth, higher inflation, lesswealth, weaker military (tech access) Fewer jobs with global companies Increasingly dissatisfied citizens Attacks on personal wealth & assets ofclosest supporters Fear of coups & unrest Less access to Western goods & services Fewer markets for Russian workers Less Freedom & access to information Fewer opportunities to engage globallyBig 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 collapse20
End Games:ACCELERATED DRIVE TO REDUCE DEPENDENCIESGreater Self-Sufficiencies, More Reliable Supply Chains(U.S., China, EU, India reassessing globalization’s ticalMaterialsFood21
End Games:CHINA: SANCTION-PROOFING IMPERATIVEChina’s Checklist for Sanction-Proofing post-Russia-UkraineDecrease dependencies on U.S. 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 reachIncrease dependencies on China 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)22
BATTLEFIELDS EXPANDEDEnd Games:New Techniques & Technologies Transforming WarfareSocial media rallies allies &shames sidelinersLow-cost drones offset air powerinferiority; tanks strugglingIntelligence releases preemptlies & undermine false flagsMassive sanctions increaseeconomic cost of aggressionCommercial satellite broadbandmaintains connectivityHackers sow chaos in enemyinfrastructure & comms23
End Games:THE ERA OF BUSINESS NEUTRALITY IS OVERSubtitleWhy Businesses Are Increasingly Taking Stands on Societal Issues 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 pushingbusiness leaders to engage & offer solutions24
KEY TRENDS ACCELERATEDEnd Games:Energy Transition 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,Deglobalizationresources, & military) Populism (backlash against Big-Global-Elite favorsprotectionism, regulation, splinternet & isolationist impulse) Rebalancing (new bipolarity as regions leverage &navigate rising U.S.-China competition)Regulating Tech Cyber security / AI, IoT Social media (speech, disinfo & de-platforming) Crypto currencies / DeFiStakeholder Capitalism Activists emboldened, redoubling push ESG’s Social becomes more global Businesses adapt (navigate rising nationalism &populism via deeper & local stakeholder engagement)25
Questions & Big Picture:NOW WHAT?26
THE HARD QUESTIONSPutin’s Ultimate Success or Failure Will Inform Us Are nations greater threats when they are more globally-integrated ormore isolated? Does destroying an enemy’s economy pressure its leadership or rallyits public against an external foe? Does social media empower or undermine tyrants, and who gets todecide who can use platforms? Should we prioritize decarbonizing or developing Western energysources? Are businesses motivated by sanctions’ strictures (cannot get paid inRussia) or morality (divestment is the “right thing to do”)?27
THE POST POST-COLD WAR GeopoliticsPax BritanniaWorld atWarWorldTradeIncreased 32%Fell 64%ImperialistIsolationist*TECHNOLOGYU.S. ForeignPolicy195019601970Sources: Trade (Global Merchandise Exports as % GDP); Immigrants & Race (Census); *except when saving the world twice199020002010Pax AmericanaCold Warrior2020Down 10%GlobalistMoscow McDonaldsOpens 1990Cold War2030?Increased 366%Burger-based fast foodconcept launched 1948History ofHamburgers1980?Moscow McDonaldsCloses 2022Post Cold War28
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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
