As the risk of a Russian invasion of Ukraine become increasingly more likely, the host of the International Risk Podcast, Dominic Bowen, discusses how businesses should be preparing and adapting to this complex environment riddled with uncertainty. Dominic is an experienced leader and risk professional. From tackling whether Russia is using energy as a geopolitical weapon through Nord Stream 2, to Russia’s removal from SWIFT, to discussing the stakes for the US in this diplomatic standoff, Dominic reveals how current risk indicators should guide business operations in the next coming weeks.
With 20 years’ experience specialising in operational resilience and risk management, he leads and manages global risk-remediation across various industries and sectors. He has helped teams around the world plan for and respond to high-impact events, including cross-border crises, change management, natural disasters, and geopolitical turmoil. He has successfully supported countless organisations design and implement operational resilience programs and enterprise risk management frameworks.
The International Risk Podcast Interview Transcript with Dominic Bowen
Fernanda Alvarez 0:06
Hi, Dominic, welcome to the International Risk Podcast. I’m really looking forward to reversing roles today and hearing about what perhaps has been one of the most heatedly discussed events of the past couple of weeks, which is the escalating geopolitical tensions between Ukraine and Russia. Not too long ago, we hosted Taras Kuzio, so we have had some discussions on the podcast, from an academic standpoint, where we untangled what’s going on. But I think today’s conversation will be different and equally insightful because you mentioned you’ve been working with clients in Ukraine. Just to quickly summarize, some of the key points that have been floating around in the media are that the movements of Russian troops along the border have been unusual. Currently, as many as 100,000 Russian troops have been mobilized. Some US intelligence findings from December also estimated that Russia could begin a military offensive in Ukraine as early 2022, which I think is the source of a lot of anxiety in the international sphere. Overall, it’s a very tense, complicated situation that is riddled with risk and uncertainty, so I really think this will make for a very interesting conversation today. Dominic, you have over 20 years of experience establishing large and complex operations in areas of high risk. As we know, the current conflict unfolding between Ukraine and Russia is not something new, and at least in most recent memory, the invasion of Crimea serves as a reasonable source of concern for business. So first, I would like to ask based on your discussions with stakeholders and clients in Ukraine, what’s their reading of the situation? What are some of the most recurring concerns of businesses? How is the situation being interpreted?
Dominic Bowen 3:27
Thanks very much for the conversation today, Fernanda. I think that’s a really important question. There is so much in the media today about what the US is saying, what Biden is saying, what the Secretary of State is saying, what Boris Johnson is saying, a lot about what Sergei Lavrov, the Russian Foreign Minister is saying, and of course, what people are perceiving to be the thoughts of Vladimir Putin. But there’s not enough talk about what the current Ukrainian president Zelensky, and the average Ukrainian on the street is thinking. When I returned from Ukraine earlier this week, I was working along the Line of Control and speaking with a lot of people down there. The feedback from businesses and from locals in Ukraine is really mixed. But one thing that I found that was common, which was concerning, but I’ve seen this in every conflicts I’ve worked in, –I saw this in Afghanistan, I saw this in Syria, in South Sudan, and Sudan and in Yemen– people always want to assume the best. And that’s fantastic. And you might call it the frog in the boiling water, you might call it denial. But I spoke to people in buildings that from the outside look like they were uninhabited because of destruction from the 2014 and 2015, conflict and buildings with no windows with no electricity, holes in rooms because of bombs and mortars and rockets from the original conflict. And people would say, “No, no, this time, there won’t be any conflict”. And you’d ask why. And they’d be like, “Oh, it’s just diplomatic tensions”. And you’re like, Okay, so what did you feel in in 2014? And they’d sort of shrug their shoulders and say, “well, we thought that then so is that why do you think this is different?”And there’ll be another shrug of the shoulders. That was really common that that people don’t want there to be conflict. We know that there’s 10% inflation in the US and 34% inflation in Turkey– massive, massive numbers. But we’re talking about 20% inflation in Ukraine, massive amounts of unemployment. People want to get on with their lives, they want to succeed. Even the people that are not in Ukraine that are not necessarily pro-Russian, they still see Russians as their brothers or cousins. And they don’t want to go to war with them, they want to see peace reign.
Fernanda Alvarez 5:31
Which seems, at least to me, somewhat counterintuitive given how in the news, all you hear about is a very aggressive Russian rhetoric. It’s interesting that Ukrainians don’t really see it that way. I want to zoom in a little bit more on business and client relations in this type of environment. We’ve discussed 2014-2015, how we still see that past kind of looming over the current diplomatic tensions, but from a business standpoint, how do you think businesses should be adapting to what is currently happening? And do you think that there are some continuities in terms of how businesses should have been acting or how they acted in 2014, versus how they are acting now?
Dominic Bowen 6:11
I think there’s there’s very real risks to businesses across Europe and abroad, but definitely across Europe, there’s immediate risks. And if we look at critical areas, like communication, utilities, like energy supply, as well as banking, and finance, there’s very real risks to all of those if tensions continue to increase. We’re already seeing increasing energy prices across Europe. We saw fuel shortages in the UK back in September and October into 2021. And things like that are only going to become more common. We know that there’s been energy disputes between Belarus and Ukraine. We know there’s energy disputes between Ukraine, and Russia, we know that Germany has massively– whether they wish to admit it or not– everyone else recognizes that the Nord Stream 2 energy pipeline is tying Germany’s hands. There’s massive energy stake here. The costs are only going to increase as these tensions simply increase, and businesses need to take that into account. They need to take into account not just the impact on their energy costs, but also what does that do to the consumers? What does that do to their own employees? And what does that do inflation. But we’ve also got the risk to businesses from disrupted supply chains. Because, eastern Europe is, of course, the supply for many different suppliers that contribute. Even if it’s not a direct supply to your business, the chances are that one of your suppliers will be impacted by conflict. And of course, as I mentioned earlier, with massive increases in inflation across many countries in the world, this is only going to be further increased by energy increases by conflict, and so on. So there’s a lot of indicators that businesses should be building up and really need to be sitting down and doing a comprehensive review of what are the risk indicators? What are the risk influences on our businesses? And what indicators can we identify so that we can get prior warning? That’s why we build risk monitoring frameworks, so that we can get prior warning of an increasing risk. Businesses can make that decision before it occurs. Because as I said, before, we become frogs in boiling water and businesses sit there is the risk get bigger and bigger and bigger. But if you build a risk monitoring framework now, and you look around things, and there’s lots of indicators around the conflict in Ukraine, and Russia and eastern Europe that you can be looking at, to give you warning signs, and they make a big difference and enable you to respond faster and earlier, and ultimately allow you to recover quicker if there is an increase in security.
Fernanda Alvarez 8:31
So there’s a lot to unpack there. You’ve mentioned risks to communication to banking, you also discuss Nord Stream 2, so I do want to go through those points individually. First of all, I don’t think we can have this podcast and just ignore the importance of natural gas. Especially I’m thinking about Russia, and Gazprom, and as you mentioned, the increasing energy prices across Europe. Undisputably, this has become a key component of the story. The main thing to note here is that some are accusing Russia of using energy as a geopolitical weapon. There’s been reports in Ukraine accusing Russian energy giant Gazprom of decreasing the supply of gas. But what is your view on this maneuver? In particular, do you think that Russia does have a lot of leverage over the EU by manipulating the supply of energy? Do you think that this is something that could really push the EU over the brink really get Nord Stream 2 approved?
Dominic Bowen 9:51
Undoubtedly. If we just look at the numbers,– I’m big on going back to what’s the actual data, not the analysis, but what’s the data– the data is that last year Russia provided over 43% of Europe’s natural gas. 43%! . I mean, Norway provided 1/5 of Europe’s natural gas, but Russia provided nearly half. And interestingly, as tensions have increased in Eastern Europe, and most of us would be like, “okay, we need to be diversifying our energy supplies”, it’s only increased– it’s gone up to 47%. So the amount of energy we require, and were ordering and buying from Russia has only increased as tensions have increased. And that’s obviously a massive, massive concern. If we look at Nord Stream 1– and that currently goes through Ukraine that provides you with about 1/3 of all its energy needs– and the purpose of Nord Stream 2 is to bypass Ukraine, and obviously, there’s massive geopolitical issues with that. Every Ukrainian knows, and most people in Europe recognize that bypassing Ukraine through Nord Stream 2 makes the Nord Stream 1 pipeline obsolete and increases the likelihood of tensions between Ukraine and Russia. Of course, that deprives the Ukrainian government and Ukraine, people of about 4% of its GDP, which it currently gets paid through transit fees. The impacts are quite significant.
Fernanda Alvarez 11:13
The point you mentioned about diversifying, I think, is very crucial. This is something that I remember reading a while back, and it’s that Ukraine is trying to diversify its energy sector to try to stop the dependency on these transit fees, that would be evaporated if North Stream 2 does go through. We know that one of the incentives that the European Union is trying to give Ukraine to lower this dependency is what I think we could perhaps call, a green energy budget. But I remember discussing this with you a while back and saying that it’s not necessarily the most effective, it’s attached to lots of risks. So I was hoping you could walk us through why that is the case.
Dominic Bowen 11:55
Now, that’s really interesting, and I think that the EU is doing the right thing, they need to be looking for green energy for so many other reasons. We’ve spoken to lots of guests on the International Risk Podcast about COP26, and climate change, so Europe’s right to be pursuing green energy. But I think the conflict with Russia is another reason why. And, you know, we just spoke about energy and natural gas. I mean, if we look at the other side for petroleum oil, crude oil, Russia also is the largest single provider of crude oil and petrol and similar products to the European Union. A quarter of all the petroleum oil products provided to the European Union come from Russia, which again, is by far the largest of any, the next largest is again, Norway. And that’s, you know, 8% or 9%. Even countries like the US, Libya, Nigeria, Saudi Arabia, big oil providers are all in the single digit 6,7,8,9%. So there’s a massive dependency on both natural gas and crude oil or petroleum energy supplies from Russia. That move to green energy is of critical importance and it has to be pursued. Ukraine used to be where all of Russia’s defense, or most of Russia’s defense– all their ships were built in Ukraine. Ukraine has big, big industries that are now lying dormant. So transferring those from defense to energy is a really logical choice. But wherever there’s opportunity, where there’s uncertainty, there’s going to be risk. And we recognize that the risks of having energy suppliers and making alternative energy in Ukraine is obviously going to be thwarted. There’s no big surprises by Russia, by Belarus, because that would sideline them. I mean, if you can imagine this petroleum, this crude oil, this natural gas that Russia’s providing, if you could become completely green –which we know is not in the cards for the near future– but the more Europe becomes green, the less there is a reliance on Russia, which means Russia has less influence both politically but also diplomatically because they don’t have that power that that Europe needs Russia’s energy. So there’s going to be massive thwarting. I’ve worked with people that are working in the green sector and working on alternative energy supplies in Ukraine. And the sort of interference they have had has been massive from intimidation, from intelligence collection, from cyber and industrial espionage. These things aren’t just in movies, they occur. I work with victims of industrial espionage, of state-sponsored cyber and information collection, and these are real risks that businesses need to keep in mind. These are global threats, and we’re only seeing them increase dramatically. This is the same in Sweden, as it is in Ukraine, as it is in the UK. And in many, many other countries, companies can’t be blind to the fact that their intellectual property is a value. And if they’re doing something that could be of interest to a country, chances are they are going to be watched and their information security is going to be tested.
Fernanda Alvarez 14:37
It really sounds like it’s coming right out of a George Orwell book. But I was also wondering, therefore, if there’s so many risks, and there’s so much interference, how can businesses prepare for this sustainably? What type of investments should they be looking to make? Which type of clients, which type of sectors should they be working with to make sure their operations are resilient?
Dominic Bowen 15:01
As I always say, when people say to me, you know, is it safe to work in Syria? Is it safe to go to Nigeria? Is it safe to go to northern Lebanon? My answer is always, yes, it is definitely. But you need to understand the environment, and you need to have appropriate risk mitigation in place. And the first step is always to understand. And that doesn’t mean a Wikipedia search. That means really going in deep, understanding what influences your decisions, what influences your business, your people, and you have to look at the second and third order effects. And so often, you know, when we’re talking about businesses in the Middle East, you can’t just look at the Middle East, you need to look at the people that are influencing the Middle East. You can’t look at Lebanon without looking at Israel, without looking at Syria, Hezbollah, America influences. Likewise, when looking at Ukraine, when looking at energy supplies across Europe, you have to be looking at all the influences. And that’s why when talking about Ukraine, you have to talk about Germany, you have to talk about Russia, you have to talk about US interests. You have to look at the support of the British government. There hasn’t been a day in the last two weeks where there hasn’t been a new flight from the UK military bringing in support to Ukraine. They’re all influencing. These all provide triggers. These all provide intelligence and information for businesses who need to make decisions and influences the likelihood of risk occurring. It also tells them what the consequences could be. As I said before, you can do your risk monitoring plans and then you can step into risk, you can step into uncertainty with confidence, because businesses need to pursue opportunities they need to pursue, and they need to move forward and grow their businesses. But they need to do so intelligently. And that means building these risk monitoring frameworks. And that can be done, but it just means understanding the environment. And that’s exactly why I was in Ukraine this week and the week before, so that we can thoroughly understand the environment and help businesses successfully navigate that whilst pursuing those opportunities and minimizing their risk exposure.
Fernanda Alvarez 17:13
I do want to carry on with that point because as you mentioned, information and having the right intelligence is crucial to making sure that your business operations are sustainable and resilient to the environment you’re working in. I was wondering if you could tell us a little bit about what intelligence collection activities look like on the ground in Ukraine, and especially if you could continue expanding on what some of the limitations are to those activities?
Dominic Bowen 17:39
There’s multiple ways to interpret that question. I think, to touch on very briefly, everyone is increasing their intelligence collection activities in Ukraine. We know that Russia has massively increased over the last five or six years its intelligence collection in Ukraine. Keeping in mind, as some of our former speakers have said, and as it’s common knowledge, many Russians regard Ukraine as part of Russia. It’s a part of Russia that separated. And so to collect intelligence, to be asking their brothers and sisters for information, isn’t really seen as anything that’s out of the ordinary, but there is significant information collection operations occurring in Ukraine. But it’s not just from Russia– so is the UK, so is America. A lot of countries are working very hard to collect intelligence and understand what’s happening on the ground. Keep in mind, there are many Ukrainians that are definitely pro-Russian. There’s obviously a majority that are pro-West. But there’s a lot sitting on the sidelines. Information collection from governments is really occurring at a very, very fast rate. But for businesses, they also need to be collecting it. It’s not just something that governments do. Businesses need to be collecting intelligence. I don’t mean illegally I don’t mean clandestinely, but it means understanding the environment. And that means working with partners or with suppliers, with trusted third parties who can help them understand the environment and that needs to occur right across the Baltics, right through Belarus, Lithuania, Romania, and Poland– understanding of the environment, understanding what the risks are to their businesses, and the opportunities but also understanding the environment in Russia. And understanding what are the opportunities there. What’s being said in Russia? What are the impacts on the business? I was speaking with one client last week who was particularly concerned about this, and they’ve got staff based in Ukraine, they’ve got staff based in Kazakhstan, they’ve got staff in Russia, they’ve got staff across Europe and much of the world and they’re asking me what they need to consider. And we’re talking about a lot of risks. But, I was mentioning one risk –which I was surprised that got them by surprise– and said, what if the US imposes some sanctions and if they remove Russia’s access to things like the Swift banking system. And I said to the client, have you considered how this could impact you, not just your business, but also your employees and also your consumers and your suppliers and your supply chains. And there was that awkward moment of silence where they hadn’t considered things like this. So it really is robust, it really is quite wide, it’s not just what could invasion cause, you know, it’s not just Russian soldiers marching across the border into Ukraine– it’s also the impacts of sanctions. Collecting this information involves speaking. Most of what I do when I’m traveling is just speaking to people. I speak to people at breakfast, I speak to people when I walk on the street, I speak to them at lunch. And all we’re doing is just speaking and talking and listening and asking questions. And businesses need to do that. I understand businesses are focusing on manufacturing, on business, on banking, and finance on what their business is created to do. Therefore, they probably need to employ either in house or bring in a third party to do that for them. But just to walk the streets, speak to politicians, to speak to local businesses, and find out what they’re thinking and what they believe the future is gonna hold so that your business can make the best possible decisions and make informed decisions. And that’s what we really want to be pursuing making informed decisions.
Fernanda Alvarez 20:46
I’m really glad that you brought up the Swift banking system just now because I think this also is a big part of the story. You’re completely right in pointing out that this isn’t just a tale of Russian soldiers marching across the border– this has so many more dimensions to it. And as you correctly pointed out, as well, we have to consider the interest of so many other parties that are in some ways directly or indirectly involved in this. I want to focus for now on the threats of removing Russia from Swift. And again, it just seems that this is not something completely new. This was something that also was brought up back in 2014, when Russia invaded Crimea, but it seems that it might be a credible threat. Russia is one of the largest world economies, so if something like this does happen, it could definitely be a severe blow to Russia. We have seen something similar happen in Iran back in 2012, when Iranian banks were blacklisted by the European Union, because the US pressure the EU to do so. I also wanted to get your opinion on this.Firstly, do you think that this threat is viable? Is it something that you think Biden could actually follow through with? And secondly, what effect would this have on business operations? How should business be adapting to a potential removal of Russia from Swift?
Dominic Bowen 22:04
So I think there’s quite a few important things here. I think that’s a great question, Fernanda. Russia is aware, everyone is aware now, that removing Russia from the Swift banking system is on the cards. I think it’s less likely to occur for a few reasons, which I’ll touch on. But not withstanding that, I think Russia is positioning itself. Now, outwardly, Russia is saying that they can survive, they’ve built up systems, backup systems, processes for their economy to get through it. I don’t think that’s entirely correct. If you remove Russia from one of the quickest and safest ways to receive and send money via electronic bank transfers, there’s going to be pain. But of course, because of that pain, it means that Russia is working hard to make sure that I can get around it. It’s a huge system, we’re talking about 11,000 banks, over 200 countries are using the Swift banking system. This is a critically important way to transfer money. So I think it could occur, but I think it’s less and less likely. And the reason is because businesses and other countries rely on it too. If you remove Russia, we just spoke about the huge amount of energy supplies, there’s also huge amounts of financial tractions, moving back and forth from Russia. So you’re not just punishing Russian businesses in the Russian economy, you’re punishing everyone else that they do business with, as well. And because of that, those businesses and those economic groups, not surprisingly, are lobbying their governments across Europe claiming that this isn’t the type of sanction that should be in place. And I think because of that reason, we’re less likely to see it occur. Unknown Speaker 23:27 Well, I’m sure that whoever’s listening to this that does business in Russia might be reassured by that point. And I wanted to go back to US interests, because even though this is what could potentially become a conflict between Ukraine and Russia, if it does occur, you might see NATO being roped in and obviously the EU is being roped in. So it’s crucial to discuss US interests. In this case, as I think most listeners will know from reading the news, diplomatic talks have stagnated, there’s been around three rounds with no real success. From our conversation with Taras Kuzio, we also know that there’s a lot of pessimism around it. So I wanted to discuss this point in particular and detangle the ways that this stalemate could be broken. Do you think that there’s still some sort of diplomatic exit to this? Or is this just something that is going to eventually break out into what we saw in 2014?
Dominic Bowen 24:26
At the moment, this is a fantastic learning and information collection activity for Russia, or at least an information collection opportunity for Russia. And you just asked about the Swift banking system in your previous question. And I think, you know, we saw after the 2004 conflict when Russia seized Crimea– which they still hold today– after Russia backed separatists rebels in the eastern part of Ukraine around Donetsk where it was this week. What did Russia do? They expected sanctions and so in 2014, Russia built their own, the Russian Central Bank launched a system for an alternative to Swift and now there’s eight major banks in Russia using it. And there’s 1000s of Russian companies using this as their primary way of transferring data. So Russia learnt in 2014, what the potential sanctions were and started building alternatives then, and that’s an alternative to Swift, and they’re doing the same today. And we all do that. But Russia is particularly adept and particularly skilled at learning. In the military, they call it probing, you really just do a full frontal attack into the enemy without collecting intelligence, you do lots of small attacks along the perimeter of the enemy to find out where are they strong and Where are they weak. We see that with animals– animals do that in farms, in zoos, they see which parts of the fence is stronger. What happens if we get that? What happens if we walk through that? And that’s why we find where there’s weaknesses in defense. At the moment. Russia’s collecting a lot of information, they’re seeing, quite successfully, where does the European Union have weaknesses? Where do they hold really firmly on their diplomacy, on their negotiations, on their threats? And where are they weak? Where do they fall over? And this is why a lot of Republicans in America had a lot of problems with the Swift withdrawal from Afghanistan. Now, not withstanding the fact that the Republicans and former President Donald Trump are also pushing for a withdrawal from Afghanistan. But not withstanding that, that didn’t weaken America’s position. There was a lot of people that had concerns about America’s resolve, that also had weaknesses when Georgia, and parts of Georgia, were invaded and about the European Union’s willingness and America’s willingness to support an ally during that. So Russia is able to collect great information and build their own expectations and develop their own scenarios about what the likely future holds. America’s ability to stand firm and support a country like Ukraine, an ally, when it’s threatened by Russia is particularly important both for Russia being able to determine what is safe for them to do what the risks for them if they pursue a certain course of action, but also for America’s credibility, and then impacts countries like America because their allies rely on them. We look at Australia. Australia relies heavily on the Five Eyes: Britain, US, Canada, New Zealand, and of course, Australia as part of their defense against potential aggressors in the Asia Pacific region. If countries like Australia see that America doesn’t stand by its word, doesn’t defend its allies, well, then that causes weaknesses right across the world. And I choose Australia because it really is on the other side of the world. But that is equally true across the world. And of course, at the same time, we’re seeing massive increase of military tensions in the South China Sea. A lot of those countries are relying on the American military and the naval fleets are there to provide protection to them. And of course, Taiwan. So this issue between what will America and the UK and other countries do to defend Ukraine isn’t just important because of Ukraine, it’s important because of what allies are signaling.
Fernanda Alvarez 27:38
It’s all very fascinating. And it brings me back to all the stuff that I’ve had to learn for international relations classes. And you’re completely right, I think this is perhaps a crucial point for the US as we’ve seen in the past threats being emitted about, for instance, in Syria and Obama mentioning that there’s a line that shouldn’t be crossed, and so on. And nothing essentially happened in the end. So very important to be looking out not only at Russia’s behavior, but equally the US behavior. Now, something else that I wanted to discuss, because I’m still very much fascinated by the work that you’ve been doing in Ukraine, is to talk about more specific locations. I think when we have discussions about Ukraine and Russia, we think Moscow and Kiev, we think the border, but we don’t really soom into smaller regions that might be crucial for unpacking what might happen and what has been happening. So I was hoping you could tell me about the different cities that you’ve been to, and how crucial they are to what is going on.
Dominic Bowen 28:39
I think there’s a few cities that people should be monitoring. We hear a lot about Kiev, in the same way that when Afghanistan, all we heard about was Kabul, which was the capital of Afghanistan. But that was a failure. Because Kabul is almost like another country. Afghanistan is made up of federal tribal states. Looking at Kabul is not a litmus test for the rest of the country. And Kiev is similar, not to the same extent as Afghanistan. But everyone reports from Kiev, most of the journalists you hear reporting today are reporting from Kiev, and that’s fine. It’s the capital of the country. It’s very close to Belarus. We know that Russia is conducting unexpected and very large military exercises in Belarus at the moment, the size of the exercises is beyond what you’d normally see in a military exercise, which is, of course, another trigger another risk indicator that we’re monitoring, and that would allow or facilitate a faster invasion of a city like Kiev. So Kiev is definitely important. And of course, it’s the capital. So all the politicians and big businesses have presence there. But there’s other cities that are very, very important that should be watched. I mean, I was in Avdiivka this week, and it is a city that was controlled in 2014 by Russian-backed separatists, and it’s about two or three kilometers, well, at one point, you know, it’s only about 500 meters from the Donetsk airport. So city of Donetsk is a particularly important city. It connects much of the coastal region and Azov Bay, right through to the rest of Ukraine and that airport and that city is now controlled by Russian-backed separatists. And Avdiivka is, as I said, between 500 meters and a few kilometers from that airport, so controlling that city is particularly important for the security of the airfield and the airport. There’s a multi billion dollar mining and extraction plant in that area so that the value of the minerals and the value of the factories there is worth billions of dollars to whoever owns them. So that city is particularly important, it’s a really good litmus test because it’s so close to the current frontlines. But then you have cities like Kharkiv, to the north of Ukraine, and that is another city because it’s a major transit route, it’s a hub, it’s not something that could be bypassed if there was a significant Russian invasion into Ukraine. You couldn’t ignore cities like Kharkiv, because they’re too big. I mean, the population is less than a million people. Because of their location they are of particular importance to any country that wants to control and dominate the eastern part of Ukraine. And then if we look in the south of Ukraine we know, and everyone knows, that Russia now controls Crimea and there’s a land route. Russia has made a bridge linking Crimea to mainland Russia, but there’s no land route, and there’s also issues with freshwater. The Ukrainians, understandably, are not allowing freshwater into Crimea, while it’s held by Russia. So to relieve that pressure, and also to create a land corridor between Russia that would involve taking the city of Mariupol. I was in Mariupol this week, it’s a beautiful city. It’s a coastal city with resorts with fantastic restaurants, beautiful people, it’s a great city to visit. But if you look at any map and you look at where are the areas that are currently controlled by Russian backed separatists are, you look at Crimea, there’s just a dotted line between the two. Mariupol would be a city that would be logical to fall in the area along it. And it’s quite interesting. There’s some private militaries operating in that area controlled by some of the Ukrainian oligarchs. And it’s not surprising because cities like that are also of strategic importance. And again, key risk indicators need to be monitored to see if those cities are likely to be taken. I think these sort of cities like Avdiivka, Kharkov Mariupol, provide a real indication about what could happen and that we should be watching, not just Kiev.
Fernanda Alvarez 32:03
Those are all fantastic points. And I think you’re completely right in pushing anybody that is following the conflict to really go beyond just thinking the capitals and just, you know, the Presidents and just the key figures. There’s so many different parts that come attached to the story. I also want to continue unpacking that quick point that you made about resorting to private defense, I’m assuming that one of the battalions that you were referring to is the Azov battalion. Why is it, number one, that these cities are resorting to private forces? Is the Ukrainian military just not involved in that sense? It’s not strong enough?
Dominic Bowen 32:51
I think part of it is is really just a numbers game. I mean, if you look at the size, the Ukrainian military is numbered at about a million depending on how you calculate those numbers, but it’s about a million. The Russian military is obviously many times larger. And then if you look at the number of tanks, the number of attack helicopters, number of military planes then very, very quickly, Russia dominates any attempt or any size of the Ukrainian military. So the desire from oligarchs and ultra-wealthy Ukrainians to build up a defense to defend what they see as their country is not surprising. We know that there’s some challenges in Ukraine– for all its fantasticness and wonderfulness, bribery and endemic corruption is there. There’s a lack of transparency in many tax and customs groups. The judicial system is subject to political pressure, the regulatory system is not as strong as it should be. There’s high tax rates, organized crime is huge. There’s inadequate protection of intellectual property rights. So there’s lots of challenges in Ukraine and you can’t be blind to those. It’s not just a beautiful country with beautiful people. There are some big risk factors across a wide variety of risk topics. And some of those contribute to people taking things into their own hands. But some of these private battalions, like the Azov battalion, are extremely well-equipped. Sometimes you might compare them on a one to one ratio as better equipped than some traditional military units. They’re well equipped, got good uniforms, good training, often the pay is better than what the government forces done. But the Ukrainian government, not surprisingly, has been encouraged from the European Union, from NATO, from America, from the UK, to modernize their military. They’re receiving a lot of support for that, but also to bring these either to get rid of or to bring these private units into the fold. And we are seeing that, like the Azov brigade, is starting to become part of the national defense and part of the given like a special unit designation, but brought into the main army. But this is an understandable– I’m not saying I agree with it– but it’s an understandable response to a significant threat. And people want to sit on their hands and we see not necessarily militaries, but we do see wealthy family, wealthy businesses, contribute to the creation of companies or protect their civil infrastructure. And we see that in countries like Sweden and the UK where there is the not just a reliance on the government cyber defenses, but the creation of private businesses that will contribute to the nation cyber defenses isn’t necessarily unique to Ukraine. We do see this in many other countries in different forms, because cyber defenses, military defenses, business defenses, banking, and finance all are elements of a strategy of war.
Fernanda Alvarez 35:11
I wanted to start wrapping up our discussion by asking the question of the year, which is, well, Russia invaded Ukraine? Is this deja vu from 2014?
Dominic Bowen 35:29
I think when we talk about risk, we talk about the consequence and the likelihood and you’re asking me about the likelihood or probability. And I think the probability is definitely increasing. And right now we’re in late January, and that is the prime time– late January to early February really is the prime time in Russia. Anyone that’s been to Ukraine will note that it is made up of plains. In fact, it’s one of the best farming lands in the world. It’s rich soil, it’s flat, it’s easy to cultivate, which is also fantastic for tanks. But it’s also terrible for tanks in the in the wet season or in springs, and you know, Octobers and in Marches and Aprils, so if Russia was going to invade they need to invade now, whilst the ground is still covered in ice. Anyone that goes to Ukraine in the winter will know that it would be very easy, you don’t need to use the road, you could just drive straight across all the fields. And that will be crucial if you’re going to do a quick attack and not get bogged down in major population centers. So if Russia is going to attack, we’ll see it in the next couple of weeks. Now, whilst the likelihood is increasing, I’m not necessarily convinced that it’ll occur this time. I’m not sure that this will stay like this forever. I think Russia and Vladimir Putin and his advisers are very, very, very smart. This could just be another attempt to collect information to understand and test the defenses and the resolve of the West, and then revisit this in two or three years time. So I think the threat and the risk of Russia is not going away, that is going to stay and businesses need to be prepared for that. So I’m going to avoid answering your question or try and skirt around by saying I think the likelihood is increasing significantly. It really is. You only have to look at any of the signals, whether it’s information, what different countries are saying, what we’re seeing on the ground, and some of the risk indicators, and one of our guests was talking previously about there’s not enough troops. And if you look at risk indicators, Russia would need to bring troops from the east of Russia, to the west. What are we seeing now? Trainloads of tanks, trainloads of soldiers moving from the east of Russia, to the West as a key risk indicator, and we’re seeing it play out right now. One of the other things you’d want to see as well, not just Russian troops on the east of Ukraine, but also Russian troops on the north of Ukraine, we’re now seeing that as well. So a lot of the significant risk indicators that will indicate if an impending invasion is occurring. It is the million dollar question. Will Russia invade? If I was a business, I’d be preparing for it. If I was an individual in Europe, you know, I’d be considering what are the implications to me, well, the implications to my family, what are the implications to my businesses and building contingencies around them? It’s not crazy talk. It’s about being prepared and businesses should be having these conversations about okay, if Russia does invade, what would that look like? What would the impacts on our businesses be and go through your supply chains, go through your cyber defenses and prepare and if they don’t, then you’ve just gone through a good business continuity activity. And if they do, then your business and your community is better prepared and their ability to respond to other types of crisis is only been increased. So it’s a worthwhile activity regardless of what happens over the next couple of weeks in Ukraine.
Fernanda Alvarez 38:27
You’re absolutely right. You kept on bringing up this idea of the frog in the boiling water. And it’s about time that businesses get ready for it, especially because we know that Vladimir Putin is not going anywhere after the constitutional amendments, he is effectively going to be in power for a very long time. So at least businesses can have the certainty that that uncertainty is going to remain. And lastly, as we always say, this would be the International Risk Podcast if we don’t finish with this particular question, which is, what are some of the greatest risks that you think we should look out for in 2022?
Dominic Bowen 39:05
I think the biggest risk that I worry about when I go to sleep at night or when I’m speaking to business leaders, is not necessarily an invasion from Russia into Ukraine. Whilst I just said then in the last question that I think it is increasing and probability that it will occur, my biggest concern is governments sitting on their hands, governments being inactive, businesses not taking action. And we look at the banking and finance sector, we look at communications, we look at essential utilities power, we look at essential facilities and businesses services, like hospitals, are these thoroughly prepared? And whether we look in Sweden, whether we look in Germany, France, the UK, are they good enough? Is there was conflict between Russia and Ukraine, is there a conflict with another country in Europe? Is it a conflict outside of Europe, potentially, in the Asia Pacific region? Are our systems robust enough today? And I think the answer is no. And I think most people who work in the risk landscape, who work in the cyber landscape, who work physical security, who work in contingency planning and business continuity will have a resounding ‘we are not ready’. We are not strong enough. Businesses aren’t strong enough with their risk management practices, people are better at it. And they’re more aware of it after the COVID pandemic because so many businesses were negatively impacted by the COVID pandemic and their business continuity, their risk management systems weren’t strong enough, but they’re still not strong enough today. They’re a long way from strong enough. And that’s what worries me. We still know today that so many countries, their hospital systems are struggling even with the Omicron variant. That pales into insignificance if there was a major conflict in Europe, about what the impacts would be because of cyber attacks, because of the impacts on our banking system, because the impacts on our energy sector, and that worries me, that’s the concern that I have. And it’s more government inaction. And I know, because I deal with this every day that taking action about a risk and to try to mitigate a risk costs money. But ultimately, I also know that it saves you money in the long term, and it enables you to pursue further business and fails. Governments are concerned to develop better societies and better communities and to advance an increase your country’s wealth and success. But politicians need to step up. They need to take action today, if not from the threat against Russia conflict in Ukraine, because there’s so many other potential risks on the horizon.
Fernanda Alvarez 41:17
Well, Dominic, that was a fantastic conversation. Thank you so much for all the insight, we’ll continue to be on the lookout to see what happens with Ukraine and Russia. I think it’s definitely going to be a major major event, at least that’s going to mark the beginning of 2022. So thank you so much again.
Dominic Bowen 41:36
Thanks very much for having me on the podcast today, Fernanda. It was a lot of fun.
Harriet Taylor 41:42
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