Russia’s invasion of Ukraine is upending the world as we know it. Vladimir Putin seeks to rewrite the global order’s rules while the West tries to restore effective deterrence. The war will have global repercussions and reverberate across business operations. Impacts will be felt through commodity price hikes, sanctions and trade restrictions, and market access limitations. Five key areas for business planning consideration are reputational, supply chain, inflation, cyber, and market access risks.
- Reputational risks due to connections with Russia, Russian firms, Putin and oligarchs, and Russian operations in Ukraine. For example, some Russian military hardware has Western components. With Western public opinion squarely in Kyiv’s camp, firms that continue to do business with and within Russia might face significant public backlash.
- Supply chain risks and challenges are going to worsen with war disrupting supplies and expanding sanctions and trade restrictions on Russia and Russian entities along with likely Russian counteractions. Western sanctions are likely to expand over time, while Russia may respond in kind by curbing or redirecting exports of key commodities (such as oil, gas, coals, metals, or fertilizers), weighing global markets and business sentiment down. Companies will need to review continuously and update their supply chain operations for compliance with sanctions and risks from supply disruptions.
- Inflation risks also increase with the war worsening inflationary pressures. Wartime uncertainties have already pushed oil, gas, and grain prices significantly higher. Continued war, supply disruptions, and risk of escalation will keep price pressure upward, ripple through supply chains, and risk weighing down business and consumer confidence. Companies will need to adapt to rising costs and find alternative sources.
- Cyber risks have escalated with worsened cybercrime and heightened concerns over state-sponsored cyberattacks. As to the former, any (limited) Russian constraints on cyber-criminals attacking Western firms are likely to weaken further. As to cyberwarfare, Russia has long used cyberattacks to test and weaken its adversaries and has been deploying new attack vectors in Ukraine. As a result, Western governments have raised threat levels. Possible attacks include espionage, data-pilfering campaigns, and destructive cyberattacks against critical infrastructure launched by state services or the web of opaque proxies that are difficult to track, punish, or put out of service. Putin could deploy these tools against firms seen as overly opposed to Russia or even to escalate the costs to Western economies in response to sanctions and trade restrictions.
- Market access risks rise for firms present in Russia, Ukraine, and Belarus. Western companies that have a market presence in Russia will have to review whether it makes business sense to stay in light of new restrictions. Western technological export controls and financial restrictions will dampen the business climate for a host of industries such as automotive, energy, manufacturing, defense, transportation, aerospace. Russia’s counteractions, including trade diversion away from the West toward new markets in Asia, the Middle East, and Latin America and efforts to bolster domestic capacities (as they did after the 2014 sanctions) will impact Western companies in other markets around the world. Particularly as third countries may seek to leverage the standoff between the West and Russia by playing them against each other.
Businesses need to adapt to this new environment as risks ebb and flow as a result of Putin’s actions, the West’s reactions, and third countries’ adaptation to the new circumstances created by the war.
Uncertainty will continue for months, if not years, to come as the situation is ripe with developing ‘unknown unknowns'. These range from the extent and endurance of Ukrainian resistance; Putin’s penultimate objectives; the potential for diplomatic and even armed escalation beyond Ukraine; how far will Western nations go with sanctions; how China and other nations (such as Middle Eastern states) will react to Putin’s aggression; and the risk that Putin will escalate beyond Ukraine. As to the last, Putin has threatened Western countries with “ominous consequences” if they dare intervene in Ukraine, a threat some analysts understood as “waving the nuclear sword.” The head of Russia’s space agency threatened to drop the International Space Station (ISS) on Europe or the United States. Discussions of Sweden and Finland considering joining NATO are already sparking Russian threats.
Dynamic strategic planning that accounts for these risks, developed with testable assumptions and satisficing plausible scenarios, will be critical for navigating this uncertain and dangerous environment.
© Copyright 2022. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.