A ground war in Europe. Friday marks one year since Russia
invaded Ukraine one year ago. The world was bracing for the fall of
key. Well, I guess Covid from the president
gave ISE report, gave stands strong, despite all the predictions to the
contrary. After 12 days, it's already clear that
Putin has made a miscalculation. He has underestimated the Ukrainians,
their heroic resistance. He's underestimated their leader, and he
has underestimated the unity of the West.
And predictions that if it happened, it wouldn't last long.
I see no tendency in war dragging on for two, three, four years.
If Ukraine keeps getting weapons on time, the war has cost thousands of
lives. Ukrainian and Russian displaced millions
of civilians and done untold damage to the Ukrainian economy.
Eight months into Russia's unprovoked, unjustified war against Ukraine, the DAX
displacements and destruction continue. But it's also had profound effects on
the global economy and on investors around the world.
As the price of oil spiked and remains elevated, gas prices will remain very
high. And it also may result in some
disruption. And its effects on the global food
supply chain and grain in particular are still being felt.
We're calling on all countries to refrain from banning food exports or
hoarding grain. So many people are suffering.
While Western sanctions against Russia have upended trade and financial
relations around the world, Russia's economy is in a great deal of pain
because the sanctions that we've been implemented with 30 other countries and
the pain is going to continue for years to come.
All of which raises questions about what comes next and whether there can ever be
a return to normal.
And to give us a sense of what the shift in geopolitics has meant for investors
and business around the world, not just for the last year with Ukraine, but over
the next several years, we turn to Sony, who knows geopolitics like no one else.
He's Tom Donilon. He's served, of course, as national
security adviser to President Obama. So, Tom, thank you so much for being
with us. First of all, give us a sense.
What do you think has been shifted more or less permanently in geopolitics
because of this Russian invasion? Thank you, Dave.
It's good to be with you. And I think there have been some changes
which are durable. And thankfully, I kind of do kind of
step back here and consider what the changes are, of course, the Russian
invasion of Ukraine. What's the most important security event
in Europe since World War Two, but beyond it being a regional security
event? David, as you alluded to, it is had
durable and global impact. And I see that first.
And in geopolitics, we can talk about energy and globalization and things like
that. But if you start with just the
geopolitics, I say this, it has exacerbated it has propelled it
accelerated fragmentation among the important
countries in the world, important regions in the world.
And it's it's caused, I think, the emergence of geo political and economic
blocs in the world, which are competing with one another.
And you can see that if you try to just think about a map of the world.
Right. That the first block think about three,
three or four blocks up is the West, the United States, the G7, which have come
together in a very cohesive way to support the effort in Ukraine against
the Russian invasion deed. I think the numbers now are that the
West has provided Ukraine with around one hundred forty five billion euros of
support led principally by I by the United States.
And that, of course, this has resulted in a real division between the West and
Russia, which I think is it durable and for all intents purposes for or
semi-permanent division between the West and Russia.
I think in the long term, no matter how long it takes for the war in Ukraine to
come to some sort of stable place or settlement, which I think as a long
term, long term event. Right.
I think you'll see a fundamental division down the middle of Europe
between Russia and the West across multiple dimensions military, political,
cultural, economic, ideological. And I think that's for the long term.
I think that's a fundamental impact, if you will.
Russia's separating from the west over there over its invasion of Ukraine.
The second, I think, dynamic is the coming together.
And what I think is it is an increasingly durable partnership between
Russia and China. You know, you see it in terms of their
alignment strategically against the. Against the United States.
You see it in the increased economic relationship that they have with.
But the relationship has really developed quite substantially beginning
in 2014, but really accelerated with the Russian with the Russian invasion.
You see it across all kinds of dimensions, by the way.
You see in the energy dimension, you see in the goods dimension, you see a
technology dimension. And that is a that's a fundamental
change. As I've said, I think that strategically
align in terms of our opposition to the United States and the West.
And I think that Putin and she should think have a personal relationship which
is driven this as well. It's one here to watch, because this
really has in addition to driving a split with Russia, which is obvious.
It's also been driving and exacerbating tensions with China between the United
States, Europe, the West. On one hand, China, on the other hand,
over China's support for for Russia. One thing to watch, I think, for
investors and those studying the geopolitics of this is this issue which
has arisen over the last couple of days, raised quite directly by Secretary of
State Tony Blinken as to whether or not China is supplying a lethal military
assistance to the Russians if that comes to be established as a fact.
That's a major event. That's a market moving event because the
United States and the West will react quite dramatically, I think, to that.
So you've got Europe, Russia, China, and the last is a large group of countries
in the world. And in the Cold War, we would call them
the Non-Aligned Movement, that global south.
I prefer them now as is multi aligned countries, and they are the countries
over which there's a lot of competition between Russia and China on the one
hand, and the United States and the West.
And another insult. Bottom line, I think we can go on other
topics is that there has been a dramatic acceleration, I think a deepening of
fragmentation in the world, which I'll finish up on this has really adversely
affected international cooperation. Do you think back to 2009 with the great
financial crisis in London at the G 20 meeting with President Obama?
You had the Russian Federation, China and the ISE, they sitting down at the
same table trying to develop an approach to the global financial crisis, trying
to bring the world back from the abyss. You couldn't ever imagine, David, that
meeting taking place. So, Tom, listening to all that's
fascinating and comprehensive as an investor, what I hear is risk and
geopolitical risk in particular creeping in to really reduce a lot of my returns.
Is it all risk or is there also opportunity to see.
All this opportunity, I think I think there is, but it is important, I think,
to understand the geopolitics in ways that wasn't the case.
Right. You know, I think what's in the case
really before the dynamic squarely would driven by Covid, by the Russian
invasion, by these repeated shock to the system, but especially the
Russian invasion of Ukraine. I do think that any analysis right.
With respect to with respect to investing has to take into account how
geopolitics and ways that you might not have before.
Energy is a good example that if you know where where if you look at the
energy situation right now, geopolitics has really kind of come back to the fore
with respect to what with respect to the energy dynamics.
And you have geopolitical dynamics as opposed to markets and efficiency and
economics driving a lot of these energy flows and relationships.
Right. You see the politicization of the
weaponization of of of energy. Right.
You see, I think, significant government interventions in the energy markets as a
result of the Russian invasion of Ukraine.
And a number of these. No, these crises, you see winners and
losers. Right.
You know, the United States has become a very important exporter in terms of
supporting our allies, especially in Europe.
You see Russia dramatically diminished, I think, over time by the International
Energy Administration Agency. Right.
Has said that Russia will be a much diminished energy power over the next
decade. And you see in the short term here,
maybe for some period of time, real transfers of wealth to the Middle East.
The IMF estimates that one point three trillion dollars in additional revenues
will go into the Gulf oil producing countries to about 2026.
So I guess the bottom line there is that your lens now in terms of analysis and
investing in your risk analysis has to take into account geopolitics in ways
that you really didn't have to do, I think, during the golden age of
globalization. So, Tom, I'm curious about.
I'll call it the rest of the world that you described, not the
West, Russia, China, but the rest of the world in particular, some of the big
players, India, Indonesia, Brazil, countries like that.
Do we have a sense of whether this geopolitical conflict is bringing them
closer to the west or farther away from the rest, or are they still deciding?
I think they are. I think there's competition right
between over this also. I think you also see that the global
south and the countries you mentioned are not as deeply involved, if you will,
in the in the Russia Ukraine situation as the West and the United States and
the United States are. They've been affected, by the way.
They've been affected by the effects on inflation, by the effects on energy
prices, specifically by energy flows, food prices.
They have been so they've been affected by this, by the dynamics in Europe, but
obviously not not as directly involved. And of course, I think what you do see
is that these countries kind of manage their way to protect their interests.
Right. As between these two significant box of
countries and you see the competition all over the world right now and you see
it's a competition. It's over economics.
It's over values. Right.
It's over geopolitics. It's over security.
And I think it's going to kind of come to the fore how express this competition
is and how these countries. Right.
Kind of outside the core of the west are having to navigate there and kind of
protect and seek to advance their their interests.