Webinar in German – The Ukraine crisis and its potential impact on businesses

In light of the extremely tense situation in the conflict between Russia and Ukraine, as well as a multitude of conflicts worldwide, the corporate management of political risks is noticeably gaining in importance. That’s why we’re teaming up with the Funk Group – one of Europe’s leading insurance brokers and risk consultants – to host a webinar on the Ukraine crisis and potential effects on businesses.

You can expect the following content:

  • In-depth overview of the current situation in the conflict between Russia and Ukraine
  • Introduction of three potential scenarios for the further course of the conflict and their implications for companies
  • Outline of preventive and reactive measures, especially in the area of crisis management
  • Opportunity for further and more in-depth questions and dialogue during a Q&A session

Participating in our webinar will provide you with:

  • Deeper understanding of the relevance of the Ukraine crisis and potential impact on your own company/industry
  • Understanding of the need for professional handling of this conflict and political risks in general
  • Facilitation of a dialogue in the area of political risks as well as holistic risk management

We offer two different dates for you to participate in our webinar:

Wednesday, February 16th 2022
10am – 11am CET
Sign up and save your spot

Friday, February 18th 2022
10am – 11am CET
Sign up and save your spot

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Strategies for managing long-term risks to the supply chain

Companies have to prepare for long-term risks such as climate change or geopolitical developments. Combining precise data with intelligent methods enables proactive risk management that increases resilience and ensures sustainable competitiveness.

In recent years, long-term risks have increasingly become the focus of leading companies. Many corporations have already improved their ability to respond to potential risks for their supply chain as part of their supply chain risk programs. At the same time, however, these efforts are matched by a steadily growing risk. Due to rising global geopolitical uncertainties and climate change, supply chain disruptions are not only increasing in frequency, but also in severity. In addition, the recovery phase after the occurrence of such risk events is increasingly longer and more difficult, as, for example, transport routes or suppliers permanently fail or become unsustainable in terms of risk. How can companies prepare for and respond to the increase in these long-term risks? The good news is that those risks can be predicted using early indicators and companies can therefore take precautionary measures.

Model and manage climate risks

The effects of climate change have been felt in Europe for years. Whether it’s particularly hot summers, violent storms, floods caused by severe weather events, or devastating fires: Climate events are no longer just an issue in the Third World, but are affecting business activities in many major economic areas. For many companies, their supply chain is their Achilles’ heel in terms of climate change threats. When identifying potential climate-related risks, it makes sense to differentiate between supplier risks, transportation risks due to disruptions in the transport infrastructure, and risks regarding energy and water supply. It is also important to consider the various climate-related risk factors and their effects:

  • Heat and dry periods: Potential impact on employee health, water availability and inland navigation
  • Heavy precipitation, flooding and hail: Endangering buildings, production facilities and inventories
  • Storms and lightning: Potential damage to sensitive equipment, power supply and telecommunications
  • Sea level rise, spring tides: Possible effects on maritime transport, buildings and production facilities

Geo intelligence methods can be used to link climate models to the specific supply chains of companies. In this process, the specific climate-related risks for supplier locations as well as transport and supply routes are determined and aggregated as well as visualized in an overall model. The model created in this context enables the identification and evaluation of a company’s climate-related risk situation.

Dealing with political risks

Political risks and, in the narrower sense, politically motivated violence, war risk or the threat of terrorism are consistently among the greatest business risks. At the same time, political conflicts – especially in democracies – are part of everyday political life. They are continuously gaining in importance, especially after the USA’s change of course in foreign policy and the withdrawal of troops from Afghanistan. The good news is that political conflicts and wars usually don’t start overnight, but have a long lead time that can be easily identified. The challenge is to filter out the news that are actually relevant from the information overload of other political news.

By capturing what is happening in a dynamic model, the full spectrum of conflict activity can be mapped. Generally, political conflicts can be classified according to their expected impact:

  • Social Conflicts: Interest groups pursue their demands (mostly against the state) and usually try to enforce them through demonstrations, protests or strikes.
  • Violent Conflicts: Violent groups – usually outside the social order and often found in states with limited statehood – attempt to enforce their interests through the use of firearms and other light weapons. The control of important transport routes is often used as a source of income for these “rebel groups”.
  • War or Warlike Conflicts: Large and well-organized groups or states try to enforce their demands through the use of heavy weapons and try to force down the opponent through severe damage to production facilities, transport routes and infrastructure.

Modern analysis of political country risks not only requires a precise description of what is threatening, but also answers to the questions of when and where risks arise. A long-term comparison and analysis of data can identify patterns that support the assessment of the current conflict situation. In doing so, knowledge can be gained, particularly about the resilience of states, which promises enormous benefits in long-term supply chain planning. Thus, a distinction can be made between “effective” and “less effective” political conflict solvers. This distinction is particularly helpful in times of growing uncertainty, when terrorist attacks are also being carried into the centers of Western leading states. By geo-referencing the location of conflict, the spatial dimensions of actions can be mapped precisely. As a result, the risk posed by political conflicts can be calculated much more accurately.

Interdependencies between climate-induced changes and geopolitical developments

Since there are often interdependencies between different types of risk, individual risks shouldn’t be considered in isolation. Climate-related changes such as a regional water scarcity or loss of habitat will create or intensify political conflicts, especially due to climate-induced migration movements. Conversely, political developments can also cause considerable environmental damage and natural disasters, for example through the reckless exploitation of natural resources. Predicting the interdependencies, however, is still difficult with current means.

Risk management and long-term risk minimization

Even if individual companies only have a limited influence on climate change or geopolitical developments, they are not defenseless in the face of long-term risks, but are required to take active precautions. Particular attention needs to be paid to risks that are characterized by both a high probability of occurrence and a significant loss expectation. Taking cost aspects into account, it is worth balancing the costs and benefits of risk prevention measures.

Predictive analytics and geo-intelligence-based simulations can be used to evaluate various risk management measures, such as multi-sourcing, near-shoring, or building additional buffer stocks. Intelligent, proactive risk management thus increases resilience to long-term risks and ensures the sustainable competitiveness of the company.

With the MBI CONIAS approach, all data is systematically collected at the subnational unit level. Therefore, differentiated situation reports of conflicts can be created, conflict dynamics can be recorded, and safe spaces can be identified. This results in a highly differentiated, empirically based overview for many countries, showing not only risks but also opportunities. The MBI CONIAS approach is particularly innovative in this regard because data and development stages are collected from two very different types of conflicts: On the one hand, there are conflicts that began with an initial disagreement, then escalated, via pressure and threats, first sporadically to violence and finally to war. On the other hand, however, there are also those that began very similarly to later wars, but could then be settled peacefully. The multitude of data and attributes collected allows for a differentiated assessment of supplier locations as well as supply chains. This means that changes in the risk assessment can be communicated quickly for proactive risk management.

By integrating the MBI CONIAS data into Orbica’s solution, both climate-related changes and geopolitical developments can be mapped. This enables precise analyses and targeted measures, which are essential for the prevention of long-term risks. Tackle this important topic within your risk management now in order to be as prepared as possible for any long-term risks to your supply chain and sites. Our team of experts is happy to support you. Contact us for a non-binding consultation.

About the author:
Dr. Nicolas Schwank
Chief Data Scientist Political Risk
Michael Bauer International GmbH

In cooperation with:
Matthias Frye
Director of Marketing and Sales Europe
Orbica UG

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Conflicts in Africa and their relevance in context of the Supply Chain Act

The recently passed Act on Corporate Due Diligence in Supply Chains (in short: Supply Chain Act) in Germany is considered to be a milestone in human rights and sustainability policy by politicians. From 2023, companies with more than 3,000 employees will be required to issue a policy statement on respect for human rights, to provide risk analysis and prevention management for these, and set up a complaints mechanism for any human rights violations.[1] This applies to the company’s own business operations and direct suppliers. For indirect suppliers, the due diligence obligation is event-driven and includes the preparation of a risk analysis, the implementation of an avoidance and minimization concept as well as preventive measures. From 2024, this Supply Chain Law will also apply to companies that employ more than 1,000 people.

This new regulation presents companies with new tasks in an often little-known terrain. Human rights violations and environmental degradation, which are not present in the wider European public, are a global phenomenon and companies can be confronted with them unexpectedly. The potential conflicts are multifaceted and can manifest themselves in a wide variety of ways. The following article presents examples of conflicts from three African countries where companies are involved and which are related to human rights violations or environmental degradation: Togo, Tanzania and Mozambique. These examples will provide a first insight into the range of relevant cases.

Togo

The first analysis focuses on the West African state of Togo. Various German and international companies attracted attention for their activities in Togo when demonstrations by the Diaspora Togolaise Allemagne, an interest group representing Togolese living in Germany, took place in front of their headquarters in the winter of 2020. On the one hand, they protested against environmentally harmful business and production practices of the companies in the country. On the other hand, the support and legitimization of the authoritarian government through economic activities in Togo was criticized.[2]

In context of the new Supply Chain Act, German companies are required to monitor and analyze human rights violations and environmental problems.  For the aspect of environmental protection, Togo can be used as an example for other countries: Environmentalists and critics of the Togolese government complain that phosphate mining in Togo causes severe environmental damage along the coast. This includes, among other things, coastal pollution and a resulting death of the fish population. In addition, factory workers have been found to have health problems that are believed to stem from phosphate mining.[3] These sustainability deficiencies, which are by no means limited to phosphate mining, may present new challenges for companies in light of the Supply Chain Act.

In addition to environmental and health aspects, the human rights violations of the Togolese government are relevant in regard to the new Supply Chain Act. The ruling Gnassingbé family follows an authoritarian style of government and is directly involved in phosphate mining through the state-owned Société Nouvelle des Phosphates du Togo and its monopoly.[4] In recent years, the Gnassingbé government has also drawn attention to itself by suppressing the opposition and violently repressing protests.[5] A further deterioration of the human rights situation in Togo is quite possible. For businesses, this creates the risk to actually enable or even actively support human rights violations and environmental destruction through cooperation with corresponding companies or through agreements with the government.

Tanzania

Another example of political conflicts with relevance to the new Supply Chain Act can be found in Tanzania. Although the East African state is characterized by political stability and high growth rates compared to other states in the region, its treatment of the LGBTQ+ community appears problematic to the rest of the world.

The Supply Chain Act stipulates that discrimination against individuals on the basis of a wide variety of characteristics has to be prevented. Therefore, the situation in Tanzania is problematic due to both social and political discrimination against the LGBTQ+ movement. In the past, the drastic approach against the LGBTQ+ community caused negative headlines internationally when high-ranking politicians initiated a public wave of arrests against homosexuals in 2018.[6] The call for the public to provide names of alleged homosexuals caused widespread criticism among Western nations and, among other things, resulted in the suspension of development funding.[7] In addition to the potential discrimination by political actors, this discrimination is also perpetuated in Tanzanian society.[8]

What initially had no immediate consequences for international companies has to be reassessed as a result of the Supply Chain Act. Such or similar discriminatory measures could affect companies’ own employees and suppliers. This example illustrates how the new Supply Chain Law forces German companies in apparently stable and inconspicuous states to conduct a deeper analysis of political and social conflicts.

Mozambique

The last example deals with the Cabo Delgado region in Mozambique, which exemplifies the escalation of social conflicts. Former low-intensity conflicts resulted in a violent uprising by Islamist militias that necessitated international military support.

The basis of today’s conflict can be found in the population’s rejection of the state of Mozambique, which is based on the neglect of the region by state institutions and corruption. These conditions created the first favorable premises for political violence and religious extremism in the region, even before it became interesting for economic resource extraction. The region in northern Mozambique gained economic interest through ruby deposits and the discovery of large quantities of offshore natural gas. The raw material deposits have attracted foreign investors over the past decade. Since 2017, however, they have faced an increasingly serious security situation that has prevented economic activity in the region for the time being.[9]

Due to widespread corruption, the ruby deposits have been exploited economically, but there was no significant economic progress or participation in the wealth of resources for the population of Cabo Delgado. A similar situation took place with the natural gas extraction project, which had to be interrupted during the construction phase because the Islamist attacks now also claimed victims among the companies operating there.[10] The implementation of the projects also created potential for conflict with the culture of the local population, since on the one hand graves and on the other families had to be relocated for the extraction of raw materials.[11] The lack of transparency in the decision-making processes and the authoritarian approach of the police in enforcing them are important factors in this multidimensional conflict, which escalated violently for the first time in 2017.

Years of attacks and territorial gains by the militias have plunged the region into deep instability, which an international military mission is now seeking to remedy. Neglect of Cabo Delgado’s civilian population, corruption and other factors are likely to prevent fully safe economic activity for the next few years.

The examples of Mozambique, Tanzania and Togo show in many different ways the relevance of the new Supply Chain Act and why a professional political risk analysis is becoming increasingly important for companies. Conflicts like the one in Mozambique, which are initially characterized by low intensity and then escalate violently, are important for international business and production processes, which could be disrupted as a result. The new Supply Chain Law also affects lower intensity conflicts, such as in Togo. Finally, environmental destruction and discrimination against individual population groups that are part of these conflicts should not be neglected either.

With MBI CONIAS Risk Intelligence, you are fully prepared for the challenges of the new Supply Chain Act. Our decades of experience in monitoring political conflicts below the threshold of war make the MBI CONIAS data unique. The large number of these conflicts and their complex modes of action require a great deal of knowledge in order to identify their impact early. Constant enhancements and additions continuously increase the benefits for our customers. 

From late fall 2021, our MBI CONIAS Academy in Heidelberg will also offer seminars to prepare your employees accordingly. For further information, please contact our Sales Team.

About the authors:
Etienne Limberger & Dr. Nicolas Schwank
CONIAS Risk Intelligence
Michael Bauer International GmbH

[1] https://www.bmz.de/de/entwicklungspolitik/lieferkettengesetz
[2] https://www.stadtpolitik-heidelberg.de/?q=node/3388
[3] https://taz.de/Phosphatgewinnung-in-Togo/!5582284/
[4] https://www.sueddeutsche.de/politik/afrika-das-grosse-schachern-1.3705970
[5] https://www.bbc.com/news/world-africa-41332072
[6] https://www.reuters.com/article/us-tanzania-lgbt-idUSKCN1N90FZ
[7] https://www.bbc.com/news/world-europe-46219356
[8] https://www.hrw.org/report/2020/02/03/if-we-dont-get-services-we-will-die/tanzanias-anti-lgbt-crackdown-and-right
[9] https://www.tagesschau.de/ausland/afrika/mosambik-cabo-delgado-105.html
[10] https://www.aljazeera.com/economy/2021/4/26/total-suspends-20bn-lng-project-in-mozambique-indefinitely
[11] https://www.macaubusiness.com/mozambique-government-failed-to-seek-local-consent-for-gas-projects-activist/

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The collapse of Afghanistan – The restart of international terrorism?

Image Source: internationalaffairs.org.au.

In horror, the West is looking at the images coming from Kabul. Instead of within weeks, as experts were still predicting on Friday, the Taliban took over rule in Kabul within days, actually even hours. Photos from the presidential palace illustrate this powerfully. This shows one thing above all: Western governments and NATO have never really understood Afghanistan and the Taliban – and new misconceptions are already looming. Since Afghanistan has relied heavily on Western aid in recent years, the Taliban will very quickly use the ongoing talks in Doha with the West to further economic cooperation and ask for aid payments, according to the current expert assessment.

This may be a possibility, but if the past has taught us anything, it is that the Taliban do not behave in line with Western expectations. China, which is already targeting Afghanistan’s rare earths, and a renewed expansion of drug plantations are likely to be more attractive alternatives for the Taliban.

The reason for the war against the Taliban 20 years ago were the 9/11 attacks in the United States in 2001. Although the Taliban themselves were not held responsible for the attacks, for the U.S. and its allies they were complicit and enablers. Given a similar constellation, why should the Taliban say “no” to international terrorism today? The main concern in this context is the low level of resistance to the Taliban by the armed forces and civilian population, which have been dominated by the West for decades. It seems that the era of violence and harsh ideology is back. Western countries and the business world should prepare for this.

MBI CONIAS Risk Intelligence supports you in the analysis of conflict situations. For more information, please contact us.

About the author:
Dr. Nicolas Schwank
Chief Data Scientist Political Risk
Michael Bauer International GmbH

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Effectively implement requirements of the new German law on corporate due diligence in supply chains

Integration of MBI CONIAS data into the VertiGIS solution

Supply chain visibility with MBI CONIAS Risk Intelligence Data

On June 11, 2021, the German parliament passed the “Act on Corporate Due Diligence in Supply Chains”. The new Supply Chain Act obliges companies above a certain size to better meet their responsibilities in the supply chain with regard to respecting internationally recognized human rights. It will be binding for companies with more than 3,000 employees from January 1, 2023, and for companies with more than 1,000 employees from 2024.

New law demands transparency and risk management along the entire supply chain

Many companies perceive the new Supply Chain Act as a major challenge: It requires transparency and risk management along the entire supply chain and, at the same time, special knowledge about the status of human rights violations and environmental offenses on site. Failure to comply with the new requirements on minimum social and environmental standards within the supply chain could result in loss of image, loss of sales, fines and exclusion from federal procurement procedures.

The upcoming law confronts companies with new tasks and obligations for which there is often too little in-house expertise. Risks have to be identified, analyzed and appropriate measures taken. The lack of transparency within fragmented supply chains in particular makes risk management difficult for companies. Obtaining data involves a great deal of effort and assessing the situation is associated with great uncertainty.

Solution for the analysis and visualization of risks supports risk minimization

This is where the joint approach of MBI and the VertiGIS companies comes in. MBI CONIAS data is integrated into the risk management and business continuity solution of VertiGIS. This provides an effective and globally applicable solution that enables the analysis and visualization of risks along the entire supply chain. Risks can be identified, evaluated and suitable countermeasures can be taken. In this context, indicators and further information on the human rights situation as well as the environmental situation can be shown for locations worldwide, risks can be anticipated and mitigated through appropriate measures.

CONIAS has its origins in the early detection of conflicts: This means that it not only shows where there currently are violations of the Supply Chain Act, but also where human rights violations and climate damage measures are improving or worsening. This creates transparency in the supply chain and sustainability is already achieved in the procurement process. The CONIAS data is continuously updated. In the event of changes in the characteristic values, users are informed in detail and measures are recommended. Risks can be reduced or avoided altogether through foresighted risk assessment and adequately coordinated catalogs of measures.

The detailed article, published in the VertiGIS [email protected] magazine 2021, is available in German here. For further information, please contact our Sales Team.

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The assessment of political risks – Orientation and security through MBI CONIAS Risk Intelligence

It’s a paradox: Political risks, including wars and political violence, are consistently ranked among the biggest risk factors for business managers[1]. Supply chains can be disrupted, inventories can be destroyed, sales markets can disappear. Nevertheless, the area of early detection and warning of political risks receives little attention from internationally operating companies. It is often assumed that crises and wars are too complex to be effectively predicted – but the scientifically based CONIAS approach was developed for precisely that purpose. One of the basic methods used to understand and more quickly classify the multi-layered risk situations is pattern recognition[2].

Pattern recognition is derived from general human approaches

For the complex field of political risks, pattern recognition is so well suited because it closely resembles general human behavior. An example of this is the following scenario: Two people, 20 and 50 years old, start their new job in a small company with ten employees on the same day. While the younger of the two tends to be quiet and reticent about the new situation, acting rather defensively and preferring to listen rather than speaking himself, the older one benefits from many years of professional experience and several job changes. Having experienced this situation many times before, the older person can therefore better and more quickly assess people he encounters in the new situation. He compares their behavior, their body language, the sound of their voice, but also their position with people he met on earlier “first days at work”. In doing so, the older person recognizes patterns that give him orientation in the new situation and derives conclusions for his behavior.

The MBI CONIAS database records non-violent early phases and other conflicts

People make use of pattern recognition – no matter whether through their own experience or through experience acquired through telling or reading – and thus orient themselves in new situations.  The CONIAS approach and the CONIAS database are also committed to this idea. Unlike conventional conflict databases, which only record wars or violent phases of conflict, the CONIAS database also records the non-violent early phases of these later wars[3]. In addition – and this is what makes the CONIAS approach so special – other conflicts that begin similarly to later wars but ultimately take a peaceful course are also recorded. Only in this way is it possible to make statements about the vulnerability of certain conflict constellations. This can be explained as follows: It is true that a large proportion of the few interstate wars since 1945 have been fought over territory. Examples include Iraq’s invasion of Kuwait (1991) or the conflict between Armenia and Azerbaijan over the Nagorny Karabakh region (2020). Nevertheless, conversely, it would be wrong to say that territorial or border disputes lead to war particularly frequently. Currently, there are about 120 recorded border disputes between states, almost all of which are settled without violence only at the diplomatic level. Other sources speak of an even higher number of unresolved border disputes[4].

Only a comprehensive collection of data allows to properly assess the risk potential of border disputes

In total, the CONIAS conflict database contains information on the course of more than 1,900 intra- and interstate, violent and non-violent conflicts since 1945. A large number of indicators are recorded for each conflict and actor involved, reflecting all dynamic changes in conflict resolution, but also in the socio-economic environment[5]. Thus, the CONIAS database provides millions of data points supplying statistical information on global conflict behavior. One of the most important findings of empirical conflict research can also be confirmed by CONIAS: Democracies do not wage wars against other democracies[6]. We have already integrated this “law” of democratic peace into our thinking to such an extent that, for example, even the most severe low blows in bilateral relations between Germany and the U.S. did not cause any fear of war even among the greatest pessimists.

Especially in areas not illuminated by other conflict databases, the CONIAS database reveals more points of reference

The database has shown, for example, that culturally driven conflicts have become significantly more important since the end of the Cold War in 1990 and especially after 9/11/2001[7]. At the same time, however, the CONIAS database shows that over time, it is not the number of different religions in a country that makes it vulnerable to intrastate violence, but the number of different languages spoken in the country[8].

The CONIAS conflict database is continuously maintained, and current conflict events continue to be recorded. Every quarter, knowledge about the evolution of conflicts around the world grows by tens of thousands of data points. Currently, the CONIAS team is working to better understand the links between political conflicts, human rights violations, and damage or destruction to natural livelihoods. The new supply chain law, as well as an ever-growing sense of responsibility for human rights and the environment, requires companies and ultimately every individual to act carefully in this regard. We would be pleased not only to provide you with points of reference, but also to support you with our comprehensive know-how and long-standing expertise. If you are interested, please contact our Sales Team.

About the author:
Dr. Nicolas Schwank
Chief Data Scientist Political Risk
Michael Bauer International GmbH

References:
[1] Allianz (Ed.): Allianz Risk Barometer, Various Years. Last 2021
[2] Trappl, Robert (Ed.) (2006): Programming for peace. Computer-aided methods for international conflict resolution and prevention. Dordrecht: Springer; Schrodt, Philip A. (2000): Pattern Recognition of International Crises Using Hidden Markov Models. In: Diana Richards (Ed.): Political complexity. Nonlinear models of politics. Ann Arbor: Univ. of Michigan Press, pp. 296.
[3] Schwank, Nicolas (2012): Konflikte, Krisen, Kriege. Die Entwicklungsdynamiken politischer Konflikte seit 1945. Baden-Baden: Nomos (Weltregionen im Wandel, 9); Schwank, Nicolas, et al. “Der Heidelberger Ansatz Der Konfliktdatenerfassung.” Zeitschrift Für Friedens- Und Konfliktforschung, vol. 2, no. 1, 2013, pp. 32–63.
[4] https://www.cia.gov/the-world-factbook
[5] Schwank, Nicolas (2012): Konflikte, Krisen, Kriege. (vide supra)
[6] Small, Melvin; Singer, J. David (1976): The war-proneness of democratic regimes, 1816-1965. In: The Jerusalem journal of international relations.  1 (4), pp. 50–69.
[7] Croissant, Aurel (2009) et al.: Kulturelle Konflikte seit 1945. Die kulturellen Dimensionen des globalen Konfliktgeschehens. 1st edition. Baden-Baden: Nomos (Weltregionen im Wandel, 6). Stiftung, Bertelsmann (2010): Culture and Conflict in Global Perspective. The Cultural Dimensions of Global Conflicts 1945 to 2007. Guetersloh: Verlag Bertelsmann Stiftung.
[8] Ibid.

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Russia’s troop build-up on the Ukrainian border: Why now?

Ukraine-Russia-Donbass

The signals are worrisome: The Russian Federation’s troop concentrations on the Ukrainian border are unusual and at the same time frightening. After all, there are clear parallels with the last outbreak of war. Moreover, since this Russian-directed war in the Ukrainian Donbass region and the occupation of Crimea by Russian soldiers, relations between the two states are worse than any between other European states.

Is there a threat of war between Russia and the Ukraine?

Overall, the situation has to be described as very serious and the criticism from the Ukraine and other eastern NATO states that Germany and other Western states do not understand the situation in all its depth and threat is probably correct. Evaluations from our MBI CONIAS Conflict Database, in which the course of more than 1,000 political conflicts since 1945 is stored, also clearly show that in well over 50% of all recorded cases such troop concentrations were followed by wars or other highly violent military conflicts. Most recently, a report spread in Russia by the state-controlled media stating that the Ukraine was planning reconquests was highly concerning. Actions like this prepare the important domestic legitimacy needed by the Russian government for another war against the Ukraine. Companies are advised to be extremely mindful of this tense situation, to refrain from avoidable travel to the Ukraine, and to prepare for disruptions in the Ukrainian supply chain in contingency plans.

Why is this development taking place now?

An analysis of the situation always includes the question: What is the significance of the timing of the action? In other words: Why is the deployment taking place now, why not two months ago, what has changed? At least two answers are possible here, one confirming the dangerousness of the action, the other potentially providing a rational argument raising hope for a peaceful outcome to the situation. What has to be observed critically is that Russia has extensively issued passports to the population in the disputed regions of eastern Ukraine in recent years. Estimates put the number of new Russian citizens at at least 400,000. This could give Russia an argument for now wanting to protect this segment of the population on official Russian territory as well.

Is Russia testing the new U.S. President?

The second view dates back to the days of the Cold War, but given the current state of the international system, it may be accurate for precisely that reason: Russia could be testing the new U.S. President. Joe Biden has been in office for less than 100 days. His plans for a huge domestic economic stimulus program, the announcement of the withdrawal of American soldiers from Afghanistan, and the additionally tense budget situation after COVID make it clear that he shouldn’t have any interest in further international military engagements. Joe Biden, however, now has to demonstrate how he will respond to the provocations from Russia: It could be the overture for U.S.-Russian relations for years to come. It seems clear that U.S. President Biden is not going to engage in a military confrontation for the Ukraine any more than U.S. President Obama did during the previous crisis in 2014. In this context, he has to make it clear that the U.S. will not accept a similar approach as in 2014. Only if Biden acts quickly and decisively now and credibly conveys that the U.S. has a renewed interest in playing the role of the world’s policeman, the build-up can be halted and the Russian troops on the border to Ukraine under more or less credible justifications can be reduced. Otherwise, Russia might try to take advantage of the power vacuum created by the U.S. – as other regional powers have done. The result would be a further weakening of the international system with many more international crises to come.

Political risks have so far been considered complex and difficult to grasp. To learn more about MBI’s CONIAS Risk Intelligence and how it can support businesses in identifying risks and developing targeted adaptation strategies, contact our Sales Team.


About the author:

Dr. Nicolas Schwank
Chief Data Scientist Political Risk
Michael Bauer International GmbH

Image source: ВО «Свобода», CC BY 3.0, via Wikimedia Commons

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