.svg)
Technology has changed many areas and is in the process of essentially changing the world order. This installment aims to address some of those changes and implications for sophisticated institutional investors and risk managers.
For most of history, might was right. That is, the countries with the largest army or navy were generally the victors, with occasional upsets or exceptions that proved the rule. That formula has fundamentally changed with widespread implications.
While many predicted Ukraine would fall in weeks, here we are four years later with Russia having suffered nearly 1.4 million casualties1, and Ukraine apparently on the brink of retaking Crimea. Furthermore, the powerful Russian navy has been driven from the Black Sea and many other areas do not appear to be safe from attack.
The game changers here are drones and drone-like missiles. While there is little doubt that air defenses can counter drones, the rub is in the cost and quantity. Scores of relatively inexpensive, increasingly sophisticated drones are proving to be extremely difficult to counter, and the cost of even a few drones getting through is massive.
Hence, Russia has lost scores of ships, planes, air defense systems, tanks, and a panoply of other materials which heretofore would have been unimaginable. The irony of course is that the massive land mass of Russia, which was a logistical nightmare for Napoleon and Hitler, is now problematic for Russia because of the difficulty in providing air defenses to the vast land mass.
Despite the best efforts of Israel and the United States, Iran continues to be capable of (i) closing the Strait of Hormuz and (ii) possibly making advances in garnering nuclear weapons. The rub here is that highly capable drones and low-grade missiles are relatively easy to procure, relatively inexpensive, and easy to hide. Furthermore, the slow-moving, massive oil tankers attempting to navigate the Strait of Hormuz present easy targets. On the nuclear material front, while little information is available, it would not be a significant stretch to assume that Iran might be able to obtain some material from its nuclear-capable allies China, Russia, and North Korea.
Regarding the strategy of bombing infrastructure in an attempt to soften the IRGC’s resolve, such an approach did not work well for Germany in bombing London during World War II. I guess one could argue that it worked in the case of Japan, but in contrast to the current situation, the US had the ability to use ground troops if needed.
For Ukraine, it is becoming apparent that Russia’s current approach is not working. Furthermore, the pain is now being incurred by the average citizen as a result of attacks by Ukraine on power systems and petroleum facilities. While one always fears the usage of nuclear weapons, perhaps the most likely outcome is a ceasefire and Putin’s refocusing on other matters.
In the case of Iran, it appears Iran will maintain an ability to enforce a blockage. Ironically, most other countries along Middle East waterways have a similar capability. Perhaps the best outcome is for the US to recognize the difficulty of its current path and recognize its limitations.
If our premise is accurate, there is a major silver lining in the current state of affairs. China has long expressed interest in reunifying Taiwan. Given that Russia has a land border with Ukraine and has been unsuccessful in achieving its military objectives, perhaps there might be a rethinking of approaches in China.
Technology continues to have a major impact on the business and credit environment. This installment aims to provide a framework for possible major shifts for the benefit of sophisticated institutional investors and risk managers.
1. Russian casualty estimate (through 2026): Center for Strategic and International Studies (CSIS).
.jpg){kind=avatar}