The word “Geopolitics” is now one of those sexy buzzwords which is in vogue. Made vogue I guess by an uncertain world where numerous wars now prevail, including in Ukraine, the largest war in Europe since WW2.

The dictionary definition would explain the term as politics which crosses border. Foreign affairs, in essence, but I think now interlaced with defence and security policy and markets.

One could perhaps argue that “geopolitics” has been around for thousands of years. If you were an Ancient Briton subject to invasion, subjugation and very often slavery by Ancient Roman armies you might not have realised it but you were at the hard end, the point of the sword, of “geopolitics.”

The sense is that geopolitical risk is more acute these days, but its is hard to look back at the 20th century which experienced two World Wars, the Holocaust, the Korean and Vietnam wars, the Cold War including the Cuban missile crisis and to describe that era as being “quiet” geopolitically.

Maybe the fact that the fall of Communism in 1989 and the collapse of the Soviet Union which ushered in a unipolar world dominated at least for the next twenty years by the US, appeared much safer and secure, at least when viewed from Western Europe - so much so that most West European states spent the peace dividend, cutting defence spending and mothballing or scrapping the many divisions of main battle tanks.

The irony for me of Russia explaining away the invasion of Ukraine by the “threat” from NATO enlargement was actually that that enlargement saw NATO’s military capability and threat to Russia in Europe shrink rapidly - Russia annexed Crimea in 2014, the year after the last U.S. GI was withdrawn from Europe, and the Rhine Army was no more.

Perhaps in the early 21st century there are more moving parts, as Ian Bremner coined it is now a G-zero world (partly as US arrogance in its dominance in the prior unipolar world led it to catastrophic military adventures in Afghanistan and Iraq which cut US dominance down to size) with more global players, including the US, Russia, China, the G7, Global South, et al, and in a much more globally interconnected world geopolitical events now have the ability to impact globally - albeit two “World” wars were hardly regional.

Partly I think geopolitics is back in vogue as big business has got some of the big geopolitical calls wrong in recent years - particularly, Russia, and Putin’s decision to invade Ukraine. Many businesses have ended up with assets stranded in Russia due to sanctions - imposed by both the West and/or Russia. And it has made big business fearful of future geopolitical risks, including a potential Chinese invasion of Taiwan, which could have significant market impact. So getting the big geopolitical calls right is seen as having the potential to deliver improved P&L.

The question I guess is why these businesses got Russia so wrong - see my previous writings on this. Therein I typically hear that it was not logical for Putin to have invaded Ukraine, and investors assumed that he was logical like them. I would disagree, Putin is entirely logical, and as someone who since 2015 had been expecting a defining war between Russia and Ukraine, it was logical to assume that he would invade. He had messaged strongly over many months, including writing a letter to Russian troops in the July before explaining the motive for an invasion.

Many chose not to listen. Perhaps they were too invested, with too much wishful thinking around Russia issues. I would also challenge much of the media, academia and business and even policy circles which were captured by Russian interests, and spouted a narrative to back Russia’s game plan, to distort and confuse. The collective West were idiots when it came to Russia and Putin. The writing was on the wall at least since 2008, it chose to ignore the obvious.

The lesson is do your homework, don’t get lulled into thinking people think the same way as you, kick the tyres constantly, and try and think outside the box wherever you can.

In any event the market is now hot for so-called geopolitical experts, with big banks and corporations busily hiring in ex diplomats and military and security types. But geopolitics is difficult to figure out I think because it is multidisciplinary. It involves foreign affairs, defence and securiy, economics and markets, and perhaps even ESG. Few people combine all these skills. I have met numerous security types who get all hyped up about some war related risks but then they appear blank faced when I ask them well what is likely to be the market impact, and is that risk already priced in?

There is a temptation just to think the world is just a crazily risky place, abound with geopolitical shoes dropping or about to drop - “we are doomed” - and to sit paralysed as a result. It is important then to separate the wood from the trees.

Actually when I survey the current political landscape, it is actually not all doom and gloom.

The war in Ukraine has been brutal, with likely hundreds of thousands of casualties now on both sides, and hundreds of billions, if not trillions, of dollars in damage. But from a Western interests persepective we have to thankful that some of the dire worst case outcomes have not actually transpired.

First, Russia has not prevailed in the war, yet. Putin’s initial plan to take and subjugate the whole of Ukraine has not succeeded - and largely thanks to the incredible bravery of Ukrainians. Imagine if Putin’s initial invasion plans had succeeded, then Russian tanks would be back on the borders of Poland, and threatening further incursions into Europe, into the Baltic states, and elsewhere. Western Europe would be vulnerable to further invasion by Russian forces and Western defence spending would have to rocket - to multiples of the current 2% of GDP target.

Second, not only has the full scale invasion failed, but Russia has got itself bogged down now in a long war of attrition in Ukraine, and has seen a huge weight of its conventional military destroyed. Literally thousands of Russian tanks and APCs have been destroyed, and Russia’s Black Sea fleet has been rendered largely ineffective, and harboured now to safe ports on the eastern shores of the Black Sea. Russia seems to have no easy path to victory here.

Sure it can break some Ukrainian defensive lines but how can it take and hold a huge country like Ukraine which now so obviously is so opposed to Russian occupation. Any Russian occupation would be hugely costly in blood and treasure, and would likely take decades to finally subjugate Ukraine - and would what be left be worth the effort? Likely in this scenario tens of Ukrainians would merely move West.

The irony of Trump and those in the GOP, Viktor Orban, et al calling for Western support for Ukraine to be curtailed, is that this support, financing and munitions has perhaps been the best bang for buck Western investment in its defence since the end of the Second World War . For a fraction of NATO’s defence spending - literally less than 10% of the annual budget - Ukraine has degraded around half of Russia’s conventional military capability. And for no risk to NATO troops - no U.S. boots on the ground.

GOP politicians must indeed be idiots, as most of the current $61 billion of Ukraine funding, currently stalled in the US Congress, would be spent on US made military kit.

Third, new life has been breathed into NATO and the Western alliance. In the months leading up to Putin’s invasion French President Macron now famously described NATO as brain dead, with no purpose. Well Putin has given NATO purpose, focusing back on what it was first created to do, to defend Europe against the threat of invasion from Moscow. And NATO, the EU and G7 and the broader Western alliance have shown remarkable unity in response to the threat. We now have a coordinated Ramstein process for providing military support to Ukraine.

Europe, in coordination with the US, has passed, and unanimously supported 12 sanctions packages against Russia, with a 13th to come. The Western alliance has now provided close to $200bn in financing to Ukraine, that is equivalent to Ukraine’s pre war GDP. NATO is now better working on coordinated arms and munitions production. And NATO has welcomed Finland as a new member, and likely soon Sweden. Both the latter two countries were ardently in the neutral camp before Putin’s invasion of Ukraine but both now see NATO membership as essential to their own, and Europe’s, security. They both bring significant military capability to the table, adding to that of existing NATO members.

Fourth, Russian military kit has signficantly underperformed expectations in Ukraine. Very often Ukraine has been equipped with second generation NATO kit, but it has been able to stop and beat third or fourth generation Russian kit. The myth of Russian military technology as being on par, and cheaper, to NATO variants has been broken. The impact will be to cut  Russian arms sales globally and to reduce Russia’s soft power geopolitical reach. NATO military kit has been proven to be so militarily superior that regional powers, such as Turkey, Saudi Arabia, Pakistan, India, etc al will no longer have advantage in playing Russia off against the est when it comes to weapons purchases. If they want to maintain military superiority against their own rivals they will need access to obviously technologically superior Western kit. This will ensure diplomatic wins for NATO.

Perhaps we have already seen this in Turkey where the Erdogan administration had dallied with buying Russian military kit over NATO (S400s over Patriots) but in recent months Ankara’s drive to secure F16 upgrades has gone into overdrive and secured concessions for NATO, for example, over Sweden’s NATO membership. Russian fighter jets are not even considered a worthy alternative for Turkey to F16s - whereas they were before Russia’s failed invasion of Ukraine.

Fifth, many feared Putin’s invasion of Ukraine, and the West’s subsequent backing and arming of Ukraine, as risking a direct NATO - Russia war, even the possibility of Russia using WMD against Ukraine. Neither has happened. And there I think we have learned a few things about Putin. a) That he is frightened of NATO, and a direct war therein which I think he knows he would lose; b) That Putin does not have escalation dominance and because of the prior point, his fear of NATO, he has not been willing to use WMD against Ukraine. One might also argue therein that Putin has not used WMD because China has constrained him - China therein being worried over the global market impact of WMD’s use in Ukraine. Perhaps.

Sixth, there has not been a European energy crisis, as had appeared likely in the months running up and immediately after the Russian invasion of Ukraine. Yes, energy prices pushed higher initially, with oil pushing to well over $100 a barrel in mid 2022. But higher prices, and markets, have worked, cutting demand, and forcing energy efficiency and diversification. Energy prices are back to pre war lows.

And remember here that many argued that the West only got thru the 2022/23 winter because of clement weather and that the crunch would come in 2023/24, but that is not happening. Indeed, it has shown the resilience of the West. Europe almost immediately cut off much of the annual EUR50bn gas imports from Russia, finding alternative suppliers, and losing this business for Russia permanently. This business is not coming back, and Russia cannot divert the 160bcm annual gas exports to Europe, that easily to China.

Seventh, and related, the war and then Western sanctions response has still underlined the economic power and muscle of the Western alliance, with a combined GDP of over $40 trillion, twenty five times that of Russia. The Global South complains often about Western sanctions but in reality few countries, apart from obvious international pariahs like Iran and North Korea, actively work to circumvent them. When OFAC comes knocking countries, globally, fall into line, even China, because ultimately it values the economic relationship with the Western world more than its “partnership with no limits” with Russia. There are clearly limits to that relationship as now demonstrated through the war in Ukraine.

Eighth, and worthy of a point in its own right, China has not wholeheartedly backed Russia. It has not provided significant munitions and military support, as reflected in the fact that Russia has had to resort to securing such supplies from Iran and North Korea. China ultimately cares more about its bilateral relationship with the U.S., which is central to its own economic well being and I guess its assumption that only though globalisation and its economic ties to the West will China secure economic, and then, military hegemony over the U.S.

China has not, as some, had predicted, used the over of the war in Ukraine to invade Taiwan. Note back in 2022 some argued that this was part of some joint plan by Moscow and Beijing - after the Winter Olympics, Russia would take Ukraine, and China Taiwan.

Actually I would argue that because of Russia’s failing war in Ukraine, the chances of a Chinese invasion of Taiwan has reduced. Because what is the conclusion now from Russia’s failed invasion of Ukraine, and similar US failings in Iraq and Afghanistan? Countries should avoid getting dragged into wars that they might not win. And surely the Chinese military must conclude from the failings of Russian military kit - similar to Chinese - that they are less likely to secure a speedy win in any invasion of Taiwan.

And recent months have appeared to show a warming in US - China relations. I think there both sides see advantages. China has been eager not to inflame relations with the U.S., by going out of its way to support Russia. And the US has appreciated the fact that China has not done exactly that, it has not gone out of its way to back Russia. This has seen improvements in the relationship when compared to the low point reached perhaps around the time of the Anchorage summit.

Net net though, I would argue that because of the war in Ukraine, US - China relations are better, and the chances of a Chinese invasion of Taiwan are lower - that implies geopolitical risks are also lower.

Ninth, Russian difficulties in Ukraine, and Putin’s obsession with Ukraine has seen Russia’s grip on the broader near abroad weaken. This has allowed countries in Central Asia and Transcaucasia to run more independent policies and seen other global and regional powers fill the void left by Russia. Examples therein are obviously China and Turkey. This has already opened the prospect of resolution to some of the long standing regional conflicts which arguably, were held in statis by Russia - including therein in NK.

Tenth, the Prigozhin affair in Russia just underlines that Putin is not untouchable at home. No one saw the Prigohizhin mutiny coming, and few it’s eventual demise. But similarly no one can predict whether or not a similar uprising could happen in the future. But the longer the war goes on, the greater the military, human and economic cost to Russia and Russians. I would not rule out a rerun of the Prigozhin affair and the early demise of Putin.

Don’t bet on it, but don’t rule it out either. But before the failed invasion of Ukraine, Putin appeared untouchable. Now we know he is not. He is vulnerable which is why I still think there is a window for some kind of peace process. Because the longer the war goes on the greater the risks to Putin, while neither the West nor Ukraine is going to rollover easily, because they cannot given the proven existential threat from Putin.

What about the Middle East? Surely events in Gaza suggest a wider regional war is inevitable.

Actually I would also take the other side of that.

First, let’s be clear what we mean by escalation - we mean an escalation to a direct US - Iran war. And on that note I think the risks are low, at least during a Biden presidency. Biden for his part needs lower energy prices as he goes into difficult elections, and confrontation with Iran would deliver the opposite. Even for Iran, the leadership there recently faced significant social and politician unrest, which they seem to have sought not to diffuse by looking for economic development - hence the reapproachment recently with Saudi Arabia. A war with the US would put at risk the prospects of an improvement in the economic outlook.

The Iran - Saudi reproachment, brokered by China also suggests a broader desire for containment from regional players like Saudi Arabia and the UAE. They all all focused on their various Visions, and they need peace, security and stability in the region to ensure the tourism/trade/transit flows. The improved Iran - Saudi relationship suggests Iran will constrain their proxies, the Houthis, from following the past script of hitting Saudi oil sector assets. What we have seen instead is very selective Houthis attacks on Israeli and Western interests. The irony now though of the West asking for Chinese assistance in securing Red Sea supply routes - see above for opportunities to improve US - China relations.

What about risks of an Israeli - Hezbollah war in southern Lebanon?

I can see the logic there from a far right Israeli or Netanyahu perspective - it would risk bringing the US in alongside Israel to finally solve the Hezbollah problem or even the Iranian problem, with US support then to bomb Iranian nuclear facilities. It appears though that Iran and Hezbollah are mindful of the escalation risks there and have been very careful to calibrate any retaliation against preemptive Israeli attacks to limit the threat of a wider war. The danger there is that Israeli might think it hence has a free hit against Hezbollah, and even into Iran, which might test to the limit the patience of Hezbollah and Iran.

But Hezbollah arguably likes the status quo in Lebanon and I think will be careful not to do anything to risk ultimate US intervention. And I think Iran will be calling for max constraint therein. Hopefully the US has back channels to the Iranian leadership - perhaps therein the recent visit of the President of Iran to Ankara might have been an opportunity. Turkey backing Sweden’s NATO bid, and agreement over F16 supplies to Turkey rewards the facilitators.

The big risk here is the unstable political setting in Israel itself - just how desperate Netanyahu and the far right in Israel is to stay in power? And does Biden really understand the Middle East dynamic?

Let’s hope there is some better undemanding in the White House as compared to the period earlier last year when Jake Sullivan was hailing the period of relative peace in the Middle East.

What about all the elections looming globally - reason to be worried?

Well two elections over the past year have produced potential for positive outcomes. In Turkey Erdogan’s re-election last May brought an economic policy 180 and ensured Turkey was the top performer in 2023 in the JPM Global Diversified Sovereign Index. Who would have bet that one year ago? In Argentina also Milieu’s election appears to have given hope that core fundamental economic issues will be resolved, and asset prices have responded positively.

The UK election is looming and hopefully these should see a strong new government emerge which can finally reset relations with Europe in a positive direction. In my mind Sunak has zero chance of winning and the Tories face electoral annihilation. The question then is what happens to the right wing voters in the U.K., I can see the Tory party splitting and new and extremist right wing parties emerging and perhaps even prospering.

The plus of the UK political system has been that it gives limited opportunity for extremist parties - albeit you could argue the Tories have moved in that direction in recent years and Brexit, unfortunately is the ultimate product of that. But I think in terms of party politics the risk of the rise of extreme far right parties (MUCK - making the UK Great Again?) in the U.K. might have to await the election but next. A lot can happen before then.

Elections in South Africa could well secure another term for the reform minded Cyril Ramaphosa. Even the worst case scenario there is a grand coalition between the ANC and the EFF could ultimately shake up the whole political establishment perhaps hailing in a more reform minded coalition government ultimately. The path to a worst case EFF dominated coalition seems very slim though.

Elections in Pakistan will be closely watched but with Imran Khan sidelined, they are expected to go smoothly, in something of a rerun of elections in Egypt, with the military controlling the political narrative in both countries - not necessarily for the better, I would add, but at least in favour of short term stability.

The elephant in the room, I guess quite literally with the GOP, are US elections and the real possibility that Trump wins a second term. This would be seismic for sure, with massive questions then as to the durability of democracy and the rule of law in the US, and the very stability of the Union itself with potential for centrifugal forces to be fed. States being set against States. The collapse of the Union. Far fetched? Not sure. Who expected the collapse of the USSR in 1991 into 15 new states?

Actually likely I am more worried about the outlook for US domestic politics than its impact on foreign affairs as there are perhaps some guiderails when it comes to foreign affairs, and Trump’s own ego and desire to do the big deals with China, et al will act as something of an anchor, perhaps with the exception of Iran and the Middle East.

On China, Trump likely will be more dovish than the rest of his team, and the GOP in general. China might look to assuage Trump’s ultimate ego by offering the trade deal of the century with much better trade access for US companies than hitherto offered. Arguably this has been the direction of travel already under the warming seen between Biden and Xi.

On Russia, Trump will also find himself pegged in somewhat by the still majority of hawks on Russia in the GOP, and Congress more generally. He can try and sell Ukraine down the river, by rolling over to Putin, but I think ultimately the interests of the US defence sector, and big buck spending therein on Ukraine armaments in GOP constituencies will count.

Imagine therein also if Ukraine secures $300bn plus in confiscated Russian assets and commits a large portion of this on defence spending in the US. How can Trump say no to that? And ultimately, as noted above, Trump cannot snap his fingers and stop Ukrainians from fighting - they have no alternative, as to a battle for survival.

Understanding that Trump has little affinity for Europe or NATO, Europe in any event will continue to step up defence spending to shoulder more of its own defence and security burden. I still doubt that Trump will follow thru with his threat to depart NATO as Europe remains a lucrative market for the US defence industry and a U.S. exit from NATO would surely undermine that business. Trump will likely continue to talk loud in the issue, but doing nothing substantive in reality.

The choice of the next NATO general secretary will be interesting. Dutch prime minister, Rutte, seems to be in the driving seat therein and I think has a decent track record of using his considerable charm on Trump. Rutte and Trump seem to have a good relationship which should help anchor the relationship still, to a degree.

Policy towards Iran likely will be more challenging as I just cannot see culturally Trump wanting to sit down with the Ayatollahs. Also, given the dominance of the religious right in the US, and dominant establishment support for Israel I actually worry whether Trump will be able to constrain Israel from ultimately pushing for a defining war with Iran, which would then drag in the US.

So lots of noise in the geopolitics front, as ever, but also some room for cautious optimism on a few fronts, Trump willing. And Trump is now the biggest global geopolitical risk - so it was interesting here US policy types talking about Trump proofing US policy to ensure future stability. Remarkable to think that the biggest risk to global security is now a former/future US POTUS.

The analysis and commentary article by Timothy Ash is distributed by
the U.S.-Ukraine Business Council is for information purposes only.