The Arkin Group

January 27, 2023

Sanctions, tanks, and other measures to limit Russia’s influence. The Kremlin-aligned Wagner Group mercenary outfit has been nothing but a menace for the past decade, but its shameless recruitment of thousands of prisoners to fight against Ukraine has put a spotlight on the scale and methods of the group. It’s just business as usual, however, for Russian businessman Yevgeny Prigozhin, who finally decided to come clean on his association as the Wagner boss back in September. Notably, Prigozhin had previously sued a UK journalist for making the association.

The Wagner Group has had a long, detrimental impact on Eastern Ukraine. Most recently, the mercenary force has been at the forefront of efforts to capture Soledar and Bakhmut, and it’s seemingly met with more success than official Russian-state fighters. On Wednesday, Kyiv officials confirmed that Ukrainian forces had retreated from Soledar and pulled back to their previous defensive positions in what’s being viewed as a moderate but also symbolic victory for Putin. It’s also true, however, that a significant number of Wagner fighters were killed in the process.

On Thursday, Washington expanded its financial war against Russia, formally labelling the Wagner Group a “transnational criminal organization” and unleashing a new slew of sanctions against the mercenary force. US Treasury Secretary Janet Yellen remarked that “Today’s expanded sanctions on Wagner, as well as new sanctions on their associates and other companies enabling the Russian military complex, will further impede Putin’s ability to arm and equip his war machine.”

It makes sense to hit Wagner at its financial heart, because when Prigozhin shows up, there’s a good chance that there’s a business incentive behind it. In the Donbas, it’s likely that Prigozhin wants to reap the economic rewards of the region’s salt and gypsum mines, in addition to raising his clout within the Russian political establishment. Sanctions will be one way for the United States to attack him at the jugular, but many of the places and people he relies on for support aren’t going to comply with them.

Indeed, these financial weapons need to be complemented by tactical ones, and this week the United States and Germany both finally decided to provide Ukraine with heavy tanks – Abrams and Leopards respectively. In response, Putin unleashed a fierce barrage of Russian missiles and stated that the weapons transfers will count as “direct involvement” in the war and that red lines were now a thing of the past. There are also UK intelligence reports suggesting that a Belarusian front could open soon, and that Russian troops will continue to flow, however ill-trained and disenfranchised they may be.

Ukraine remains strong in its resolve to intensify its defenses, and with the eventual help of these tanks it could move the battle lines back towards Russia. But right now, it’s winter and the Russians want to wear-down Ukrainians by keeping them in the dark, biting cold without steady sources of heat and power. The corruption crackdown this week further underscores both the dynamism and the strategic reflection of the Ukrainian leadership that understands it needs to keep troop morale high and lay the groundwork for a post-war Ukraine that sets it on the path to European Union membership.

If Ukraine can stay the course, strategically Russia will continue to flounder. The longer-term effects of sanctions and Russian energy embargo will also increase pressure on the Kremlin. Further, we’re already seeing signs that Washington is working on developing political alliances and fostering good will with some of Putin’s more traditional but malleable international allies.

Europe’s Global Gateway seeks to challenge China’s Belt and Road Initiative- and the time is finally ripe. While China isn’t losing power as quickly as the Western media would like to portray, there are a couple of notable developments indicating that Beijing will face not only domestic pressures but international competition. For the past decade, China has been funding global infrastructure development projects via its Belt and Road Initiative (BRI), but the cracks in the system are rapidly expanding. The BRI adopted a high-risk but potentially high-reward strategy: focus on less-developed countries and regions and offer them large loans and services.

BRI financial contracts have been managed by state-owned Chinese banks, and you could often see Chinese workers conducting most of the physical work. This arrangement came with its own set of political, environmental and security concerns at the local level. Tensions have been particularly high in places like Pakistan where certain nationalist groups have previously physically attacked Chinese workers, and where citizens continue to protest the Chinese interference in their livelihoods- raising concerns both about Pakistani government response to the protestors and the viability of the projects.

It’s unclear how much China was ever expecting to be repaid for their loans or efforts, but the past two years of global economic turmoil have certainly not been conducive for repayments. The original thought was that if the projects weren’t paid for, they’d become Chinese property. And based on the type of projects that China supported, you could see that they were angling for eventual ownership- even without adequately considering how they’d handle pushback from the local communities. This is particularly true in regions where China was trying to secure extractive commodities.

But the extent of the money now owed to China from BRI defaulters is so large that it’s thrown the nation into a rather dire financial situation. This is further amplified by inability of domestic Chinese businesses like Evergrande to repay their loans to the state banks. Earlier this week, US Treasury Secretary Janet Yellen was in Zambia where she called China a “barrier” to debt reform. She clearly touched a nerve, and the Chinese Embassy in Zambia immediately snapped back, stating that Washington should get its own house in order.

Washington is making a concerted effort to be more strategic about Africa and mitigate the nefarious influence of China and Russia in the region, but the EU also recognizes that now is a favorable moment to assert itself. The EU Global Gateway initiative, which last year promised to mobilize EUR 300 billion by 2027 for infrastructure projects outside of the EU, appears to have been injected with new momentum. To start, the Global Gateway is likely to focus on a dam and hydroelectric plant in Cameroon, and a submarine optical fiber cable to connect the Mediterranean and Northern Africa.

The EU will hope to differentiate itself from the BRI through transparency and a “values-based” offer, reflecting European environmental and social standards where China had none. However, critics complain that the scale of the EU offerings pales in comparison to that of China, and that it’s just foreign aid in new packaging. Still, it’s notable that, in addition to its efforts in Africa, the EU is also expected to challenge Beijing closer to home. According to media reports, these could include an energy transition partnership with Indonesia, collaboration on digital connectivity with the Philippines, and alternate energy projects in Central Asia.

The EU is expected to finalize its Global Gateway project list in early February, and it could not come at a more necessary and opportune time.

January 19, 2023

The risk assessment on providing Ukraine with heavy weapons has rightfully shifted. When Russia first invaded Ukraine almost a year ago, no one was exactly sure how the war was going to play out. Most analysts agreed that Ukraine would put up a strong fight, but few grasped the high-level competency and devotion of Ukrainian forces, and Russia’s inability to launch a quick and efficient military campaign. While NATO did immediately and effectively rally around the Ukrainian cause, since then there have been ongoing debates about the amount and type of weapons that the West should provide to Ukrainian forces.

The main concern has been that Western military aid could shift Putin’s calculus to the detriment of either the Ukrainians, NATO members, or both. Russia could escalate, retaliate, or grow desperate enough to consider using nuclear weapons in response to the influx of Western weapons. Because of this lingering, if unlikely, threat, Washington and allies have continued to calibrate weapons transfers – albeit somewhat more aggressively.

In addition, Ukraine’s military needs have shifted over the course of the war. Early on, to protect Kyiv, Javelin and Stinger missiles were of great necessity, while more recently, longer-range weapons became relevant to the battlefield further east. The Patriot missile defense system remains of high importance to Ukraine’s defense, and both sides are also burning up shells at rapid clip.

This week, speaking via video message on the sidelines of Davos, President Zelenskyy expressed frustration at a “lack of specific weaponry”, noting that winning the war takes more than motivation and morale. Ukraine is asking for heavy tanks, but the West has remained cautious of providing them. Germany is especially under pressure to deliver some tanks but wants to make sure that it doesn’t have a large target on its back from being the only nation to provide them. US Secretary of Defense Austin is in Europe and is expected to discuss the tank issue later this week, and NATO members will also be weighing the risks and viability of such military aid.

Washington has been gauging its support to Ukraine as the fight has evolved, but so far Putin’s main response to the weapons transfers has been a shift in his messaging to the Russian public, not his battlefield technique. For several months now, Russia has asserted that by sending substantial weapons to Ukraine, NATO is fighting a proxy war. This line has played into Putin’s false but insidious narrative that the West’s entire raison d’etre is to make Russia disappear.

Just this week, Russian Foreign Minister Lavrov likened the US approach to Russia to that of the Nazis to Jews during the Holocaust. This outlandish and offensive statement demonstrates just how much the Kremlin is struggling to convince Russian citizens that their nation is under existential threat– and that without a victory in Ukraine they will be wiped off the map. The force of this fictious narrative, combined with Putin’s total disregard for human life and the number of bodies he’s willing to sacrifice, makes the Russians an enduring threat. Without the heavier weapons that could shift the Russian calculus, it feels like this battle could be interminable.

Among Ukraine’s supporters, there have been arguments that the Ukrainians won’t know how to use the heavy Western weaponry, which has been mostly disproven, or that there will be problems repairing the equipment, which could be a concern. But the issue really is about how the heavier weapons will help shift Ukraine from a defensive to an offensive position. When Russia invaded Crimea in 2014, our response was weak and established a dangerous precedent for the global democratic order. This time, our response has been much stronger, but we’re at the point now where there’s an opportunity to do more.

This all comes in the backdrop of global economic instability, and while Washington just approved a new $2.5 billion military aid package, concerns remain about sustaining this kind of expenditure long term. But as Zelenskyy remarked in his speech to the US Congress, it’s an investment, not charity. The sooner we can give the Ukrainians what they need to push back the Russians, the better it will be for us all.

Lula’s holding firm to his leadership and agenda, but the road looks rocky. On January 8, thousands of Brazilians launched an insurrection where the Brazilian security forces were either unable or unwilling to contain the violence. After former Brazilian President Bolsonaro lost to Lula in a tight election last fall, many Bolsonaro supporters started camping out in protest next to the military barracks in Brasilia. But the protestors became violent soon after Lula assumed office, and the insurrection has led many in Brazil to question if the nation’s democratic foundation remains solid.

Brazilian security forces are now under scrutiny, and recently Lula announced that there were many “colluding agents” in the insurrection- particularly from the Military Police and Armed Forces. Indeed, there are indications that military support of the insurrection was more widespread than initially believed. Investigative findings have demonstrated that many military members, who were often friends or family members with the protestors, offered legitimacy and protection to the perpetrators of January 8.

Lula has been taking active measures to dismiss members of the military who were seconded to staff a variety of offices within the Presidential Palace and replacing them with civilians. He’s also punishing associated officials: Anderson Torres, who had served as Bolsonaro’s Minister of Justice and was serving as Secretary of Justice for the Federal District under Lula, was arrested and the Governor of Brasilia has been suspended for negligence in managing public safety.

So far, Lula seems to either have enough support within the military or there isn’t an appetite to take further action against him. But the episode could be a harbinger of growing political instability. The trajectory of the peaceful protests-to-insurrection also raises the critical question of how political protest turns into violent conspiracy, and at what point should the government intervene. Further, it highlights concerns about stability in greater Latin America, and underlines how critical it is for international leaders to publicly affirm the legitimacy of democratically elected candidates worldwide.

A view from Abroad
Once a month, In Other News features a short op-ed heavily informed by the European perspective. We hope that these special monthly pieces will offer our readers an enriched understanding of global events and allow for a more robust international risk calculus.

Economic security and strategic autonomy should unite the EU and Washington, not divide us. There’s an active European conversation happening right now regarding economics, trade, and investment, and it’s closely linked to broader debates about the future of European security. The pandemic, Russian attack on Ukraine, and increase of China’s international assertiveness, have all collided to compel the EU member states to enhance their economic security and re-envision strategic autonomy. But while the concepts of economic security and strategic autonomy partially overlap and are often used interchangeably in the current European political discourse, EU policy decisions and relations with the United States will be strengthened if they’re treated as distinct goals.

Economic security can be defined as protecting the most important activities in the economy, like defending technological innovations, securing novel research from intellectual espionage, making supply chains more robust, countering cyber threats, and scrutinizing foreign takeovers in strategic sectors. On most of these dimensions, EU member states are up to speed and have taken many concrete steps to make improvements throughout the past year.

Strategic autonomy, however, focuses more on reducing external dependencies of European governments, companies, and societies. To make this happen, Europe needs to be able produce its own strategic goods and should maintain adequate supplies. This is a greater challenge, but one that can be met with increased economic alliances. The immediate need for strategic autonomy has led to intense discussions among EU member states, and Brussels has now broadened the concept to an “open” strategic autonomy, presenting an opportunity for enhanced collaboration with the United States.

While the EU is rightly working on a plan to increase its strategic autonomy, there are some structural obstacles that need to be overcome so that outside allies can be included. The draft European Chips Act that aims to strengthen the European semiconductor industry is promising, but further operationalization, like in the ‘trusted cloud’ initiative, quantum tech and Artificial Intelligence, remains a challenge. Advancements in these areas are stymied by the division of competencies between the EU in Brussels and its member states, which is more convoluted than in the economic security domain.

Further, while European discussions on strategic autonomy mirror those of Washington, the allies’ strategies aren’t always aligned to an optimal degree. For example, the US Inflation Reduction Act (IRA) has real economic implications for Europe and comes at an important moment. But the EU isn’t exactly sure how it will be impacted by the package, and it’s scrambling to secure its position.

European Council President Michel has called for a special session in mid-February to discuss how the IRA will impact the European economy and ensure, among other goals, that European companies get exemptions from the IRA, like companies in Canada and Mexico do. Michel has also requested that the European Commission prepare a package of instruments to support the competitiveness of European business, indicating concern about the potential of the IRA to distort fair competition.

Trade conflicts and competition fears among Western democracies, especially pertaining to their relations with China, threaten the kind of global security we need moving forward. The United States is understandably working to protect its competitive position by limiting the export of advanced technology to China, controlling foreign takeovers, and better promoting its economic interests like with semiconductors and clean technology. But to prevent a subsidy war, this calls for a form of cooperation between the EU and the Washington that’s greater than the current agreement to inform each other– especially on the financing side.

While NATO has proven an excellent forum for allied dialogue and joint decision making on foreign policy and defense issues, an equivalent forum in the economic sphere is lacking. Modernization, reform and revitalization of the World Trade Organization, expansion of the EU-US Trade and Technology Council and more frequent G7 meetings could help address this gap. Memories of Cocom which regulated strategic exports to the Warsaw Pact countries during the Cold War springs to mind as the kind of innovative policy thinking that the current circumstances demand.

Indeed, China and Russia would only profit from disagreement, competition or even conflict between the established democracies of the world on the economic front. And there’s no better time for enhanced economic cooperation between the EU and Washington. With better coordination, based on agreed international rules on trade, the West and allies can make sure not to play into the hand of autocratic competitors.

As we head into 2023, it’s a good a moment to acknowledge that the world is in the thick of a significant geopolitical shift, and many key drivers of our collective future are in flux. Having a comprehensive understanding of what is at stake, and what levers for action exist, will be essential for strategic decision-making in the coming year. Below, The Arkin Group shares some of the central geopolitical themes to consider while navigating the new and evolving world order.

Putin Will Persist, But Ukraine Will Continue to Prevail
As Russia continues its relentless winter assault on Ukraine, Putin must also manage an increasingly disenfranchised, underequipped and untrained military force, as well as an economy under pressure from enduring sanctions. And if we learned anything in 2022, it’s that while Putin is still hoping for a victory, Ukrainian resilience is an indomitable force. NATO, its member states, and its allies are all working to supply Kyiv with ever more sophisticated weaponry to resist and reclaim lost territory. Many see the makings of a stalemate, likening Eastern Ukraine to the 37th parallel, but the forces working against Putin both on the battlefield and the domestic front will eventually erode Russian resolve and capability to continue in Ukraine. The recent offers for peace negotiations are a tacit acknowledgement that Russia has no real options other than to continue the war. Though that doesn’t mean that Putin won’t persist to his continued detriment.

The Stability of the Global Order is at Play on the Front Lines in Ukraine.
Russia’s invasion has had a global inflationary effect as energy and food prices soar, supply chains are disrupted, and instability disrupts the global economic recovery from the pandemic. But even more critically, whether Putin is able to successfully invade and occupy an independent, sovereign country will have lasting impact on the legitimacy and strength on the global international order. If Ukraine is usurped, what next for the Baltic States and Poland? And what fate for Taiwan? There are countless lingering territorial disputes that could explode into conflict if countries believe that they will not be held to account for violating a longstanding international norm for the respect of territorial integrity.

The Russian invasion of Ukraine also rightly prompted a rapid acceleration to advance alternative energy not only for environmental but security purposes. Concurrent to this development, we have made a critical advancement in nuclear fusion technology. These developments have laid out a clear path to a carbon-free future. Still, the intermediary resurgence of coal as a stopgap solution to a shortage of Russian supply as well as ever-increasing reports of severe weather, flooding, and water scarcity underscore the fact that we need to work faster.

Russia and China’s Autocratic Missteps have created a real opportunity for the West and Democratic Allies.
NATO’s renewed sense of purpose and commitment to investing in our common security will be a lasting and welcome trend from 2022. Putin’s blunder, along with China’s continual and repeated missteps in handling Covid-19, have shown the world how the even purportedly efficiently run autocracies are inherently sclerotic. Information flows are greatly impacted by fears of reprisal for speaking truth to power. The healthy debate that is critical for decision making in matters of national security and crisis management are impossible in societies where there is absolute control in one decision maker. This summer, Xi cemented his hold on power for the foreseeable future echoing Putin’s deft maneuverings a decade hence making us nostalgic for the erstwhile decision-making bodies of the Soviet Politburo and the previous iterations of the People’s Party’s Congress, which were more stable and predictable because there was more than one set of opinions. Turkey’s Erdogan and Saudi Arabia’s MBS should take note.

The rest of the world – the Global South in particular — is looking for leadership and alternatives to the offerings of these autocracies. The change in global dynamics have opened a variety of opportunities to the West whether it be the U.S. leveraging China’s faltering Belt and Road initiative to make overtures to Africa and the Global South more generally, or the recognized importance for businesses to divest or at the very least diversify their supply chain away from China. The West needs to continue to seek our diplomatic and economic partnerships with countries in Africa and Latin Africa, which are considered critical suppliers of key minerals and rare earths, to counter China’s decades-long courting. If viable economic and political opportunities can be provided to countries like Cambodia, Vietnam, Indonesia, Malaysia and elsewhere as companies look for alternative production sites to China, and the U.S. seeks to create a security corridor in South China Sea, then more global consensus will emerge for this new path.

Good Governance is a Matter of Global Security
And if the world needed more examples of the nefarious effects of undemocratic societies, the tragic and heartbreaking stories (often away from the headlines) from Afghanistan and Iran show how dangerous autocratic rule can be, especially to women. It also demonstrates how inherently unstable these societies are. Another challenge was highlighted by Qatar’s skillful manipulation of FIFA and now the emergent scandal of its influence campaign targeting the European Parliament – but this was just the most recent and flagrant display of the greatest vulnerabilities in our open society. The revelations of the Panama Papers, the Paradise Papers and the Pandora Papers – in addition to the raft of sanctions against Russia and Putin’s Oligarchs – have made compliance a real challenge to global corporations as we realize how dirty money penetrates the whole of our global economic system. Mitigating corruption is essential to managing the emergent reality of enormous wealth inequality across the whole of the global economy, and to ensuring security and the rule of law so that individuals and corporations have recourse to justice.

Good Corporate Tech Governance is a Matter of Global Security
Microsoft and StarLink have delivered extraordinary and definitive support to the war in Ukraine. When Elon Musk tweeted the outlines of Putin’s peace agreement suggesting it was a reasonable path, it affected the debate and demonstrated how tech billionaires are now overtly influencing both climate policy and foreign policy. The fallout from the egregious scandals of FTX, Nikola Motors, and Theranos have resulted in billions of investor losses. These events — along with our growing awareness that Facebook can be an effective disinformation tool for election interference and TikTok a deleterious tool for our collection ability to concentrate as well as a huge threat to privacy– added to our understanding of the inherent perils imbedded in the growing influence of tech firms. These tech companies now have a level of influence on par with certain countries or certain international institutions, and it is a troubling thing to posit that our security, election integrity, and enduring privacy and freedom are dependent on the whims of these entities.

Good Intelligence is Critical
If there is one overarching lesson to take from 2022 into 2023, it’s that nothing can be done without good information and analysis. It was the excellent U.S. intelligence that foretold the Russian invasion and allowed Kyiv and the West to organize. But it was also our overestimation of the Russian capability and underestimation of the Ukrainian capacity for resistance that complicated our readiness. On the other hand, Russia completely botched its assessment of Ukrainian opposition to the invasion and misread Western commitment to Ukrainian security. Yet another example to highlight is that, as we head into a third year of complications from the covid pandemic, visibility into China remains limited. Because press coverage is stifled and even the local provincial governments are incentivized to only report what the central government wants to hear, reliable sources are scarce and unbiased assessments even more scant.

To make calculated decisions in the coming year, it’s necessary to understand the entrenched effects of China’s Belt and Road initiative and the Wagner Group’s actions in Africa, which can only be acquired through local collection and sound regional expertise. Another area of strategic ambiguity is that there appears to be yet another Pink-ish or Leftist Tide moving across Latin America, with the shifts in leadership in Brazil, Argentina, Brazil, Chile, Mexico, Uruguay, and Peru, but political stability seems generally more tenuous as governments grapple with crippling economic pressures.

Navigating this rapidly evolving environment means understanding what’s really going on, perhaps even in some cases on a street-by-street level. There is real volatility in the world today and the evolution of the varying dynamics that will drive these geopolitical realities is rapid and often counterintuitive. First and foremost, good intelligence will allow governments and companies to effectively traverse these uncertain waters. In the private sector in particular, corporations need to invest heavily in their capability to collect and understand intelligence that will provide them with the wherewithal to make critical strategic decisions.