Some Thoughts on the Ukraine Crisis

Since Russia’s invasion of Ukraine, I’ve been deluged with the question: “Was this a gray rhino or black swan?” As much as journalists and observers like to ask that question about any big event, I’ve become increasingly reluctant to answer it.

Why? First, gray rhino theory is meant to be forward looking, but people continue to attempt to talk about gray rhinos in hindsight since that’s the ONLY way to see by-definition-unforeseeable black swans. Second, the concept is most useful when people identify for themselves the obvious, probable, impactful gray rhinos that demand a fresh look.

So my response generally is to turn the conversation into the future: What gray rhinos does this new development reveal? Of course, part of my argument is that we shouldn’t wait for crises to recognize how important it is to regularly take a fresh look at obvious threats.

To be sure, the recent history of incursions into Crimea and Georgia, and even more recently the massing of troops encroaching on Ukraine, signalled of a clear and present geo-political danger. Rather than deterring Ukraine from seeking NATO's protection, they gave it even more incentive to do so. What's more, Russia’s recent warning that if Finland and Sweden were to join NATO it would trigger "serious military-political consequences" similarly provides all the more reason for those countries to want the alliance's protection.

Nearly a decade ago, shortly after Putin declared Crimea part of Russia and as Russian troops carried out maneuvers near the Ukrainian border, I happened to be speaking with a leader of a Baltic nation. This person told me that they had foreseen such a scenario as a gray rhino threat in their own country, which was why they joined NATO.

Another part of gray rhino theory is that we should do a better job of holding decision makers accountable for how well they handle obvious, probable threats. Obviously, some of that accountability happens in hindsight, but gray rhinos are not for I-told-you-sos. My point is that it’s hard to call someone out for not dealing with something that nobody talks about ahead of time. That’s a big difference between gray rhinos and the by-definition-unmentioned elephant in the room.

Gray rhinos are risks that some people do talk about, and on which some people do act. The concept is meant to inspire more people to recognize and act on obvious dangers ahead of time instead of looking away.

A forward-looking gray rhino analysis includes the questions: Who are the key stakeholders -who is hurt and who benefits if this risk goes off the rails? Who has the power to do something about it? How are they responding? How well is that response working? And what more needs to be done? These responses create a feedback loop that can make a crisis more or less likely, raising or lowering the stakes.

So, with these questions in mind, what should we be thinking of looking forward? Here are some initial thoughts, with the caveat that the situation is evolving rapidly.

Governments. When it comes to war, it's hard not to think of government actions. The coordinated international response has included some unprecedented steps, like Switzerland setting aside its long-standing neutrality. Earlier today, 141 of the United Nations' 193 member states voted to condemn Russia's invasion (four countries besides Russia-Belarus, North Korea, Eritrea and Syria- opposed and another 35 abstained).

A New Kind of Cyber War. This war is being fought in the cyber and financial domains like no other war in the past, and is a harbinger of the future. The US Fed prohibiting transactions with Russia’s central bank increases pressure on Russian businesses to oppose the war. Crypto-currency exchanges now face a watershed moment: deciding between their libertarian ethos and calls to block Russian transactions.

Tech companies are involved in various ways, fighting malware, blocking disinformation and Russian state ads and posts, de-activating bot accounts, allowing users stronger protections for their accounts, blocking content within Russia, and more. Pressure on tech companies to police political content and disinformation has been growing in recent months, and it appears that this crisis has upped the ante/

Reputational and Political Risk. As businesses assess the risks posed by their relationships with Russia, the list of companies pulling out of Russia continues to grow. The growing ESG movement and the increasing willingness of CEOs and companies to speak out on political and social issues has increased public pressure to do so.

Organizations from Eurovision to FIFA/World Cup Soccer are weighing in by banning Russia from competing. The World Economic Forum notably broke its long-standing tradition of impartiality to condemn the Russian invasion. The Munich Philharmonic fired its star Russian maestro for refusing to condemn the invasion.

Businesses are taking stands in a variety of ways, from Netflix refusing to air Russian propaganda to Elon Musk ensuring that SpaceX’s Starlink satellite supports Internet service in Ukraine. AirBNB has offered 100,000 short-term homes to shelter refugees. Disney and Warner Bros. put upcoming Russian film releases on hold. Mastercard and Visa blocked multiple Russian financial institutions from their payment networks. Daimler Truck Holding, Volvo, Harley-Davidson, and General Motors suspended various business activities in the country.

Shell and BP announced that they would dump their Russian assets as a significant cost; BP's divestment will result in a charge of as much as $25 billion. France’s TotalEnergies did not pledge to divest but said it would stop providing capital for new Russian projects.

Other businesses -particularly banks- are evaluating their financial exposure to Russia.

Are these responses enough to catalyze a ceasefire? That remains to be seen. However, many observers believe that Russia's leadership has been surprised both by Ukraine's forceful defense and the extent of international solidarity.

Energy Transition Countervailing Forces. Soaring energy prices are being driven by likely interruptions in Russian supply, whether from boycotts, sanctions on hard-currency, transactions, or possible cut-offs imposed by Russia. Market behavior suggests that energy prices, which already have been driving inflation, likely will affect the U.S. Federal Reserve's interest rate policy in coming months.

Energy prices also will have two countervailing effects on the transition to clean energy to fight climate change. On one hand, high fossil fuel prices will make clean tech more competitive, increasing consumer interest in the transition. Worries over energy security also will encourage investment in renewables. On the other hand, higher prices may spur more investment in fossil fuels, which would slow the transition. Still, as governments look to tap strategic oil reserves to lower prices, betting on continued high prices could easily go the wrong way.

Any one of these issues deserves a much more in-depth treatment for which there's not space here.

That's not even counting the existential risk of the crisis escalating. Amid worries of a nuclear attack in Ukraine or elsewhere, there are reports of Europeans scrambling to find iodine pills as demand has created shortages, and of schools asking for parents' permission to dose schoolchildren with iodine should it become necessary. That, too, suggests that the possibility of the until-recently-seen-as-unthinkable has now turned into a high enough probability that people not only can imagine, but has prompted them to act to protect themselves as well as they can. Perhaps a Russian nuclear attack was recently an inconceivable black swan, but now it definitely is a gray rhino that people can picture, and whose outcome depends on how everyone responds.

This article is part of my LinkedIn newsletter series, “Around My Mind” – a regular walk through the ideas, events, people, and places that kick my synapses into action, sparking sometimes surprising or counter-intuitive connections. 

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