February 27, 2022 10:38am
US CHAMBER OUTLOOK: IMPLICATIONS OF RUSSIA’S INVASION OF UKRAINE
This information appeared in a US Chamber newsletter on Friday, February 23, 2022.
“International order is like oxygen—we don’t notice it until it’s not there.” – Dr. Richard Haass
Russia’s unprovoked war
What we are witnessing in Eastern Europe is a clear violation of Ukraine’s sovereignty and territorial integrity. It is a serious breach of international law. As business leaders who value free enterprise and as proponents of democracy, we should all be concerned.
Why it matters: For those in Ukraine, it is a direct threat to their freedom, their national identity, and their lives. For businesses operating around the world, it is yet another driver of uncertainty and instability.
Big picture: The Chamber believes in a world where democratic countries, following the rule of law and the free enterprise system, can be free and prosper. Right now, all face growing threats.
We stand with Ukraine, and we support the U.S. government and our allies taking swift and meaningful action to punish Russia for this invasion and deter future aggression.
What’s next: We are helping our members prepare for the economic fallout from this ongoing conflict. We are also providing input to the administration and Congress to ensure the measures they take don’t inadvertently undermine U.S. foreign policy or economic interests.
What the experts are saying
Thursday night, we hosted a call with Dr. Richard Haass and business leaders to share his take on the situation. He is a veteran diplomat, a prominent voice on American foreign policy, and President of the Council on Foreign Relations. Here’s some of what he had to say:
“This is a totally unwarranted war of choice.”
- Haass shared his belief that President Putin is “determined to undo a lot of history—he sees this as essential to his legacy.” He characterized Putin’s decision-making as “different and worrisome” and highlighted the ways Putin has consolidated power in Russia over recent years to free himself from institutional constraints.
“This is a reminder of how much we all depend on order.”
Why it matters: He described Russia’s aggression as a “major challenge to the world order’’—a system all businesses depend on. Friends and foes around the world are watching closely to see how democratic allies respond.
What we can do: Dr. Haass called on the business community to be vocal in this crisis, saying “I think the business community is central to our potential to succeed here… I would love to see the business community with a bigger voice.”
The economic consequences of war
Russia may only represent 1% of global GDP—roughly equivalent to Florida’s economy—but the sanctions necessary to respond to Russia’s aggression will have a global economic impact. Here’s what to watch for:
Financial sanctions on Russian banks:
- The administration has announced sanctions on the top 10 Russian financial institutions, covering more than 80% of all banking assets in the country, and impacting affiliates of U.S. and other international businesses.
Why it matters: This move effectively cuts off Russian banks from access to the U.S. and European financial systems and limits the ability of Russian firms to do business internationally. It also will affect Western companies that have made investments in Russia.
What’s next: In order to effectively implement these sanctions, some businesses have requested a “wind-down” period for existing banking relationships. Officials seem to understand the importance of such a provision, and the Chamber is working with the Treasury Department to address this concern.
Export controls on tech products:
- The administration has announced export controls to block the sale of select technologies to Russia’s defense industry, including shipbuilding, maritime, and aerospace firms.
Why it matters: These sanctions will restrict the export of select U.S. technologies to Russia. Even products manufactured or assembled elsewhere could be blocked if they contain U.S. components or if they are made using U.S. software or capital goods. This move will severely limit Russia’s access to critical technologies.
What’s next: The administration is emphasizing publicly and privately that it has tools available to sanction firms that fail to comply with these rules, and other countries are aligned on their implementation.
Big picture: Some of these sanctions could impact businesses that don’t export to Russia or source inputs from the country. Producers of semiconductors, computers, and telecommunications equipment should examine their production chains and distribution networks and consider their compliance obligations.
Global energy wake-up call
Current sanctions do not target the energy and commodities sector as the U.S. and our allies look to balance inflicting harm on Russia’s economy with addressing global energy needs.
Why it matters: Oil quickly rose to about $100 per barrel as markets braced for the economic impact of Russia’s invasion. With a tight market and limited spare capacity for increased global production in the short-term, any additional disruptions or restrictions will put further upward pressure on prices.
What’s next: To blunt potential supply disruptions, immediate steps are being taken to coordinate the release of crude oil from Strategic Petroleum Reserves around the world.
Big picture: This experience is a wake-up call that the U.S. must use its leadership in energy production to be energy self-sufficient at home while providing energy security to allies and trading partners. We need a more balanced conversation about how to have smart policies on climate while promoting energy resilience and national security. We must be able to do both.
Heightened cyber concerns
Russian military and intelligence units have long used cyber warfare to advance their national interests. Ukraine has suffered several denial-of-service attacks against government websites, and multiple cybersecurity firms have reported a second, destructive “wiper attack” against hundreds of computers. It is not clear whether the latter attack will be as widespread as the NotPetya malware attack of 2017, but we are following the situation closely.
So far, we have not seen reports of massive full-scale cyberattacks to debilitate Ukraine’s command and control structures or communications networks, but these types of attacks are a distinct possibility as the situation develops. The U.S. may also see spillover effects in the near and medium-term from Russian cyberattacks.
What we’re watching: The U.S. government is not yet reporting any specific, credible, or direct cyber threats, but this could change rapidly. One U.S. Chamber member with extensive experience in securing industrial control networks advised that Russia has been actively probing networks in several critical infrastructure sectors in the U.S. since October.
What’s next: Cyber officials from the FBI, the Cybersecurity and Infrastructure Security Agency (CISA), and the NSA are advising government and private-sector entities to strengthen their cyber posture amid heightened risks. All businesses should expect that as U.S. and allied sanctions kick in, adverse cyber activity could ratchet-up as well.
Go deeper: CISA has initiated a “Shields Up” campaign with specific guidance and actions that businesses can take to shore up their defenses in advance of any potential malicious cyber activity. Learn more here.
All eyes on Washington
On Tuesday, March 1, President Biden will address the nation—and the world—in his State of the Union address.
What we’re listening for: In addition to the immediate crisis unfolding in Ukraine, we will look for him to address the challenges facing businesses here at home, including inflationary pressures, workforce shortages, supply chain bottlenecks, anti-competitive policies, rising fuel costs, and more.
Why it matters: As global economic risks rise, our domestic policy decisions must not further stoke uncertainty or threaten the fragile recovery. The Chamber is committed to working with the administration and lawmakers of both political parties to ensure our nation can withstand these turbulent times and emerge stronger on the other side.