Not so long ago -- say when the Soviet Union was crushing rebellions in Czechoslovakia
and Hungary in the 1960s or the US was invading half the Middle East in the
2000s -- a big country picking on a small one was mostly a physical activity.
Tanks would roll in, buildings and people would be blown up, and that would
be that. The aggressor might face the occasional trade sanction from otherwise-impotent "powers," but
this was relatively painless in a world that was not yet financially or technologically
integrated.
Contrast those simpler times with today's Ukraine crisis, where a whole range
of new battlefields might soon open up. First is telecommunications, where
both sides apparently have the ability to launch a cyber-strike:
An info-war is under way as websites are blocked and telecom cables to Crimea
are mysteriously cut.
Russia's takeover of the Crimean peninsula has been accompanied by a elements
of an information-control campaign: telecom cables connecting that region
to the rest of Ukraine have been severed, and the Russian government has
moved to block Internet pages devoted to the Ukrainian protest movement.
But so far there is no public evidence of more serious cyberattacks against
military or government institutions. Indeed, Russia may need to tread a fine
line with such tactics, since they could be seen as acts of war under evolving
military doctrine. A report from a NATO group chaired by Madeleine Albright,
a former U.S. Secretary of State, has said that if NATO infrastructure were
the victim of a cyberattack, it could lead to a physical response such as
a bombing.
So far, anyway, "Russia has limited themselves to the things they usually
do in the onset of a conflict to try to shape opinion, stifle critics, and
advance their own viewpoint," says James Lewis, director of the Center for
Strategic and International Studies, a think tank in Washington, D.C. "They
are doing the informational side, which is the opening move in the playbook." Over
the weekend, though, Ukraine's national telephone company, Ukrtelecom, said
that unknown vandals had seized telecommunications nodes and cut cables,
severing much of the data and voice links between Crimea and the rest of
Ukraine.
Info-war tactics have been seen on the Ukrainian side too. Someone sympathetic
to the Ukrainian cause managed to hack the Russian government's English-language
news organ, Russia Today, and substitute the word "Nazi" for "military" in
some headlines, with results such as "Russian Senators Vote to Use Stabilizing
Nazi Forces on Ukrainian Territory."
The region has a colorful history of cyberattacks against smaller states
and organizations seen as opposing the Kremlin. In Estonia in 2007, the local
government antagonized Russia by relocating a bronze statue commemorating
Russian soldiers. A flood of attacks against government, media, and telecom
websites in Estonia followed, paralyzing them for weeks. (The attacks were "denial-of-service" events,
flooding servers with page requests to overload them.) The Russian government
denied responsibility, saying "patriotic hackers" were to blame.
In 2008, similar events played out when Russia invaded South Ossetia, part
of the neighboring republic of Georgia. Again, the attacks--on sites associated
with government offices and the embassies of the United States and United
Kingdom, among others--could not be provably linked to Russia's government
(see "Georgian Cyberattacks Traced to Russian Civilians").
Ukraine may be something of a different case. Both Ukraine and Russia are
well-known centers of international cybercrime, and both are home to talented
computer engineers. But for whatever reason, this sort of mass cyberattack
is not happening. "In Georgia you had cyber incidents coördinated with
military operations. But the Russians haven't done that here," Lewis says. "If
violence breaks out in the Crimea, I think they will bump it up a notch."
The events provide a way for the United States to see what Russia's cyberwar
capabilities are, says Stewart Baker, a former policy chief at the U.S. Department
of Homeland Security and now a lawyer in private practice. "From the U.S.
point of view, it is an opportunity to watch one country that has integrated
cyber [tactics] into their military-Russia-and see what their current doctrines
suggest they do," he said. "But it may be they have decided they don't need
to show what they've got, and won't do it."
Four years ago, Vladimir Sherstyuk, a member of Russia's National Security
Council and director of the Institute for Information Security Issues at
Moscow State University, boasted of significant capacities. "Cyberweapons
can affect a huge amount of people, as well as nuclear," he said in an interview
with MIT Technology Review (see "Russia's Cyber Security Plans"). "But there
is one big difference between them. Cyberweapons are very cheap--almost free
of charge."
Even more serious, or at more least wide-ranging, is the fact that Russia
owns a lot of dollars and could disrupt the global financial system by dumping
them:.
While the comments by Russian presidential advisor, Sergei Glazyev, came before
Putin's detente press conference early this morning, they did flash a red light
of warning as to what Russian response may be should the west indeed proceed
with "crippling" sanctions as Kerry is demanding. As RIA reports, his advice
is that "authorities should dump US government bonds in the event of Russian
companies and individuals being targeted by sanctions over events in Ukraine." Glazyev
said the United States would be the first to suffer in the event of any sanctions
regime.
"The Americans are threatening Russia with sanctions and pulling the EU
into a trade and economic war with Russia," Glazyev said. "Most of the sanctions
against Russia will bring harm to the United States itself, because as far
as trade relations with the United States go, we don't depend on them in
any way."
From RIA:
"We hold a decent amount of treasury bonds - more than $200 billion - and
if the United States dares to freeze accounts of Russian businesses and citizens,
we can no longer view America as a reliable partner," he said. "We will encourage
everybody to dump US Treasury bonds, get rid of dollars as an unreliable
currency and leave the US market."
...
To be sure, a high-ranking Kremlin source was quick to distance his office
from Glazyev's remarks, however, insisting to RIA Novosti that they represented
only his personal position. Glazyev was just expressing his views as an academic,
and not as a presidential adviser, the Kremlin insider said.
That said, putting Russia's threat in context, the Federation held $138.6
billion in US Treasurys as of December according to the latest TIC data,
making it the 11th largest creditor of the US, which appears to conflict
with what the Russian said, making one wonder where there is a disconnect
in "data." This would mean the Fed would need just two months of POMO to
gobble up whatever bonds Russia has to sell.
The bigger question is if indeed, as some have suggested, China were to
ally with Russia, and proceed to follow Russia in its reciprocal isolation
of the US, by expanding trade with Russia on non-USD based terms, and also
continue selling bonds as it did in December, when as we reported previously
it dumped the second largest amount of US paper in history.
Some thoughts
Basically, what this means is that in a world where everyone's networks are
vulnerable and where countries that are emphatically not US allies own a mountain
of dollar-denominated paper, small, obscure conflicts can spread in a heartbeat
from the physical battlefield to cyber-space and/or Wall Street.
The Ukraine crisis sounds, at the moment, like more of a chance to threaten
such attacks than to actually try them. So no cyber or financial Pearl Harbor
is likely this week.
But that such things are now on the table and would, should they occur, be
sudden, adds yet another layer of complexity to a financial world that already
has too many black swans cluttering up its sky. And it raises the appeal of
hard assets that 1) don't reside in accounts that can be hacked and 2) don't
depend on the value of fiat currencies that can simply evaporate. Put another
way, the proper response to peak complexity is hyper-simplification via gold,
silver, and farmland.
