Russia Can Win in Ukraine Without Firing a Shot

It seems most everyone is staring at satellite photos of Russia’s border with Ukraine. But they’d do well to study insurance tables as well. Business in Ukraine is becoming more and more difficult to insure. Indeed, underwriters are staying away from the country. And without insurance, there’s no business. Even without sending a single soldier across the border, Russia could make Ukraine’s economy tank.

In London, the Joint War Committee (JWC) meets every quarter. Andrew Moulton serves as the committee’s chair; Neil Roberts is its secretary; and its members include Richard Young and Edward Carpenter. If a crisis erupts, as happens with some frequency, the JWC convenes an extraordinary meeting. As things stand, the committee could convene such a meeting to discuss Ukraine very soon.

Never heard of Moulton or the other members of the JWC? That’s because the committee is an insurance outfit, composed of executives from maritime insurers and underwriters such as Lloyd’s Market Association, Ascot Underwriting, and Beazley Furlonge.

How insurers and underwriters judge a country, region, or thoroughfare matters a great deal.And how insurers and underwriters judge a country, region, or thoroughfare matters a great deal. After Iran’s Islamic Revolutionary Guard Corps seized the Swedish-owned Stena Impero oil tanker in the Strait of Hormuz in July 2019, the JWC added the strait to its list of high-risk locations, which meant that vessels still wishing to sail through the strategic thoroughfare had to alert their insurers.

Insurers willing to accept the risk unsurprisingly jacked up premiums. “At the moment, we’re looking at Ukraine,” committee secretary Roberts told me last week. “So far, there have been no seizures or attacks on commercial ships. We’re not about to inflame the situation by declaring Ukraine an enhanced-risk area. But we’re definitely keeping an eye on it.”

For the JWC, keeping an eye on Ukraine means assessing the risk to civilian vessels in the Black Sea, through which the country receives—and exports—vast amounts of goods. Last year, for example, the Black Sea port of Pivdennyi (also known as Yuzhnyi) processed nearly 53.5 million tons of cargo, more than 45 million tons of which was arriving from, or going to, other countries. While Russia is Ukraine’s largest trading partner, followed by Germany, Ukraine sells and buys goods from all over the world.

These days, risks facing freighters include not just seizures but interference with the ships’ radar. Such interference, which shows the ship as being in a different location, confuses crews and can cause collisions. Radars and online maps also show the ship in a false location, which can be useful for a country that wants to sow chaos.

Such interference is already taking place, and some of it appears to be Russia’s doing. Ships have been shown on radar as making mysterious circles off the coast of California when they were, in fact, on the other side of the globe. An investigation by Lloyd’s List Intelligence, a maritime intelligence firm, found that the Stena Impero had likely fallen victim to Iranian GPS spoofing. And on several occasions, civilian ships traveling in the Black Sea have encountered mysterious GPS troubles that showed the vessels being in a different part of the Black Sea or even on land.

In 2017, for example, the master of a ship whose GPS suddenly placed it in the wrong part of the Black Sea reported to the U.S. Coast Guard Navigation Center that “all ships in the area (more than 20 ships) have the same problem.” Analysts concluded the ships may simply have been convenient targets for a Russian test of GPS spoofing.

Should cargo ships in the Black Sea be targeted by GPS spoofing as part of a Russian campaign against Ukraine, Roberts said, “it could cause them to become disoriented and collide. It’s something you can weather for a while but not for a long time.” If the JWC concludes that war is imminent in Ukraine and its adjacent waters, it will quickly convene and place the country in its conflict category, which also includes parts of Eritrea and Libya. As a result, the war-torn parts of those countries are shunned by maritime businesses.

Commenting on Ukraine, Roberts said: “Nobody is really sure if it’s bluff, and we’re not here to increase the tensions. But if a war begins, Ukraine will be moved to the conflict category.” That would mean that even companies wanting to bring goods to and from the country’s ports would struggle to find an insurer—and without insurance, business is far too dangerous. In Western countries, it’s also illegal.

Companies wanting to bring goods to and from Ukraine’s ports could struggle to find an insurer—and without insurance, business is far too dangerous.Political risk insurers—which insure losses caused by political events—have already made that decision. When Laura Burns, a senior vice president at the insurance broker WTW, and her team recently canvassed the 60 insurers that have in recent years been willing to insure business operations in Ukraine, they found that only three are now willing to take the risk. And even they are circumspect. “They’ll look at the company’s nationality,” Burns told me. “Is it American? German? Russian? And they’ll look at the sort of equipment the company would need to bring out of the country in case of violence.” Insurers also look at what sorts of goods the company has in the country and whether they risk being confiscated or looted in case of war.

In the past few years, insurance rates for Ukraine—except the Donbass, which insurers unsurprisingly stay away from—have skyrocketed. As late as 2016, a company with, say, $10 million of exposure would pay an annual insurance premium of $55,000. Today, the premium is $250,000. “And that’s if you can get insurance,” Burns noted.

When it comes to conflicts, insurance companies are the canaries in the coal mine. Because they pay if a company falls victim to violence or other mishaps, they’re extremely attuned to risks on the horizon. This, though, creates a front-page news syndrome, Burns said. “As an underwriter, are you going to go out on a limb to defend a position when the front page suggests loss is imminent? Are you going to stick your neck out to insure risk that’s all over the news? Of course people don’t want to jeopardize their jobs,” she said.

Indeed, as they tend to do, underwriters are already looking beyond the horizon to discern how Russia’s aggression might affect other countries. That means political risk insurance premiums for a country like Moldova could soon increase. “We tell our clients to go to a market when there are no clouds,” Burns said. She reflected on the 1990s and the first 15 years of this century. “Companies went out all over the world. Now they have chess pieces in all these places and are realizing that risk levels are not what they once were—in fact, that the risk levels are in some cases dramatically different. We’re not in the Pax Americana era anymore.”

We certainly aren’t. Bodies such as the JWC, and the insurers that decide what to insure and what to charge for it, are private sector outfits and have no obligation to underwrite risky business in a world that’s turning more turbulent even it remains heavily globalized. Unfortunately for Ukraine, that means Russia can bring Ukrainian business to its knees without moving a single soldier across the border.