How A Former Under Secretary Of Defense Is Advising Companies To Navigate Ukraine War Disruptions

“Things will get worse before they get better”. This is the first piece of advice that Michelle Flournoy, former undersecretary of defense for President Obama and deputy assistant defense secretary for President Clinton, tells her clients when they ask about Russia’s war with Ukraine.

Now co-founder and managing partner at WestExec Advisors, which has a partnership with Boston Consulting Group and advises corporate boards and the private sector writ large, Flournoy spends her days helping businesses understand the circumstances that led to the biggest land war in Europe since 1945 and the difficult choices that they will need to make months and years into the future.

In an interview with Forbes, Flournoy is quick to disavow the notion that things will go back to normal as soon as the bullets and mortars stop flying, whenever that may be, a common misconception. In fact, she says that challenges will persist long after once the fighting stops. “The conflict itself is going to take significant time to resolve, and even after that some of many of the restrictions and sanctions will remain in place because of Putin.”

Flournoy says the reason why this conflict will be so intractable is because of a series of blunders and incorrect assumptions on the part of Putin that trapped him in a quagmire. Chief among them was his inability to anticipate the severe and unified response from the U.S. and its European allies, which has led to unprecedented sanctions against the Russian financial sector and central bank. “I’m sure he was shocked at the degree of unity that NATO has displayed.”

She also points to Putin’s misplaced faith in his ‘modern’ Russian military, which perhaps due to surrounding himself with ‘yes men’ led him to expect a swift victory similar to its 2014 annexation of the Crimean peninsula in southeastern Ukraine.

Finally, and perhaps most importantly, was his dismissal of the will of the Ukrainian people. “He overestimated his own forces and also underestimated the Ukrainian military and the degree to which the right Ukrainian population is willing to fight for the democracy and the freedom they’ve experienced since the end of the Cold War.”

All of this means that Russia, and Putin in particular, could be looking at a negative outcome or stalemate. In fact, while conventional wisdom suggests that the sheer size of the Russian military will eventually overtake Ukraine, Flournoy suggests that this may not necessarily be the case. “There is now some speculation among U.S. analysts of the Russian military that they [Russian soldiers] may not be able to surround and lay siege to Kyiv.” Even if major cities fall she expects there to be a well-funded and sophisticated insurgency to combat Russian forces.

When looking for historical parallels to today’s conflict, many analysts look to the German invasion of the Sudetenland in 1938 as a cautionary tale for the dangers of appeasement. But Flournoy has a different World War II analogy, likening the Russian incursion into Ukraine to Hitlet’s ill-fated invasion of Russia in 1942. “That was the overreach that caused him to lose the war, but he didn’t know it.”

Flournoy says that Putin succumbed to the same hubris. “This overconfidence to say that I’m going to go beyond eastern Ukraine and the gray-zone tactics I’ve been using to recreate a Russian sphere of influence. Now I’m going to use conventional military forces and invade another country. I think this will go down in history as a classic case of strategic miscalculation or overreach.”

However, while Ukrainian supporters may take heart at Russia’s struggles, there are also reasons for investors, executives, and other interested parties to be worried. The longer the conflict goes without a resolution the harsher the sanctions will become and the more difficult Ukraine will be to govern, whatever is left of it.

Then the question goes to how Putin responds. It’s also not out of the question that this misadventure has major consequences for Putin personally. “It’s a low probability event. But as things play out, if you see more Russian protests and more unhappiness among the oligarchs, he [Putin] could lose his job, and possibly his life.”

Moving beyond the western hemisphere, Flournoy also counsels clients on the impact of this Russian adventurism on one of the biggest hotspots in the world, Taiwan. After all, many analysts are wondering if China may take a cue from Russia and try to overtake Taiwan by force, a major goal for Beijing since the communist revolution in 1949.

However, Flournoy believes that Russia’s challenges and reputational damage lowers the chances of such an invasion anytime soon. She just got back from a trip to the region, where she met with Taiwanese president Tsai Ing-wen, who told her that the Taiwanese people were heartened by the strength of the Ukrainian will.

Additionally, from China’s point of view Flournoy notes that President Xi Jinping has no interest in becoming an international pariah. Additionally, Flournoy points out that it is important for observers to not be fooled by China’s perceived close relationship with Russia or growing financial ties between the countries. In fact, she thinks that the war in Ukraine could lead to a chilling of relations between the two countries over time. “Right now, they’re doubling down on trying to make the sanctions less effective. But I think eventually, if this, if this doesn’t go well, for Putin, Xi will find ways to distance himself.”

This may provide some relief to investors, as Taiwan is a much larger trading partner to the U.S. than Ukraine and is involved in high tech manufacturing such as semiconductors, which are vital to today’s economy.

However, investors and businesses that operate in Asia should not assume that they are immune to what is happening in Ukraine. Flournoy’s last piece of advice to clients is to be aware of secondary sanctions that could impact Chinese banks and businesses that cooperate with sanctioned Russian institutions. These businesses could become guilty of sanctions violations by association and end up facing U.S. penalties themselves. Never a country that takes kindly to U.S. economic warfare, China would likely retaliate in kind.

“We have a number of clients dusting off their risk management and mitigation strategies for their businesses in China.”