It's been one year since Russia invaded Ukraine in an event that set off a chain reaction of both geopolitical and economic consequences. So what have we learned from the past twelve months? And what is the future of this ongoing conflict? On this episode, we speak with Robert Papp, a retired senior executive at the CIA about what to watch when it comes to the weeks and months ahead. Before joining the CIA, Robert was a cryptologist in the US Navy and also studied Russian and Russia's economic history. He walks us through key questions, including how things are going for either side and the role of both economic and information warfare in the conflict. This transcript has been lightly edited for clarity.
Key insights from the pod:
How the war has confounded expectations — 4:24
How do we define war? — 9:15
The end of the Soviet Union — 12:46
What is Nato’s role? — 16:53
Putin’s domestic support — 21:14
Russia and other Brics nations— 26:48
The role of oil and gas — 31:58
Economic impact on Russia — 35:06
Possibility of cyber warfare — 38:31
The situation in Ukraine — 42:37
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Tracy Alloway: (00:10)
Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.
Joe Weisenthal: (00:14)
And I'm Joe Weisenthal.
Tracy: (00:16)
Joe, can you believe it has been one year since Russia invaded Ukraine?
Joe: (00:21)
Yeah, it has been pretty extraordinary, remarkable year, just in so many different respects, sort of the changing narratives over time with the war, the persistence of the war, I think some people might have expected [it to end] much sooner, changing expectations where it would go. The narrative around the effect on commodities and economics changed a lot over the last time. And I still feel like after this time, you know, [there’s] still tons of ambiguity about where it's going and what the effects are going to be.
Tracy: (00:53)
Well, absolutely. And I remember this time in 2022 when Russia first invaded Ukraine, some of the headlines that were flying around where, you know, this is the beginning of World War III. Is this the start of some sort of, you know, nuclear apocalypse given we were talking about the involvement of Russia and potentially NATO as well, and then you mentioned the economic narrative. And that has changed quite remarkably in terms of, you know, the European energy story. There were lots of concerns about we're going to have massive gas shortages. Europe isn't going to be able to handle this. But actually, fast forward 12 months, it hasn't been as bad as a lot of people seem to have expected.
Joe: (01:34)
You are absolutely right. This winter so far has not been the disaster for the European economy that many have expected it. Interestingly, my impression is that the Russian economy is not the basket case that many would've expected either, given both the cost of prosecuting the war in terms of raw materials human lives and so forth. And then of course, the sanctions which both limit sort of revenue generation opportunities, but also the opportunity for technical imports. And my impression again, only, you know, only sort of very, very modest insight is that Russia has over time figured out ways around or how to live with these various constraints.
Tracy: (02:19)
Well, there is a vibrant debate on the extent of damages that sanctions have actually inflicted on the Russian economy, of course. And also there's a lack of information at the moment. You know, there are different sides in this conflict and each one has their own story to tell. So on that note, in order to stop and think and discuss what exactly we've learned over the past year or so about this ongoing conflict, I'm very pleased to say we actually have the perfect Odd Lots guest, really the perfect, perfect guest.
This is someone that I met at the Explorers Club in New York. He is a retired senior executive at the CIA, he also served with the FBI and the Defense Department. He started out as a cryptologist in the Navy studying Russian and deploying at sea. He has a PhD in Russian history at Columbia, in Russian economic history, I should say, he specialized in the history of the Russian stock market. He is now a consultant teaching at undergraduate and graduate levels. But really, I mean, I'm trying to summarize the career, but really the perfect Odd Lots guest. So we are going to be speaking with Robert Papp. Robert, thank you so much for coming on Odd Lots.
Robert Papp: (03:34)
Well, Tracy and Joe, thanks for having me, and thank you for that wonderful introduction. I consider myself a bit of an odd lot, so I feel like I'm in a good place.
Tracy: (03:42)
You're in the right place.
Robert: (03:44)
I would also note that the last time we spoke we were surrounded by life-size polar bears and narwhale tusks and Amundsen’s sled. So this is maybe a little bit different, but I think we'll work it out fine.
Tracy: (03:55)
Yeah, well, we'll ask Odd Lots listeners to just imagine that you are surrounded by stuffed animals and that, you know, I think we were speaking during a thunderstorm in New York, and it was quite atmospheric. Okay. With that caveat, Robert, why don't you start with just where are we in this conflict? You know, it's 12 months on from when Russia invaded Ukraine. A lot of people were not expecting it to make that move. Where are we in this conflict?
Robert: (04:24)
I think this war, and we'll call it a war, it started out for the Russians as the special military operation. We still don't like to call it a war, although every once in a while a minister like the German foreign minister will actually come out and say that it is. But it is a war. It is one of the worst things that's happened to Europe, I think since 1945. I think we've gone well past the Balkans conflict at this point.
And, you know, at one year, I think this is really confounded expectations at all levels. I remember days before, I was doing a teleconference on this and most people said, ‘no, the Russians, they won't do it.’ They're threatening, they're on the borders. They won't actually go in. And then on February 24th, they went in and the way they went in was so messy, so unsound from a strategic standpoint, attacking on all fronts with insufficient personnel, with insufficient supply lines, and not expecting the bravery of the resistance of the Ukrainians and also the level of support.
Remember back in time of St. Javelin and the stingers from the US and its partners. And I think that just profoundly shocked them because a lot of people, even in the United States, even on the intelligence side thought, you know, Kiev may fall immediately and it didn't. And then the war started to drag out and get uglier and uglier. So it's not that war anymore.
It's also not what I would call the war that we saw in August and September where the Russians woke up to their shock and realized they didn't have enough forces in country, and they were retreating wholesale, giving up territory that they in fact had annexed at one point, which is terribly humiliating for them. But it was really part of a strategic decision, I think, by the Russians to marshal their forces to reduce their casualties and to dig in until this mobilization of reserves began -- not a general mobilization, but of reserves. And to strengthen their lines along the Dnieper River, a natural boundary. And this fast forwards us to today as we watch this grinding painful level of battles in places like Bakhmut, for example. And while we all in the United States and Europe, and frankly in in Russia and around the world, marvel at all these weapons systems that are being deployed and drones and intelligence and ISR assets and so on, this is becoming like a World War I slug fest with artillery.
And I think we're reaching a point now where the main issue is who can last the longest? Who has the most personnel, who has the most artillery shells, who can take the most pain? And how long will the resolve of the west last in this? And I think on that count, there's a lot of positive news coming out of Nato, but I think the expectations at the beginning of the war on all sides have truly been confounded.
I don't see a resolution at any point in the near future. This could end up being something where both sides are dug in and there are positional battles for territory. There could be a large or more than one Russian offensive, there could be a Ukrainian counter offensive. But what worries me the most, Joe and Tracy, is that the expectations on both sides, it's hard to retreat from them. The United States has said we're all in. Nato has said we're all in. Russia is certainly all in as a matter of national survival and political survival at this point.
So I'm kind of pessimistic about the outlook and the near term, if that's fair. Let me just add a couple of other things. There are a couple of areas that I really follow closely with this, and these are how do we define war? I think that is a fascinating strategic question going forward. What is the role of information warfare in this, which I think is quite profound. And finally, something I think, of interest to your listeners especially, is the role of economic warfare here.
Joe: (08:23)
This question might dovetail with your sort of thoughts on how do we define war? But some people we've spoken to and people elsewhere, they have this idea that the end of this war looks like the end of many other wars, which is not ended, but, you know, persistent low level dotted line borders that no one ever really agrees to. But that often is how the world ends up. And I guess the classic example would be, you know, the division between Korea and North Korea, which the war has technically never ended. And I think people say, look, this is how the final chapters of war look. No one actually agrees that this is the border, [it] just sort of becomes the new border. Does that seem like the direction it's heading in? And I guess to your broader point, what does it mean to say there is a war on or there isn't a war on?
Robert: (09:15)
Yeah, Joe, I think that's a really great point. It’s interesting. I often ask students, when was the last time the United States was in a war? And there are a variety of answers. They come up with Vietnam, Iraq, Afghanistan, the global war on terrorism. And I tell them, and some of them get it, that it was really in World War II, it was really the declaration of war in World War II. So we're seeing new ways of looking at what participation in a war is -- direct versus indirect.
For example, if you equip an army, train an army, provide it with intelligence, give it strategic guidance, tactical guidance, and even to a limited extent, there are volunteers, mercenaries, contractors on the ground. When does a war become a hot war? How do we define a war? And I would put this in terms of the information war and the economic war too.
But your point about Korea is excellent. And I think the way we're looking at this now, now that the Russians are pretty much entrenched with a river, the Dnieper River between them and that great open mass heading towards the fields, heading towards Kiev, I find it hard to imagine that the Russians will retreat from the areas that they've annexed -- Donetsk, Luhansk, Zaporozhye or Zaporizhia in Ukrainian, Kherson.
Of course, they've already lost some of these areas to brilliant Ukrainian counter offensives, but I see them fighting back until they recover these areas. And the question is, when we get to your demilitarized zone, and I think it's a brilliant concept for this, is, where does that end? I think if the Russians could, they would try to get the whole Black Sea Coast, meaning go down to Mykolaiv, go down to Odessa, maybe even go all the way down to Maldovan border, the Maldovan government is collapsing as we speak, and then there's Transnistria there with Russian troops in it.
I think it's impossible to forecast this at this point. I do not think the Russians ever sought to take all of Ukraine, not that heartland part of Ukraine. You know, going back Aleksey Mikhaylovich, the second czar, for example. I don't think they ever had an interest in Lviv and Galicia. They might going a little bit further north towards Kharkiv, for example. So I think you're right. I think this will have to end with exhaustion at some point and some kind of low simmering demilitarized zone conflict line, which frankly has existed in the Donbas since 2014 with artillery shelling and fighting on both sides. I know that's not a great answer, but I don't think anybody has a great answer as to how this ends.
Tracy: (11:57)
Yeah. You know, whenever I hear a question like, how do we define war? I start to get flashbacks to studying international relations at university and, you know, reading the likes of Francis Fukiyama and “The End of History” and this idea that no two true democracies have ever gone to war with each other. And one question that I always wanted to ask a spook, or a former spook is, when that conversation or when that talking point was at its height, you know, the 1990s, early 2000s, everyone's talking about globalization and democracy for the win and all of that, what did you think? You know, you're working in the background with actual intelligence reports. Did you think that that was something that was plausible at that point?
Robert: (12:46)
I personally thought at the time that, you know, we had this remarkable victory that ended in the defeat of the Soviet Union, the dissolution of the Soviet Union. And I think there was a great opportunity early on in that after the wall fell, after the Russian Federation became an entity, and the Soviet Union went away, to really help them into sort of the world global order, if you will.
And we sent a bunch of venture capitalists in the time, and frankly, the Russians with Western help really botched the privatization. It was terrible how it went about. I still have these pictures of the old ladies selling their potential shares in companies, their certificates, for a bottle of vodka, not understanding that they were worth thousands of dollars if they could just hold on. But at the time, they couldn't eat. The situation was terrible. They had no money in the bank whatsoever.
And this became kind of a kleptocracy there, where the oligarchs and later the power people in Russia were more important than the oligarchs in this war, Just took everything. And it became a country where you were not going to have a conventional type of capitalism. So I feel there was a bit of a lost opportunity there. I don't know if a Marshall plan was needed as we had after World War II or another massive aid package, or more just understanding how deeply wounded people like Putin who emerged from this were. The feeling that they had lost their way of life. Their government, for good or for bad. Communism has always resulted in dramatic failure.
But when Fukuyama came out, and I wanted to avoid this, but you've dragged me in and I'll do it, I think his comment that somehow that this was the end of history, that liberal democracy had won, that all the old things that bothered people in the past, ethnicities, language, culture, borders, just jealousy over a size of military, over economic resources and so on, suddenly this had gone. And I thought that was naive then. And I think it's naive now.
He didn't invent that, of course, this was thought after the French Revolution. This was thought even with the Congress of Vienna after the War of 1812. You could even go back to Hegel and Marx, and look at how the dialectic of how society would develop and how the world would develop.
I think what we're seeing now is that all of the old things that bothered people in the past and brought people to war in the past still exist. And I find it horrifying that Russians and Ukrainians who speak relatively similar languages, who have relatively similar cultural backgrounds, are now killing each other en masse. And I find that very disturbing. And I think there's almost no going back at this point.
Joe: (15:57)
I want to ask a sort of concrete question, maybe this is a little bit theoretical, but how would you characterize the degree of involvement of US and Nato in this war? Because you know, leaders in the West make pains to say, we are not at war with Russia, and for all kinds of reasons, particularly because of anxiety about nuclear war, there are very good reasons to sort of not actually do things that would entail the US or other Nato countries of being at war with Russia. Nonetheless, obviously we've supplied Ukraine quite a bit of weapons, as you mentioned, training, etc. Can you help tease apart in our minds what is the role of the US and Nato in this war currently? And what would be the type of action that would go over some line that people in the international community have about what sort of direct involvement means?
Robert: (16:53)
Yeah, those are great and very vexing questions. I think it's quite fair to say we are fully engaged in a proxy war at this point. And I wish I hadn't seen some of the statements I have from people who I think should not be making them. That goals include breaking up the Russian state, pushing Putin out of power, and even the idea that Ukraine is somehow going to get back every last inch of territory, including Crimea, which the Russians recovered in 2015 and historically was a Russian area. So I think the role of diplomacy, which has really been nil in this effort, there was a bit with the Turks early on, and now some countries, even like Brazil and Mexico and others are talking about engaging.
But I think there's really no place for diplomacy right now. The way both sides are dug in on this. But when we look at the participation of the US and NATO in the war, it's profound. The Ukraine would not last, frankly, if it was not for the economic support. And the military support provided by the US and by its Nato partners. The Ukrainians have been exceptionally brave, exceptionally good at fighting back against this Russian invasion. And whatever we may say about the causes of this, this was a brutal invasion that has resulted in, already it's starting out, hundreds of thousands of lives lost. So we do have to condemn that.
What I am worried about is at the next level, what would cause this war to expand Joe, as you point out into something with a nuclear component or expand into Europe or become a full on boots on the ground war between Russia and Nato? I think there's been so much that's happened over the past year, so many changes in the way we look at this war. So many lines that have supposedly been drawn about levels of support and so on, that it's really hard to predict what would be the catalyst for this to become an expanded war.
I'm very worried about things like possible use of chemical and biological weapons or just by mistake even, or hitting a nuclear power plant with shells. And there's a leakage of radiation, kind of a Chernobyl scenario. And I've been to Chernobyl and I certainly do not want to see something like that ever again. But the Russians have basically said a few times, some red lines that they have. And it's almost like a dance now, it’s [like] the dance of a thousand veils or a kabuki dance where each time another layer is removed, it's removed to the next level. Will it be armored fighting vehicles will be at main battle tanks? Will it be missiles of a certain range that can reach Russia proper? And it's hard to even define what that is. Would it be the presence of advisors and assistance on the ground, for example, and firing artillery or targeting or something like that?
I personally don't think the Russians would allow this to go to that level unless they felt that their sovereignty was in danger. I think if Ukrainian troops were heading for Sevastopol, for example, then almost anything would be possible. I think if long-range Ukrainian missiles hit major cities deep inside of Russia, anything would be possible. I worry also on the other side about, for example, Poland is deeply worried about this, and Poland has really been out in front in supporting the Ukrainians, both diplomatically and in terms of material support and rhetoric. But right now, for this to go to the next level, I don't think we're there yet. But I don't know how this ends. I don't know what victory looks like for either side at this point. And that's the part that I find most troubling.
Tracy: (20:47)
You mentioned the importance of oligarchs in post-Soviet Russia. Can you talk to us a little bit more about what Putin's domestic support looks like at the moment, both from the sort of oligarchic/political class and also from average people on the ground? I guess this is my way of diplomatically asking you what we're supposed to make of all these people falling out of windows and such forth.
Robert: (21:14)
Well, there's certainly been plenty of that. And they, the Russian state, historically has never shied away from pushing people out of windows or impaling them or anything, depending on how far back we go in history. The oligarchs, I think, is an interesting question. The oligarchs, when they came in, [they] just basically seized, they just stole everything, created this kleptocracy in Russia.
They acquired a great deal of power, and Putin was really against that. And he told them he was against it. And he told them, for example, if you're a Berezovsky or you're an Abramovich or whatever, we're going to deal with you in a certain way. And in some cases, that meant that they died. In some cases that meant that they went abroad. In some cases, that meant that they lost their holdings. We revel in watching these ridiculous yachts of Russian oligarchs being seized in Italy or along the French Riviera. I mean, it's a great feeling to see that.
But the oligarchs are really not the key here. In fact, if Putin had his way, many of the oligarchs would lose all of their money and would go into immigration. He doesn't like them. He doesn't like what they stand for, particularly if they're not 100% behind his war effort. More important are these siloviki, these power people that he has, many of whom were ex-governors, ex-ministers, people who grew up with Putin and helped him along the way and supported him along the way. And I think more about them, and frankly, the more sanctions are placed on people like that, the more they revel in it. They go to the dacha, they have a few glasses of vodka, and they say, ‘ah, I would sit with sanctions today.’ And they go, ‘me too.’ And that they actually think of that as a kind of a badge of honor.
In terms of support for Putin, very, very interesting dynamics here. You remember at the beginning of the war when Russians were worried about being called up and there was this exodus of young, intelligent Russian people, everything from computer programmers to people from different walks of life that didn't buy into the whole Russian statist model just left. They left, they lined up at the borders, whether they went into Norway or whether they flew out in business class, or whether they went to Poland or Georgia, and they left. And I think President Putin said, ‘goodbye. See you later. Don't come back. What's yours is ours now.’ And I think what we're left with, there is a surprisingly homogeneous level of support for Putin in the country.
Not everybody, needless to say, but your average guy in Siberia, your average guy who works in a factory, for example, is looking at this war and looking at the rhetoric on Russian social media and Russian news and starting to think maybe he was right. Maybe the west is trying to destroy us. Maybe Russians are being mistreated abroad. And I would say in this context that I find something very alarming and unnecessary in the way this war is being reported. When you listen to most of the Western press, the words that are used are filled with contempt, derision, hatred, even rejection of culture, art, music, history language sports. I found myself on YouTube looking at a gaming show where there's a new game out called Metro Exodus, which is really cool, but it's Russian. And I'm like, wow, I guess you, you can't, you don't really want to buy that anymore, that that would not be patriotic, if you bought that. I would be a little bit more worried about, you know, Swan Lake and Chaikovsky, Pushkin and so on.
I don't think this is necessary, and I think it strengthens Putin domestically rather than weakens him. The Russians are doing enough things that are bad, that the reporting doesn't have to be 100% animosity towards the Russian state. Every attack is not a massacre of civilians. Every allegation of a war crime is not necessarily true until it's researched correctly. And I think this backfires not only in the Russian population, but also I daresay in the global south. And I spend a lot of time following social media in the global south. So I think in a roundabout way, I’ve come at your answer, but let me know if I hadn't,
Joe: (25:40)
You basically took to my next question out of my mouth, because when the invasion first happened, there were a lot of people who were pretty impressed by the Biden administration's ability to sort of corral a wide degree of global support against Russia and then affect that into sanctions. But even at the time, you know, there were clearly big countries, heavily populated countries that never really, took a side, never took a stance on the invasion, particularly across the global south. But really, you know, outside, I believe of the US and Europe, perceptions of the war are far more scattered and less unified than they are in the US and Europe. And so I'm curious sort of what the trajectory has been, you know, in places like India, China, Brazil, South Africa, Israel, and so forth. And then I guess this is sort of a two-part question, has the ambivalence of these countries to condemn Russia been crucial, and how helpful has that been in still maintaining markets for imports and exports to prevent the sort of complete domestic collapse of the Russian economy?
Robert: (26:48)
Yeah, this is a thing I think about a great deal. And I look immediately at the Brics nations, obviously, of which Russia is one of them -- Brazil, Russia, India, China, South Africa. In fact, as we speak, the Russians have been doing naval exercises with South Africa. And if we extend into Africa even further there, the Russians just, it's almost complete, have an agreement now with Sudan to make a naval base on the Red Sea. And Wagner Group is now in Mali where the French have left. So if we expand our scope from the Brics to this great global south, including, especially Africa, the Middle East, parts of Asia, which I think are more concerned with the China issue right now, but even South America -- like Brazil and, and Mexico and states obviously like Nicaragua and Bolivia and others that have a propensity, and Cuba, that have propensity towards Russia, we're seeing a very mixed bag.
And I find this alarming. I find it disturbing, again, going back to the thesis that regardless of what the causes were, the fault was for this war, and obviously a great deal of this is on the Russians, but certainly not all of it. What has happened in the global south is they look at this through a different prism than the United States, Canada, Europe, the developed West. They are looking at this from, I think a prism of history in which they look kind of askance at some of the activities of what they might have called, back in the day, an imperialist nation, a colonial nation, something like that.
And it never fails to alarm me when I see even on YouTube, but certainly in Telegram, certainly on social media, and even in mainstream news in places like ones you mentioned, Joe -- India, China, Brazil, South Africa, Saudi Arabia, Indonesia, the Emirates, Mexico, and throughout sub-Saharan Africa -- you see a narrative that in some cases is very forgiving of the Russian conduct of the war, but in other cases actually gloating over each victory that the Russians have, gloating over each deployment of a new Russian weapon. Gloating over this ability of the Russians to counteract Nato as a body.
So I think we've been enormously effective in terms of the developed West, and I think less so in terms of the global south. And that leads to the second part of your question about the economic impact. And I think this really has confounded everyone. And we, we can go in at some point if you want into sanctions and asset free freezes and all, but we have accelerated a trend where Russia really wanted to do an Asia pivot, or what I would even call a global south pivot, a pivot away from Europe. And they've been remarkably successful at it. The data's all bad, we can't trust any of the data, I think, on natural gas and oil exports, commodities, diamonds, anything like that. Lithium, for example gold, silver.
But it is quite clear that the natural gas is flowing into China through Power of Siberia, and eventually the Power of Siberia 2 pipeline, tankers around the world, some legally, some illegally are moving Russian crude because there's just too much money to be made on it at the prices it's being sold and resold at.
And I think even in Europe, you're seeing, and the United States, you're seeing some kind of deceptive things in terms of oil products and all and as to how they're moved around and what counts as Russian oil, what doesn't count as oil that's gone through various levels of refining or processing. So I think this has exacerbated an economic current that the Russians kind of wanted to do anyhow, at some point.
I also fear that some of the nations in the sort of Brics environment, including countries that are lining up now to join Brics -- like Saudi Arabia, like Algeria, perhaps like Argentina and Brazil, Argentina at some point, you're seeing them look for alternatives to a US-dominated world economy, to a dollar denominated economy, to an economy where the SWIFT system and international banking, which is dominated by American banks, is really the only way of getting to settlements. Where maritime insurance for tankers and containers are controlled by United States interests. And I find this disturbing because I think we need to promote our model of liberal capitalism, of global markets, of free markets. And I think the war might be having a somewhat perverse effect on that.
Tracy: (31:39)
You know, you mentioned oil and gas still flowing and emanating from Russia. Can you talk to us a little bit more about the role of those commodities in this conflict? Or how different do you think this would've been if Russia wasn't a major world supplier of natural gas?
Robert: (31:58)
I think right now Russia is still and has been for a long time, you know, largely reliant on its hydrocarbon exports and also its raw materials and mineral exports and such. Obviously they export a variety of things, but I think they rely very heavily on this. I think when the Europeans, and [they] did this quite brilliantly, I watched how quickly the Germans put an LNG terminal in, for example, the Baltic, and in record time they built a terminal to bring in imports from the US. But when I think when the Russians started to lose a great deal of this, especially the natural gas side into Europe, I think this hurt them. I think it hurt them considerably. I think they had considered this as a possibility. The whole Nordstream/Nordstream 2 is a whole other can of worms that could be talked about.
But I think they had already started to set up alternatives in terms of the numerous pipelines that go into Europe, go into the Middle East. They're talking about going across Iran now, for example, and going into China. So I think they were able to recover a lot of that, and that is the fuel that keeps their military industry going, that is the fuel that keeps them able to, and fuel, literally fuel that keeps them able to feed their people, for example. And I think they've done much better than we thought they did, but I think the sanctions have caused some very big systemic problems for them, whether it's in the aviation industry and the high tech industry, and access to certain types of products and services. You know, it's funny, you can watch on YouTube, Russians going to supermarkets, and you don't know if these are Potemkin villages that are selected for that reason, I suspect they are not.
But the stores are full, the shelves are full, and maybe the product mix is a little different. Maybe they're complaining that the box, the cardboard boxes are painted white instead of multicolor because of a lack of dyes. But you see food from Turkey, from Iran, from Asia, of Russian production. Russia is a bread basket and always has been. So I think they're doing reasonably well on that. But the pain is certainly happening, and over time it's really difficult to predict how bad the pain will be inside of Russia. And I think this is part of the gamble that we're taking right now.
Joe: (34:21)
Talk about that a little bit further. I mean, I'm still curious, you know, going back to one of your first answers about the domestic support and you know, you mentioned a lot of sort of young, talented people sort of got on the next flight as soon as this war started, but obviously, you know, there's still a large middle class or the Russian middle class like in the major cities around Moscow, etc. How have the sanctions or just the economic effects or the war, sort of affected their day-to-day life? As best as you can tell, and what are the risks to Putin, if this sort of ongoing degradation of sort of normal life continues to worsen? Because again, wars are extremely costly for obvious reasons.
Robert: (35:06)
Yeah, I think the, I think at certain levels, Russians certainly are suffering. When you look at the major cities like St. Petersburg and Moscow, I think it goes much further than your inability to get a Gucci bag or for example, to have a Marks and Spencer. I think there are systemic things that are happening. I think the inflation is not too terrible. I think the product mix is not too terrible. I think people would like to have better access to cars. They'd like to be sure that the aircraft they're going to fly on are safe and are being maintained. But, you know, Russians historically are used to a bit of pain. I think this is a different era., of course, this is a different global era where people can see on social media how others live.
But this is a country that lives through the 900 days of Leningrad. This is a country that lived through Napoleon actually taking and burning Moscow. This is a country that lost -- heaven knows how many -- 20 million, 40 million due to their own murderous regime and World War II. So I think there is an ability to endure a lot of this. And one of the things Putin is doing is he is paying the soldiers more. He is bringing contract soldiers on board. He's paying death benefits that may seem very little to us, but are actually enough to feed a family for a couple of years, sometimes, for people who are killed in the war. And there are many of those, and there are many people that are very angry about this, the mothers of, of the victims of the war.
But you know, it's funny, I was watching on YouTube a while back, there's a charming series about Yakutia, the coldest place on earth where the temperatures hit -70. And they show the Yakuts, who are Russians, they all speak Russian, and they're out there in -70 just trying to get to the bathroom without freezing to death or get to the river so they can drill a hole and get some fish out without freezing to death. And I laughed at one point, one of our officials said, the Russians aren't winterized for the war. And I said, ‘oh my God, there are Yakut mortar crews right now that the Russians are showing on their social media in action. And for them, this is like, ‘wow, it's pretty warm here. This is pretty good weather here. We should stay here rather than going back to Yakutia,’ except that they love it. So yes, there is suffering, but on another level, the suffering is understood and it's a part of the Russian condition.
And what we have to do is find that balance between the economic suffering that would cause something to happen there or derail the Russian war machine, but not to cause such suffering that the people who listen to the Russian propaganda, and this is an information war, say, again, ‘He was right. They really are trying to break us up as a country. Why would they want to destroy my ability in Central Asia or in Eastern Siberia or in Arkhangelsk to eat and to get electricity and warmth and the things that we're used to in life.’ And I think we have to be very careful about this because this plays into, I think, a Russian way of thinking about life that has existed for centuries.
Tracy: (38:31)
You know, I realized when I was doing your intro and summarizing your career, I couldn't include everything. And there's one important thing I left out, which was that you were a director of the Center for Cyber Intelligence at the CIA. And so we have to ask you, we would be remiss not to ask you, what your take is on the cyber component of this particular conflict, because of course, we have had, you know, various things that have happened over the past 12 months, certain explosions and things shutting down, but it's never exactly clear whether or not there is a cyber component behind them.
Robert: (39:07)
Yeah, I'm actually a bit surprised that the minimal level of cyber activity we've seen from the Russian side. Now, there's no doubt, and they've been doing it for many years. They're doing reconnaissance in our infrastructure, our electrical utilities, our nuclear power plants and so on. And needless to say, doing everything they can to survey defense industry and government institutions. But no, there has not been, for example, an attack on April 14th on the IRS -- imagine shutting down the United States. There has not been an internet of things attack on the air conditioning systems at the Pentagon, Saturday night at midnight in August…
Tracy: (39:51)
I think you might be giving them ideas now.
Robert: (39:53)
I don't think I have to give them any ideas. But I will stop using examples in that case. The Russians have always used patriotic hackers, fellow travelers and such. Sometimes it's done directly from Russian intelligence. Sometimes it's done through proxies and cutouts and contractors. And again, this small army of patriotic hackers, some of whom have left the country to go make money doing cyber work and information work outside of Russia in places where they can earn a living. There was actually a report on Russian social media last night that a cyber attack had begun by these fellow travelers. I haven't seen any indication of that yet.
I think this is very alarming to both sides. There are things that could be done to the backbone of the internet. People think of the internet as being in the ether somehow, but it's actually largely dependent on fiber cables. And this kind of back and forth between the Russians and the Americans has been going on for a long time on this. I would really fear that if things get really bad for the Russians or they see this as a means of stopping arms from getting to Ukraine, that they would do such an attack, then there would be a retaliation. And the US has become infinitely more capable over time. And Nato, and places like Estonia, for example, are leaders in this area, I would worry about that.
And it's really mostly been at the tactical levels. And when we talk about cyber, of course we can't help but mention Elon Musk, Elon Musk who with Starlink was actually one of the saviors of Ukraine early in the war. And now he's having second thoughts about the use of Starlink for drone operations, for offensive drone operations. Again, with the fear that perhaps this will escalate the war. So I think there's a lot of things we don't know yet. I think there's a lot of very serious preparations going on, on both sides, but I'm just surprised we haven't seen war yet.
Joe: (41:57)
We've talked a lot, obviously, about the effect that this war has had on Russian citizens, the support for Putin among those who are in Russia. We haven't talked about the equivalent in Ukraine. Ukrainians have obviously, you know, seen their economy wrecked. They're experiencing power outages, all kinds of devastations, famines, obviously the incursion on their sovereignty. What is the effect that this is having in terms of support for Zelensky and the domestic political trajectory in Ukraine? Because we talked about the West and Russia, but we can't leave out, you know, the key other central actor here.
Robert: (42:37)
Yeah, I think again, we have, we have to go back to the original thesis that it is absolutely amazing and heartening that the level of resolve of the Ukrainian people, they've suffered catastrophic personnel losses, the true numbers of which we may never know, but are coming out and are much larger than we thought they were.
We've seen exactly the kind of economic destruction that you've talked about where the Russians, they are engaged in economic warfare. They're engaged in a classic type of economic warfare that I would call old school, that has always been done in war, which is destroying infrastructure which is of military value: electrical transmission, the ability of trains to bring troops and equipment to the front and so on. Economic warfare is nothing new. Think of the union blockades of the South in the Civil War, unrestricted submarine warfare in World War I, even strategic bombing in World War II where we tried to take out all the German factories.
But you're right, this has a huge impact on the Ukrainian economy. And eventually it becomes a question of persistence. Now bearing in mind that a number of Ukrainians, millions have left, some will not come back. Some are now in Poland, I think there's about a million and a half there now, in Germany and in other parts of the world. Some have come back when they saw that the war was going a little better than they thought it would, and they saw the bravery of the Ukrainian leadership and the Ukrainian army.
But eventually you reach a point where the economy is moribund, where there is no economy, it becomes a state completely dependent on the west, on financial support, on donations, not even to think about the eventual reconstruction period. And I think one of the smartest things President Zelensky said was he made it very clear to BlackRock and Goldman Sachs and Citigroup and so on. He goes, ‘you are very welcome here. You will make money here in the reconstruction period.’ And that's certainly a good argument for continued support because, at the end of the day, war comes down to money as well as power and geopolitical issues.
I think the issue of domestic support for Zelensky is fascinating. Zelensky is a rockstar in the West. Okay. He can appear in really almost any format. And he's welcomed. He has his brand, his way of dressing, his way of speaking, and he's quite good at it. And I think he's been very effective in the West on that. Very interesting. what's happening, though, back in Kiev now. Well, first they lost a helicopter with the entire interior ministry leadership on it, which I think was a painful accident. But in the same timeframe, you saw quite a number of senior officials being fired, being forced to resign, and I mean dozens. And this includes, you know, the defense minister, Arestovych , who was his primary advisor, a number of governors, a number of senior officials in different areas. And now you have the head of the Ukrainian Intelligence service who's going to take over the defense ministry.
And you've seen the mayor of Kiev sort of clash with President Zelensky over the approach to the war and who's doing enough and who's not doing enough. So it's very interesting to watch the Russian reaction to these figures too. And the Russians are, again, it's a propaganda war, and they're terrible in lot of what they say, they call Zelensky ‘the clown,’ that's their name for him. They have a number of epithets that they use. They don't say this about Zaluzhnyi, the head of the general staff. They say this is a fine officer who we respect and who has really given us a bloody nose.
So my question is, where is President Zelensky right now? We know where he is in terms of the west of that there can be little question. At home, I think he's still doing enormously well because he is the face of the war, but I think in a country where we have to admit there is a deep level of corruption and like in any political system, there is infighting, there is a desire for power, there are resentments, there are jealousies. We've seen a number of changes recently that lead us to question where is this going in terms of domestic politics and what would the Russians do to try to exacerbate this or take advantage of it.
Tracy: (46:56)
I just have one more question and it's, you know, one of those things trying to sum up the whole conversation, but what's been the most surprising to you about the past 12 months?
Robert: (47:08)
I think the difficulty of predictions again, and I started with that and I'll end with that, has really confounded most observers in this -- from whether the war would happen to how quickly it would be resolved. And we're at a point now where we may be looking like, where Prigozhin from the Wagner group says, well, it may might take us two years to recover the rest of the Donbas. I think what surprised me, and I think what surprised a lot of observers is we watched as this war began and we saw the javelin missiles and the stinger missiles and the intelligence support and all. And now we're seeing that this is all terribly important, the drone war, the aerial war, the intelligence war, but we're seeing World War I type trench systems. We're seeing the Russians bring out artillery pieces literally from World War II and just bombarding the front continuously, continuously, continuously to try to break down the Ukrainian resistance.
And I think this new plan of bringing in tanks, you know, whether it's American Abrams tanks, or challengers or Leopard 2s or less effectively Leopard 1s, I think this will make a difference. But we're seeing a kind of war that I think people thought had somehow gone away in World War II, and we're seeing it back, and this is the Russian way of war. And when you see the Russian chief of the general staff Gerasimov now taking charge of the war, you see that they're looking at this in a different way. And this has become a slug fest. So I think that surprised me.
Another thing I think that surprises, and confounds me again, is on the information warfare, I think where all sides have kind of painted themselves into a corner that they can't emerge from anymore. The United States can't walk away from this, not after Afghanistan, not with the very real need to defend the Ukrainians against a Russian invasion. And the Russians can't walk away from areas that they have formally annexed, whether or not this has been recognized by the world. And I think that's the most confounding part of this, in that the rhetoric of the information warfare and also the level of the economic warfare here, has made it that I don't see anything in the short term that will allow this to resolve itself. And I fear, you know, as you and Joe said at the beginning, that we may end up in kind of a demilitarized zone with conditions of ceasefire and peace, but I don't think anyone can predict it. So that is what has confounded me. And also just the inability of anyone to correctly determine what would happen in this war. Predictions are just so hard to make.
Tracy: (49:57)
All right. Robert Papp, really the perfect Odd Lots guest. Thank you so much for coming on. We're going to have to have you back to talk about the history of the Russian stock market. Just do an episode on that.
Joe: (50:06)
Yes!
Robert: (50:07)
If any of your investment audience want to revive their investments in 19th century securities, I've indexed these and given total return models for them. And sadly, just as an opening, as a final comment, I would say what I found in that period after all that work was, you really did well with Blue Chips.
Joe: (50:26)
Nothing ever changes,
Robert: (50:27)
Nothing ever changes. Dividend dividends dividend. So that was that conclusion. Anyhow, thank you guys so much for having me. It's been a lot of fun.
Joe: (50:36)
Thank you so much.
Tracy: (50:37)
Thanks, Robert. That was great.
Tracy: (50:53)
So Joe, I thought that was a fantastic summary of the past 12 months or so, and to Robert's point, it is kind of crazy when you think back to February of 2022 and what people were expecting in terms of a military conflict, like yes, we have had drones, there are some very, very advanced missiles being used and things like that. But on the other hand, you know, we're talking about Russian tanks from World War II rolling across the border. And you know, I'm thinking back to that episode we did on wooden pallets, the shortage of Russian wooden pallets, it all seems very, very old school in terms of military technology.
Joe: (51:32)
Yeah. You know, I think to Robert's point about the inability of people who try to predict these things to get anything right has been really striking. And I do think, you know, if you go back to last February, probably most people in their minds would've expected something maybe more akin to the invasion of Crimea, which for the Russian was kind of a cakewalk. They walked in and they took it and probably Putin roughly thought the same thing. Maybe it'd be a little tougher. And that explains the sort of very poorly thought out state of the invasion, the all out invasion that proved to be very costly, the different terms in this. And then yes, the fact that now a year later, and we talk a lot about these advanced weapons systems, but it is just this grind, this trench warfare, horrible human losses persisting. And then this question of, okay, how long can either side take it? It's absolutely just this sort of horrible state of affairs going on right now.
Tracy: (52:31)
Well, the other thing that I was thinking about and Robert spoke about, was this idea of the entrenching of positions and the fact that people are, you know, they seem to come up with rigid demands that don't really allow for some sort of compromise -- I mean, for obvious reasons on certain sides. But then what that tends to lead to, and this kind of gets into his information warfare point as well, is that you just get these hardening of alliances and of feelings. And I don't think that in the West we are necessarily seeing the extent of that in other places in the world.
Joe: (53:13)
Yeah, no, I mean, I do think that the reactions to this war outside of US and Europe have sort of been undercovered, and were probably explanatory about the degree to which the Russian economy continued to operate. But to this point about the hardening positions, it does make you wonder whether that sort of dotted line warfare forever outcome is where it's going. Because if none of the sides, if there's nothing on paper that any side can theoretically accept, right? So then you have to sort of find some outcome that is like de facto acceptance, but never stated publicly. And so, you know, hopefully that is something more peaceful than we have right now. But again, it's hard to see, okay, what does that ultimate off-ramp look like?
Tracy: (54:01)
Yeah. All right. On that pessimistic note, shall we leave it there?
Joe: (54:05)
Let's leave it there.