Streetwise Professor

May 4, 2014

FUD Wars: Fear the Uncertainty

Filed under: Economics,Military,Politics,Russia — The Professor @ 1:07 pm

A US Treasury Department official has confirmed what I had conjectured:  the administration is pursuing a fear, uncertainty, and doubt sanctions strategy:

“One of the purposes of sanctions is to create uncertainty and to create the expectation in the marketplace that worse could be coming,” said David S. Cohen, the Treasury Department under secretary who oversees sanctions. “That uncertainty has led the market to punish the Russian economy.”

It must be noted that Putin is also pursuing a FUD strategy, but with armor and combat aircraft. The continued presence of large Russian formations hard on the border with Ukraine, which pose a constant threat of invasion, is definitely sowing FUD in Ukraine (and in some western capitals). Today Putin cranked up the implied threats by staging large numbers of combat and support aircraft to Crimea.

Putin clearly hopes that the mere threat of invasion will so intimidate the Ukrainian government that it will either capitulate, or collapse, thereby leaving Putin free to pick up the pieces. In either outcome, Putin would achieve his objectives without a shot being fired by his main force units.

Cohen’s statement identifies the crucial assumption underlying these FUD strategies: they are intended to “create the expectation . . . that worse would be coming.” But can those expectations be sustained?

What happens if the threats are never carried through? In the case of financial sanctions, what conclusions will Putin draw if his continued aggressive actions do not actually cause Obama or the west generally to do something worse?

Especially for someone like Putin, who is predisposed to consider the west generally and Obama in particular to be weak and soft, he will conclude that the threats are a bluff. The deterrent effect of the threats will disappear.

Ukrainian officials could make similar judgments about Putin if he doesn’t invade. They could conclude that he is deterred by the direct and indirect costs of invasion.

Strategies that rely on manipulating expectations through threats are fraught with dangers. The potential for miscalculation and misinterpretation is high. Not carrying through raises doubts about the credibility of the threats, which could lead the target of the threat to become complacent and act in a way the threatener cannot accept. This risk is particularly great for Putin, given his overweening self-confidence and his disdain for the US, the west, and Obama. The risk is compounded by Obama’s history of drawing then erasing red lines.

In other words, FUD wars seem to be a cheap way of waging conflict, and they can be. But expectations are tricky things, and the infinite regress of expectations about expectations, and expectations about expectations about expectations can lead to complexity and miscalculation. Which means that FUD wars can very easily lead to real wars. Which means that you should fear the uncertainty, and doubt that FUD is a prudent strategy.

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21 Comments »

  1. And if everything was monetary: creating systemic risk, draining capital from risky assets to artificially sell low-priced US T-Bills and T-Bond debt.
    Simon

    Comment by Simon Jacques — May 4, 2014 @ 1:51 pm

  2. https://www.rusi.org/analysis/commentary/ref:C53628C52C2519/#.U2YXF9oaySN

    Ukraine Crisis: The Strategic Importance of Slavyansk

    Kiev knows that it has a strategic reserve of Kalashnikov assault rifles and other light weapons stored in Ukraine as a mobilisation reserve dating back to Soviet times. It has hinted quietly but strongly in back channels between Ukrainian and Russian military establishments that it might be prepared to open this strategic reserve of weapons to an eastern Ukrainian population prepared to resist any Russian military incursions. Since the stockpile consists of up to five million weapons, the prospect would be a nightmare for Russian military planners if they realistically prepared to move into eastern areas of Ukraine. The prospect of civil war and an anti-Russian insurgency on an unprecedented scale with unpredictable consequences represents a real – if extremely dangerous – bargaining chip for Kiev.

    The stark fact is that at least half the strategic stockpile of light weapons on Ukrainian territory is concentrated near Slavyansk.

    This explains many of the manoeuvres around this small and otherwise unimportant city. On 24 April Ukrainian authorities re-launched their ‘counter-terrorist operation’ against Russian separatists who had occupied key areas to restore Kiev’s control over Slavyansk. In a coordinated response Russian forces edged closer to the Ukrainian border in such a way as to threaten a territorial incursion to support the separatists. This Russian move was dangerous but had the desired effect when the Ukrainian counter-terrorist operation was immediately halted by Kiev. It was an interesting standoff between two sides threatening each other with their adversary’s worst fears. Today, Kiev has upped the ante in the standoff and will test Russian resolve to prevent the Ukrainian government from regaining control of the city and its light weapons stockpile.

    Comment by elmer — May 4, 2014 @ 2:41 pm

  3. Interesting, Elmer. The obvious question: where is the ammunition? Same places?

    The ProfessorComment by The Professor — May 4, 2014 @ 2:58 pm

  4. “Steinmeier said he had proposed a fresh round of Geneva talks during telephone conversations with EU foreign policy chief Catherine Ashton, US Secretary of State John Kerry, Russian Foreign Minister Sergei Lavrov and the Organization for Security and Cooperation in Europe (OSCE).”

    http://www.dw.de/ukraine-germany-calls-for-2nd-geneva-conference/a-17612046

    Planning to retire to some cushy sinecure at Gazprom, are we, Herr Steinmeier?

    Comment by Ivan — May 4, 2014 @ 3:10 pm

  5. @Ivan. This is exactly why NSA should be spying the hell out of the Germans. We should actually start thinking about sanctioning the Germans.

    The ProfessorComment by The Professor — May 4, 2014 @ 6:20 pm

  6. Slavyansk has that huge old weapons store, sits on a highway connecting Rostov and Kharkiv, is an important local railway junction and almost a twin city to Kramatorsk (which has the shared airport). So yes, Slavyansk is important for more than one reason, and so is Kramatorsk.

    From what I’ve read by Ben Judah and Nicholas Shaxson, and from my own understanding of Russia’s big business, I feel the underestimated weak link is Britain. German exports and expertise will always be in demand, which means once the regime changes in Russia, they will be back in business. Britain has little to sell to foreigners except financial services, real estate and education. Once they scare away Russian money, other dirty dough will follow, and the UK’s economy and soft power will be deflated – for good.

    Comment by Alex K. — May 5, 2014 @ 12:46 am

  7. Alex K.,

    Don’t the Brits still have Newcastle coal and very cheap beef (cows fed their brethren’s brains) to export? :-)

    Comment by vladislav — May 5, 2014 @ 1:37 am

  8. Britain has little to sell to foreigners except financial services, real estate and education. Once they scare away Russian money, other dirty dough will follow, and the UK’s economy and soft power will be deflated – for good.

    True, but Britain’s position is an odd one: sanctions on Russia will generate more capital flight, which will largely go to London.

    Comment by Tim Newman — May 5, 2014 @ 7:06 am

  9. It has hinted quietly but strongly in back channels between Ukrainian and Russian military establishments that it might be prepared to open this strategic reserve of weapons to an eastern Ukrainian population prepared to resist any Russian military incursions.

    This is another reason why I think Russia is playing a very dangerous game. I don’t think there will ever be much civil unrest while Putin remains in control, but come the day when he steps aside or is pushed, I can envisage a rather large and unstable power struggle going on which could easily spill over into the streets. Then ordinary Russians can look forward to living alongside large, unofficial armies of thugs armed to the teeth who have had plenty of practice in overthrowing government institutions and establishing themselves as the de facto authorities in town, in a country which is awash with weapons. I know several ordinary Russians who think what their government is encouraging in Ukraine is all fine and dandy, this has the potential to bite them on the arse a lot more savagely than they think. If things start getting much more bloody in Ukraine, I’d be interested to see what Belorussia does. Sooner or later, they are going to get dragged in one way or another.

    Comment by Tim Newman — May 5, 2014 @ 7:10 am

  10. The myth and legend of Vlad Dracul Putler “protecting Ukrainian citizens” continues.

    Putin: “We don’t want to do it, but we will, we will do it only in order to protect Ukrainian citizens. We will put their women and children in front of our troops, not behind, but in front and we will be hiding our solders behind them. I dare any Ukrainian commander to give an order to shoot at such crowd.”

    http://philadelphia.cbslocal.com/2014/03/08/vladimir-putin-threatens-to-use-ukrainians-as-human-shields/#.U2V7-OUCKCE.facebook

    PHILADELPHIA (CBS) – Dick Morris acquired and broadcast on Talk Radio 1210 WPHT a threat from Russian President Vladimir Putin to use Ukrainian women and children as human shields if a military conflict develops between the two countries out of the current crisis currently unfolding in Ukraine’s Crimea region.

    The brief video, which aired on Russian television, appears to show Putin responding to a reporter’s question.

    His translated statement reads, “We don’t want to do it, but we will, we will do it only in order to protect Ukrainian citizens. We will put their women and children in front of our troops, not behind, but in front and we will be hiding our solders behind them. I dare any Ukrainian commander to give an order to shoot at such crowd.”

    “Clearly he threatened to use human shields to protect Russian troops,” Morris said before airing the audio in the original Russian, “I don’t know why this isn’t the lead story all over the United States.”

    Comment by elmer — May 5, 2014 @ 8:25 am

  11. @Tim Newman

    Funny that you should mention that

    Here is a post on Twitter:

    https://twitter.com/keyngdomg/status/462686304925253632/photo/1

    “Dear Muscovites, all of the armed forces are stationed at the border of Ukraine. You now have a unique opportunity to take over the Kremlin.”

    Comment by elmer — May 5, 2014 @ 8:28 am

  12. @elmer. There is definitely a “we have to destroy the village to save it” feel to Putin’s rhetoric.

    The ProfessorComment by The Professor — May 5, 2014 @ 8:53 am

  13. @Tim. Putin reminds me of the Sorcerer’s Apprentice. Or Dr. Frankenstein. He has brought to life something that he cannot control and could destroy him, and Russia along with it.

    The ProfessorComment by The Professor — May 5, 2014 @ 8:56 am

  14. SWP, Alex K. has answered your question, I think.

    But – Ukrainian media also reported an additional reason for grabbing or focusing on Slovyansk – shale gas which would make Ukraine’s energy sector, heavily reliant on coal and nuclear energy, less dependent on the whims of the Kremlinoids, and the penchant of the Kremlin to try to use gas and oil as a political weapon.

    TSN and UNIAN are Ukrainian news sources, but here is a link to a translated report:

    https://www.facebook.com/emaidanua/posts/623645117725167?stream_ref=10

    Comment by elmer — May 5, 2014 @ 10:07 am

  15. This is another reason why I think Russia is playing a very dangerous game. I don’t think there will ever be much civil unrest while Putin remains in control, but come the day when he steps aside or is pushed, I can envisage a rather large and unstable power struggle going on which could easily spill over into the streets.
    That’s why Putin, the pussy that he is, is NOT behind the uprising in Ukraine’s East. That is solely the accomplishment of the Kiev junta (OK, the bloodless annexation of Crimea may have inspired the locals a bit). There is (or WAS) a perception amongst Western Ukrainians that Eastern Ukrainians are vatniks – “cotton wool”, “genetic slaves”, “sovoks” with zero initiative that can only follow orders. Well… surprise!

    http://www.nytimes.com/2014/05/04/world/europe/behind-the-masks-in-ukraine-many-faces-of-rebellion.html

    Comment by So? — May 6, 2014 @ 4:50 am

  16. That’s why Putin, the pussy that he is, is NOT behind the uprising in Ukraine’s East.

    If that’s the case, which is highly unlikely, then one would expect to see Putin working furiously to defuse the situation, distance himself from the protests, and tighten up the border between Russia and Ukraine to ensure there is no free movement of armed, Russian-speaking thugs between the two countries.

    But we don’t see those things, for the simple reason that your premise is wrong.

    Comment by Tim Newman — May 6, 2014 @ 7:02 am

  17. “It doesn’t matter who votes – it matters who counts the votes” – stalin

    http://www.forbes.com/sites/paulroderickgregory/2014/05/05/putins-human-rights-council-accidentally-posts-real-crimean-election-results-only-15-voted-for-annexation/

    Putin Accidentally Posts Real Crimean Election Results; Only 15% Voted For Annexation

    …….

    To make sure no one misses this:

    Official Kremlin results: 97% for annexation, turnout 83 percent, and percent of Crimeans voting in favor 82%.

    President’s Human Rights Council results: 50% for annexation, turnout 30%, percent of Crimeans voting in favor 15%.

    Putin’s people pulled this “rather unfortunate” report from the President’s Human Rights Council website, but council member Svetlana Gannushkina talked about this subject on Kanal 24 (as reproduced on Ukrainian television), declaring that the Crimean vote “discredited Russia more than could be dreamed up by a foreign agent.”

    …………

    Comment by elmer — May 6, 2014 @ 8:52 am

  18. It is hard to see how ordinary Ukrainians who want to join Russia would have Russian military hardware, uniforms, rockets, and other equipment if they were truly acting on their own. If it was indigenous to Ukraine, one would expect the same kind of homemade equipment (clubs, molotov cocktails, catapults) like in used during the Maidan protests which would take a long time to produce. They are clearly being provided those weapons by official Russian provocateurs, and it is likely any native eastern Ukrainians are being paid, organized, and trained. The hand of Putin, “the pussy that he is”, is evident.

    Comment by Chris — May 6, 2014 @ 6:57 pm

  19. The Dad’s army in the east is simply lucky to have the Ukrainian army to make them look good. For Christ’s sake theyve just reanimated a T-34 WW2 memorial in Lugansk.

    Comment by So? — May 6, 2014 @ 9:27 pm

  20. The Dad’s army in the east is simply lucky to have the Ukrainian army to make them look good. For Christ’s sake theyve just reanimated a T-34 WW2 memorial in Lugansk.

    Nobody’s denying there are a bunch of drunken chancers running about in Ukraine armed with farmyard implements and sports equipment. But their presence does not mean Russian military personnel or Russian-backed thugs are not also present.

    Comment by Tim Newman — May 7, 2014 @ 12:38 am

  21. You’d think the almighty NSA would’ve come up with something by now.

    Comment by So? — May 7, 2014 @ 11:05 am

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