What happens to UK businesses if Ukraine joins NATO?
It’s undetermined how long it may be until they achieve it, but Ukraine is pushing to join the NATO alliance.
As one of the primary reasons for Putin’s advance, this topic was heavily debated for over a decade before the Russian invasion. With the conflict already having an adverse effect on UK businesses, we ponder how they could be affected if, or when, Ukraine finally joins NATO.
Will supply chain challenges increase if Ukraine joins NATO?
Since the Russian-Ukraine War escalated into a full-scale conflict in February last year, we’ve seen a host of product shortages, price rises and supply chain issues. For instance, as countries stopped using Russian oil, petrol prices rose to unprecedented highs. And although the UK does not directly import gas from Russia, it was largely affected by rising wholesale prices and sought to double its gas imports from the US to help alleviate the strain this caused.
The overwhelming impact is, perhaps, best summarised by a 2022 report from Accenture which found that the supply chain challenges resulting from Covid and the Russia-Ukraine conflict could cause a potential cumulative loss of €920bn (£787bn) to GDP across the Eurozone by 2023.
Dr Jonathan Owens, Senior Lecturer in Operations and Supply Chain Management at the University of Salford Business School paints a picture of the conflict’s effect last year and what we can expect as it continues.
He comments: “Globally, we have witnessed and are perhaps becoming accustomed, since the start of the pandemic, to commodity prices spiking as a direct impact of supply chain disruptions. However, the Ukraine-Russian conflict has also added to further global supply chain anguishes and contributed to the global cost of living crisis and rising inflation.
“The conflict is especially likely to have a continued inflationary impact on the cost of raw material, energy, digital systems, procurement, logistics and supply chains. The cost of food is already being impacted because of the collapse of the Black Sea grain deal agreement that Russia has recently withdrawn from. This has already impacted prices of grain and oilseed in the global market, which was unfortunate as prices for wheat and corn were falling but were taking time to hit the prices in UK supermarkets due to suppliers investing in long-term global market pricing.
“Global supply chains could be used to respond to meeting the increase of demand. However, this would add costs to the supply chain and potentially prices in the shops for the customer.”
The Black Sea grain initiative was negotiated in July 2022 between Turkey, the UN and Russia to ensure Ukraine, one of the world’s largest grain suppliers, could export grain to the world through its southern ports via the Bosporus Strait. The deal succeeded in allowing 33 million tonnes of grain to leave Ukraine’s ports in the year to July and since the deal was done, food costs have dropped around 23 percent. However, with the deal officially coming to an end, food inflation, which is already at 17.4% in the UK, could get even worse as supermarkets and other companies deal with increased costs.
The cyber risk to UK businesses
It’s not just the loss of deals and treaties that are putting businesses and supply chains under strain. Cyberattacks on supply chains are not uncommon and since the escalation of the Russia-Ukraine conflict, there have been fears that Russian hackers will increasingly target UK businesses.
Back in April, Deputy Prime Minister, Oliver Dowden even warned the audience at a CyberUK conference in Belfast that Russia-aligned hackers are seeking to “disrupt or destroy” Britain’s critical infrastructure. At the same conference, the CEO of the National Cyber Security Centre (NCSC), Lindy Cameron, issued an official threat alert to critical businesses, such as energy and water firms, recommending that they take measures to protect themselves against the emerging cyber threat.
Tom Kidwell, Co-founder of Ecliptic Dynamics, says Ukraine joining NATO could mean a heightened risk of cyberattack for UK firms, but there are two main things to consider.
He comments: “From a cyber risk perspective, we need to determine if the impact of Ukraine joining NATO increases the activity of threat actors. The primary consideration would be from Russia/Russian State-affiliated groups. There is a distinction between directed, deliberate State actions, as a response to Ukraine joining NATO, and more opportunist criminal activity. Both have the potential to heavily disrupt UK businesses, but the motivation is different.
“We may see an increase in criminal activity coming from Russia towards NATO member states, as Russia is less willing to stop this activity coming from its territory. This may not be centrally controlled, but it would be akin to creating an ‘ungoverned space’ from a criminal perspective, where they could operate with reasonable freedom and limited repercussions from local law enforcement.
“The secondary consideration is how resilient UK businesses are versus other NATO member states. If UK businesses are more resilient, and therefore a harder target, a threat actor would choose the path of least resistance when considering retaliatory actions. If a UK business has minimised and controlled its cyberattack surfaces, ensured they are secured and have response plans to attacks, they will be a much less appealing target. However, any business is only as strong as the weakest link, which is why knowing your supply chain is crucial as well.”
Preparing for the potential disruption
With the war in Ukraine looking as if it will continue to impact inflation, regardless of whether Ukraine joins NATO or not, UK businesses should take steps to mitigate the impact. A government survey from last year found that a third of UK businesses suffer weekly cyberattacks, so improving cybersecurity should also be a priority for UK firms.
Kidwell says businesses should ask themselves one important question regarding their digital footprint, which can help them to prepare.
He comments: “The hard reality is, by having any digital footprint as a UK business, you have an attack surface that you need to manage correctly. Threat actors can target you from virtually anywhere, and the motivations can vary depending on what their intent is (financial, disruption or just destruction.) The question UK businesses should be asking isn’t, will we see a rise in threat? It should be, have we prepared and taken control of digital infrastructure in a responsible manner?”
According to Owens, price inflation caused by the Russia-Ukraine conflict could have been a temporary driver in causing companies to broaden their supply chains and he says following the example of Taiwan Semiconductor Manufacturing Co could help protect supply.
He explains: “Taiwan Semiconductor Manufacturing Co (TSMC) has set up a factory in Arizona to move toward an in-house solution. However, this has raised another significant global problem that is being recognised in the UK, a skills shortage. In general, there is a shortage of procurement and supply chain personnel across all sectors in the UK and this sometimes causes a reactionary rather than strategic approach to developing supply chains.
“The Ukraine-Russian conflict has escalated supply chain disruption and concerns for most business services. While the current climate is unpredictable, UK businesses need to be proactive and consider how the situation may develop over time and what scenarios might arise. They should consider the security of supply, who is in their supply chain, and how visible and resilient the holistic chain is. Also, the consideration of an in-house solution and relocation of a global supplier to the end distribution, if this is possible, as is the case with TSMC.”
Whether Ukraine joins NATO or not, supply chains are already disrupted, and the risk of further disruption is ever-present. So, taking steps now to mitigate against this and protect against cyberattacks will hold businesses in good stead, even if Ukraine finally joins the alliance and problems begin to escalate.