A T-14 Armata tank rolls towards Red Square to attend a rehearsal for the Victory Day military parade in Moscow last May. British intelligence says Russia might deploy these tanks in Ukraine. AP Photo
A T-14 Armata tank rolls towards Red Square to attend a rehearsal for the Victory Day military parade in Moscow last May. British intelligence says Russia might deploy these tanks in Ukraine. AP Photo
A T-14 Armata tank rolls towards Red Square to attend a rehearsal for the Victory Day military parade in Moscow last May. British intelligence says Russia might deploy these tanks in Ukraine. AP Photo
A T-14 Armata tank rolls towards Red Square to attend a rehearsal for the Victory Day military parade in Moscow last May. British intelligence says Russia might deploy these tanks in Ukraine. AP Photo


On Ukraine, both Russia and Nato have backed themselves into a corner


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January 22, 2023

The Nato-Russia confrontation is increasing in intensity, and fast approaching a turning point that could make it even more dangerous. The escalation is following a military trajectory, underscored by meetings convened this week by top generals from Nato and Ukraine, amid terrifying remarks being made by Russian leaders about possible "nuclear options".

Today, close to the one-year anniversary of the start of Moscow's full-scale invasion, there are few signs of hope for a political solution. Rather, what's been a proxy war so far could transform into direct conflict. In seeking to back the other into a corner, both sides may have backed themselves into a corner, making it impossible for either of them to back down.

Dmitry Medvedev, Deputy Chairman of the Russian Security Council, put it bluntly, when he said: “The defeat of a nuclear power in a conventional war may trigger a nuclear war." Commenting on Nato support for the Ukrainian armed forces, he added: “Nuclear powers have never lost major conflicts on which their fate depends." The Kremlin confirmed that Mr Medvedev’s remarks were consistent with Moscow’s nuclear doctrine.

Western leaders have previously discounted such remarks from the former Russian president. They might even ignore the remarks made by Ramzan Kadyrov, head of the Chechen Republic, who said: “Russia will never allow itself to lose in any confrontation, and it can press the button, and peace be upon you.” Mr Kadyrov, whose forces are fighting alongside the Russian army, was obviously referring to nuclear weapons.

Indeed, western leaders seem confident – in varying degrees – that Moscow wouldn't dare use nuclear weapons in the war, believing this would lead to the defeat of its army and even bring down its regime. They are confident it will eventually back down. But Russian President Vladimir Putin isn't known to back down, in which case might they be mistaken?

Ukrainian President Volodymyr Zelenskyy addresses Nato defence chiefs in Ramstein-Miesenbach, Germany, on Friday. Getty Images
Ukrainian President Volodymyr Zelenskyy addresses Nato defence chiefs in Ramstein-Miesenbach, Germany, on Friday. Getty Images
Nato’s strategic push for more logistical support for Ukraine will pose a significant challenge for Russia

Why is the current round of escalations more dangerous than previous ones? First, there is a concerted effort in the West to seek unprecedented aid for Ukraine, including tanks, missiles and other military hardware that could enable Kyiv to launch attacks on Russian territory. Moscow views these weapons, especially long-range weapons, as provocative.

Further, Washington has now added Crimea into the military equation, knowing that this would rile up the Kremlin. Ukraine President Volodymyr Zelenskyy reaffirmed his country's aim to restore Crimea, which Moscow annexed in 2014. Addressing western audiences, Mr Zelenskyy said: “Our objective is to liberate all of our territories … Give us your weapons and we will bring our land back." Washington agrees and believes Crimea would change the dynamics of the war and has urged new weapons shipments to Ukraine to this end.

The UK, through its defence secretary and military intelligence, has not only pledged to send armoured vehicles and thousands of missiles and ammunition to Ukraine, but also revealed efforts by Nato states to train Ukrainian soldiers. London has revealed that Moscow is deploying its new T-14 Armata battle tanks but, perhaps as part of psychological warfare, said that this decision was associated with risks for Russia in terms of production delays and the size and weight of these tanks.

Nato’s strategic push for more logistical support for Ukraine will pose a significant challenge for Russia. By mid-March, Ukrainian soldiers who have completed their training in the West, will return with new equipment and strategies that impose a new situation for the Russian army. This month, Ukrainian Parliament passed legislation allowing foreign citizens to fight alongside the army.

Last week's summit involving Nato chiefs of defence has brought a combination of alarm and renewed belligerence in the Russian political and military ranks. And as the war enters a new phase, there is talk within Russian circles about possible preventive measures.

"Preventive strikes" – meaning the nuclear option – are now being seriously considered. The conversation is no longer limited to tactical nuclear strikes exclusively in Ukraine. Rather, both the geography and scale of the nuclear options have expanded. I am given to understand that recent Russian remarks about the Poseidon Super Torpedoes are not a coincidence.

Former Russian president Dmitry Medvedev, seen at a meeting on Friday, has not ruled out nuclear deterrence. AP Photo
Former Russian president Dmitry Medvedev, seen at a meeting on Friday, has not ruled out nuclear deterrence. AP Photo

Some experts say these nuclear-capable torpedoes can generate tsunamis once they hit Nato countries such as the US and UK. Mr Putin first revealed them in 2018, claiming they were a new type of strategic nuclear weapons that no defence system in the world could intercept. They have also been described as doomsday weapons. Last week, Moscow announced production of the first batch, to be deployed onboard the Belgorod submarine. But is all this a bluff, or is it really a step towards executing a nuclear preventive strategy?

Nato members don't appear to be intimidated by the prospect of direct conflict with Russia, betting perhaps on a fear of consequences in Moscow. All this escalation could also be just a new peak in the war, to be followed by ceasefire negotiations and political settlements. But for now, it appears unlikely as the space for negotiations narrow and the space for warfare expands.

Of course, the West doesn't underestimate Russia's capabilities. It is also factoring in the regional actions of Moscow and its allies. For this reason, US diplomatic movements in the Middle East this week included efforts to hedge against Iranian adventures and Israeli initiatives, seeking to ensure that the situation remains calm in countries such as Iraq.

According to a White House statement, US National Security Adviser Jake Sullivan discussed with the leaders of Israel “Ukraine, as well as the burgeoning defence partnership between Russia and Iran and its implications for security in the Middle East region". Mr Sullivan stressed that the US would never allow Iran to acquire nuclear weapons.

For his part, Brett McGurk, the US co-ordinator for the Middle East and North Africa, led a large delegation to Iraq, holding the first meeting of its kind with Prime Minister Mohammed Shia Al Sudani, who despite being backed by Iran, recently stated that his country needed continued US troops presence in Iraq. Bear in mind that the Co-ordination Framework, the governing coalition backing Mr Al Sudani, has a different position that echoes Tehran’s call for US troops to leave, underscoring the importance of his diverging position. The US delegation did not hesitate to call for stopping Iraqi funds from being diverted to Iran.

All surprises are possible in the Ukrainian Pandora’s box. This war portends further non-traditional, "pre-emptive" and "preventive" strategies, which until recently were considered unlikely.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Updated: January 22, 2023, 2:00 PM