Professor Stephen Kotkin (on screen) and Conexus managing director Colin Tate

Geopolitical risk has been overstated and is already priced into investments, according to American historian, academic and author Professor Stephen Kotkin.

While some geopolitical risk is unpriceable, such as war, “if you can avoid a war between major powers, you can manage geopolitical risk,” Kotkin said at the Investment Magazine Fiduciary Investors Symposium in Katoomba earlier this month.

Speaking via video link at the symposium hosted by the institutional investor-focused sister publication of Professional Planner, Kotkin, a senior fellow at Stanford University’s Freeman Spogli Institute for International Studies, said cold war is not such a bad outcome, and may even be sustainable.

“Cold war, or managing a relationship where there are tremendous differences and you avoid a hot war, is a really good outcome, and that’s where we are right now,” Kotkin said. “And if we stay this way, we’ll be fine.”

Moving first to Ukraine, Kotkin said even if Ukraine’s counter-offensive is highly successful, “winning the peace is a lot harder than winning the war”.

“They are related but one doesn’t follow from the other,” he said, noting the US had failed to win the peace in both Iraq and Afghanistan.

Winning the peace in Ukraine would require accelerated European Union accession for Ukraine, and “some type of security guarantee, not likely NATO at this point”, Kotkin said, but that could look like the US agreement with South Korea – “an armistice that’s not dependent on territory,” which may involve Ukraine not getting back all of its internationally recognised territory.

Kotkin said the war is a tragedy but is also an opportunity for the West to re-discover the values on which it is based, to rediscover the importance of relationships, and to discover “that it had not been paying attention to large parts of the world” – which has caused to apathy from a range of countries towards issues of concern to the West. 

Potential futures for Russia

Kotkin ran through a range of futures for Russia. One possibility, albeit an unlikely one, is that Russia ceases to be a threat to its neighbours and becomes institutionally part of the West. An authoritarian leader – “a nasty person potentially” – could recognise the separate existence of Ukraine and cease hostilities. Russia could become a Chinese puppet regime, with outcomes for Ukraine that are hard to predict.

Russia could also continue on the path it is on now towards being a “very, very large North Korea,” persecuting its own people, threatening its neighbours, isolated from the international order with “nothing to lose by causing trouble.” Russia could also go through “chaos, possible semi-disintegration” with troubling repercussions for the region and the globe given Russia’s capabilities. The country could also undergo some other “black swan” even nobody can predict.

While some people in Washington have been hoping to “break Russia off from China in order to contain China”, the real game should be “engaging with the Chinese to help us manage the problem of Russia”, and stave off some of the worst possible scenarios, Kotkin said.

The Ukraine invasion has revealed a lot of lessons relevant to China, Kotkin said. “The West is not in decline, is not decadent, is not going away and is, on the contrary, unified, powerful, resilient and large – very large and substantial,” he said.

The West also has technology China relies on and has consolidated alliances around the world. The greatest protagonist on behalf of the West is Xi Jinping, Kotkin said, as “without him, we wouldn’t have this kind of consolidation”.