Odd Lots - Admiral Stavridis on a Plan to Get Ukrainian Wheat Out of a Warzone

Episode Date: July 4, 2022

Inflation was running hot even before Russia invaded Ukraine, but disruption in Europe's bread basket certainly hasn't helped matters and there are now plenty of warnings that a global food shortage could be looming. Even if the normal cycle of sowing crops and harvesting them can keep going uninterrupted in Ukraine, wheat exports would still need to get out of the country. With Russia currently blockading the Black Sea, this seems like a major challenge. In this episode of Odd Lots, former Nato Supreme Allied Commander Admiral James Stavridis presents one idea to get Ukrainian grains out and to the rest of the world. He suggests reaching back to a military playbook last used in the Tanker War between Iraq and Iran.See omnystudio.com/listener for privacy information.

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And I'm Tracy Allaway. Tracy, one of the ongoing, there are numerous forces that are sort of conspiring, so to speak, to create shortages in various commodities. But a persistent one clearly is the ongoing war, the invasion of Ukraine by Russia. Right. So this is something we've spoken about, I guess, multiple times at the point, but Ukraine, of course, sometimes referred to as the breadbasket of Europe or whatever cliche you want to use, a big portion of the world's grains derived from Ukraine. I mean, there's also lots of grain growing in Russia as well, which is also off limits now. But there's an issue,

obviously. Russia is blockading the country. It's hard to get that grain out, which means that there's a shortage, which means that prices are rising, which means that we've seen pressure. I mean, particularly in emerging markets, places like Egypt that actually get a lot of lot of their food supply from Ukraine. Yeah, that's right. And so we can look here at a chart of, say, wheat futures. And the price is obviously going up. But for the American consumer, they're sort of like underlying food commodity prices. They're only a modest contributor to food inflation overall. And many emerging markets, they're much more exposed directly to the price. And what's worse is not just the price, but outright shortages. So it's one thing to say, okay, the price is up. It's another thing to

say you literally cannot get the grain. You literally cannot get the wheat, but that is the risk that's being faced right now for multiple reasons, but in a large part due to this war. Right. And you can imagine that would manifest itself in political pressure in a lot of places in the world. Like when people can't eat, they tend to get angry, right? I mean, rightfully so. Yeah. And so then the question is, I guess there's two questions. One is what is happening with wheat plantings in Ukraine, but then even if plantings were to somehow be sustained amid the war, how much of the grain can actually get out? And as you mentioned, right now there's very little getting out. Yeah. And this sort of goes back to, I guess, the military tension between Russia and

Ukraine, but how do you actually get supplies into the country and how do you get vital goods out? because you still want the supply of wheat and food to be flowing relatively freely. And you also want Ukraine to be able to make some money, right, at a time when it actually needs money and could use that to buy weapons and supplies. That too. All right. So for more, we're going to be talking about some of the options to actually do this and whether there's a way for the U.S. military or Western forces to play a positive role in safely

getting grain out of the country. We're going to be speaking to Admiral James Stavrides, who is, among other things, is the 16th Supreme Allied Commander of NATO. He has personal experience in perhaps similar operations or similar situations of moving commodities around the world. He's a really deep understanding of this stuff. So Admiral, thank you so much for coming on Adlads. I really appreciate it.

It's great to be with both of you. Thank you. Absolutely. Thank you so much. So to start, you give us your assessment of the current situation, why exporting grain from Ukraine right, right now is so constrained?

Well, I'm really struck by a book I just published called To Risk It All, Nine Conflicts in the Crucible of Decision. And it's about decision-making under extreme stress. And so here I think we have a pretty good example of both Vladimir Putin on, if you will, the dark side of the equation and Volodymyr Zelensky on the lighter side, on our side of the equation. Both of these men are literally risking it all. And one of the crucial components of it is this ability or not to export grain. I think you and Tracy, Joe, did a nice job laying out the challenges

globally if it doesn't get out. So we come pretty quickly to, okay, Admiral, so how would you get the grain out. You know, I don't need to tell an odd lots audience that 95% of all international trade moves by sea. And grain, of course, is a commodity that moves out in mass. And so the idea of trying to truck it out or even train it out of Ukraine just it doesn't serve. So the problem is Russia has taken their Black Sea fleet, about 40 warships, and effectively they've blockaded the entire coastline of Ukraine. They already control on the land side about 70% of that coastline on the Black Sea, but that remaining 30% has Odessa in it. And Odessa is like Los Angeles Long Beach in the context of the United States. It's the port. And therefore, the,

The key is, how can we, if you will, open that port? And at the moment, it's not only blockaded by Russian warships, but it's mined in, both by the Ukrainians and reportedly by the Russians. So it's a very complex maritime problem. And to very quickly sketch it out, what we would do first is get rid of the mines. I think that's pretty obvious why you need to do that. And maybe some of the listeners can remember back to the 1980s when Iran blockaded the Strait of Hormuz, what did the U.S. do? We got rid of the mines. We certainly have that technology or allies. There's a standing NATO mine sweeping task force that could be sent up in the Black Sea to do this.

We got rid of the mines in the 1980s in the Arabian Gulf, and then we reflagged Kuwaiti tankers as U.S. vessels, and then we escorted them, put a cruiser, a destroyer, or a frigate alongside every one of them, provided air cover, and simply drove them in and out and told the Iranians, in effect, don't even think about it. And that solution could be applied here in Ukraine. we don't move in that direction pretty quickly, I think the consequences of global food security are quite dire. So I have a bunch of questions already, but maybe let me start with the most pressing one. But would an escort of ships in the manner that you just described, would that not be seen as a provocation by Russia? I think it would be seen as a provocation. And we have to

ask ourselves, is it sufficient, the need to do this? Is it sufficient to accept the level of risk? Back to the book I just published to risk at all, that's exactly what I examined in the book in a series of maritime case studies is when are you willing to accept risk? And is it justified by your ability to mitigate the risk. And again, we get rid of the mines. We put escorts with all these ships. And we also, DeMarsh, we publish no-tams. Again, I don't have to tell an odd lots audience what that is.

And we tell the Russians. Yeah. Okay. Both Joe and I just looked at each other. But you don't have to tell the audience, but you have to tell the hosts. No, no. I'm sure the audience gets it. It's the hosts in this case you need to explain it to it.

Okay, indeed. For our hosts, No, Tam, is a notice to mariners. And it is, it can be published about a floating object that's become an obstruction, about newly discovered underwater formations, or about a missile shoot or a gun shoot that a naval warship's going to conduct. It's really just the equivalent of posting public notice of operations. So we would, we would demarch the Russians. What that means is, go diplomatic, to diplomat, and we would issue no Tams, notice to mariners, which goes, if you will, mariner to mariner warships to warships. The calculus then shifts over to the Russians. And here you just have to put yourself in the shoes of the Russians and ask yourself, you know, in the words of Clint Eastwood, are you feeling lucky today? I don't think the Russians would take a shot at a merchant ship escorted by a U.S. warship, therefore highly defended, doing a humanitarian mission, taking grain to a starving world. I just don't see Russia taking that shot. You know, there is obviously an incredible amount of hesitance about committing any sort of U.S., anything that would resemble

sort of like direct U.S. military involvement. We're willing to send weapons and, of course, money to Ukraine, obviously all of NATO, well short of actually anything beyond that. But in your view, something like escorting a ship through the Black Sea or demining the area does not come close to that at all in your view. It does not as follows. Where we have drawn the red line as to U.S. involvement is on the soil of the Ukrainian land or Russian soil. But here we're talking about neither of those. We're talking about international waters. So these ships would not be passing through Russian claimed waters at all. These would be international high seas. So I think that's a crucial difference and one that we would certainly articulate and be very clear with the Russians. Look, we're not entering your territorial waters to conduct this mission. We're going into a. Ukrainian port, but through international waters and, of course, through the Ukrainian territorial sea

with their permission. So I think this passes the risk test. But I will also say at this point, do we really need to worry about provoking Russia in the sense that they're the ones who have invaded this country with 200,000 troops, committed hideous war crimes, are refusing negotiations and are blocking food from the rest of the world. I mean, at some point, you just have to look a bully in the eye and say, no, your behavior is unacceptable. Here's what we're going to do about it. I think we've hit that point in this particular course of action.

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Get the reporting and the context from Bloomberg's 3,000 journalists and analysts. We're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. So one thing you mentioned in your writings on this topic is the idea of having to reflag the Ukrainian carriers to something else. Can you explain why that would need to be done? I actually don't think that is a crucial step. I think it ups the ante for Russia. But let's face it, as this audience will know, there are many, many flags of convenience all around the seas of the world.

Many of these grain tankers are non-Ukrainian, but it does alleviate one aspect of this, which is that it would be Russia conceivably could say, well, we're engaged in a special military operation. We're attacking Ukrainian targets. So we would say, okay, we'll take down the Ukrainian flag and put up. Really wouldn't have to be a U.S. flag. It could be Panamanian. It could be Greek. It could be any nation willing to participate. Could be any of the NATO nations. If NATO signed up to it, it would just be quite streamlined. And this was the case in the Operation Ernest Will in the 1980s in the Arabian Sea. It's just quicker. You can put a U.S. flag on it because the U.S. government says, yep, we'll take that ship.

But is that crucial? No, I don't think so. And I don't think it would change the calculus particularly. So you were part of that, Operation Ernest Will, in the late 1980s to get oil out of the street of Hormuz. What do you describe your role in that operation and what made it successful? My role was, obviously, that was many years ago, I was a very young lieutenant commander. I suppose I was in my late 20s, maybe 30, and I was the operations officer on an Aegis cruiser, USS Valley Forge. And as the ops boss, my job was to participate in all the planning that went into the operation alongside the Admiral's flagged staff. and my equivalence from all the other ships that were in the task force. So we would get together on the carrier and kind of sketch out the whole operation,

would send it up the chain of command, it would get approved and come back. So step one for me was planning process very deeply involved. And then in the execution phase, I was the tactical action officer on board the Valley Forge, effectively the officer on watch with the firing key. So if we were overflown by Iranian combat aircraft, I had permission to shoot them down. If the Iranian small boats were to attack the tanker, I could engage them with our gun systems. Naturally, if a situation like that developed, the captain would come very quickly into the combat information center to make sure Lieutenant Commander Stavridis didn't do anything foolish. But as I described it, we would just sail right up through the Strait of Hermuz and up the center of the Arabian Gulf and go up.

And the tankers would load oil up at the ports in Kuwait and then would turn around and take them back down. And when we got them into the Indian Ocean and out of range of Iranian aircraft and Iranian warships, we were able to cut them loose and off they would go. This was actually going to be my next question. So how far would a military escort for ships normally go? Do you take them all the way to, well, presumably you wouldn't take them all the way to their destination, but how do you decide when they're out of, you know, the danger zone? Yeah. In that particular situation, it was relatively easy to calculate by looking at Iranian military capability.

How far could their attack aircraft fly? How far did they typically operate, warships? answer in both cases not very far. In the case of Russia, I think safely speaking, we would escort them down through the Bosphorus and out of the Black Sea and into the Egen Sea. I think that's where you're going to cut them loose. Again, highly unlikely, in my view, that Russia is going to come after commercial shipping, frankly, whether it's Ukrainian flagged or not, but let's say for sake of argument we've reflagged and they're flying a U.S. flag or a Danish flag from a NATO member, very unlikely Russia is going to go anywhere outside their zone of control, which is really the

northern Black Sea. More broadly today, what are the existing either U.S. or NATO resources that either have the best equipment or the best experience in working with the safety and securing of commercial fleet? All of the NATO navies do this quite well, and most of the NATO nations have very capable coast guards, including obviously our own. And again, in Oddlotz, audience will know well the close working relationship of the U.S. Coast Guard to merchant shipping. That's replicated by the French Coast Guard, the German Coast Guard, the Danish Coast Guard. And I think that, you could certainly draw on that expertise. Finally, Tracy and Joe, I would say that we have experienced doing this much more recently during the period of time when I was Supreme Allied

Commander of NATO from 2009 to 2013, we were facing pirates off the coast of East Africa. This, of course, is the time of Captain Phillips, who is captured from the Mariske, Alabama, rescued by a very heroic Navy operation. Frankly, one of the case studies in my book to risk it all is about that operation. In that period of time, all of our navies worked very closely with the international shipping community, if you will. And I would go every few months to London to the International Maritime Organization, which functioned as a kind of umbrella over both the major shipping companies.

We had representatives there from all of them and the major navies that were part of the counterpiracy. So we've got very recent experience working alongside our merchant marine colleagues. And frankly, that relationship is generally pretty comfortable. So can you actually talk a little bit more about the sort of day-to-day relationship between the military and merchant carriers? And, you know, I'm thinking Tracy, too, like about even some of these conversations that we had with Zoltan Pozo, already talked about this exactly, where it's like, you know, what the first? Fed was to the financial crisis, the military is going to have to be the sort of global commodity crisis. But even before the sort of current acute tension, what is the sort of normal role

that the U.S. military or the Navy plays in just sort of the securing of the global trade that I guess we all take for granted? Yeah, I think the key phrase there, Joe, is take for granted. And we, all of us, the global population, kind of just feels as though, oh, there's no problems out there. And yet, again, as recently as within the decade, we saw organized strongly land-based pirate operations coming out of Somalia. We continue to see pretty vicious piracy in the Straits of Malacca. We see it off the coast of West Africa. We see kind of hints of it in and around the Caribbean at times. So piracy continues.

A second zone, and I always say the oceans in many ways are the world's largest crime scene. Another major challenge. And we tend to think of this as merchant ships, tankers, break bulk, container ships. But how about the thousands and thousands of thousands of significant fishing craft that are out there. They are commercial and they are under assault frequently. A lot of the piracy is directed against them. And by the way, a lot of them are conducting illegal fishery activities. And some of that is state sponsored by the way. So that's a long way of saying there are many problems out there. And that's before we get into illegal dumping and pollution. Again,

that's commercial activity that's going on out there, albeit illegal. So all of the world's Navy's and Coast Guards are very focused on this and are working very closely both ashore with conferences and symposia on exchanging information and data sharing. We share immense amounts of data from U.S. Maritime Centers, for example, with commercial shipping companies and they reciprocate. It's a very close and positive relationship. As we all know, the Coast Guard has a bit of a different role, more law enforcement. So, you know, they're going to have perhaps less of a warm and cozy relationship. I think navies and commercial shipping are quite close and, frankly, had been back to the time of the ancient Greeks.

So I know your expertise is on the shipping aspect for obvious reasons. But is there anything that we need to be done on the land side in order to, get more grains to the port so that they could then be escorted and exported to the rest of the world? Great question, Tracy. First, we need to ensure that we're efficiently moving containers and cargoes in and out of these ports. And let's face it, we have a bit of a double whammy here in the sense that we're still just coming off COVID in many places. We are, we are also are seeing very high inflation. It's impacting labor forces. We're facing a major strike at Los Angeles Long Beach as we're recording this. And that's replicated around the world as

Longshoremen, for example, are looking at rising inflation. They want to organize. They want to get more understandably so they can keep up with inflation. So we have to have efficient, well-run ports that offer good compensation for the kind of quality work we need in those ports. Number two, we need to make sure that ports are safe and secure. We worked very hard during the period after 9-11 to create much more security around ports globally, and a lot of that is still in place, not unlike the implementation of the TSA regime in all the airports. We need to go back and re-look at that security, I think, and make sure that it meets today's needs. And then third, we need to ensure that logistically we can go from these ports quickly and efficiently

into the nations that are receiving. So in the military context, we would say this is from port to fort. those railheads, those trucking systems, whatever the means of cargo delivery is a whole secondary back office, if you will, where we at least here in the United States have some well-documented challenges as well. Like everything else in today's world, it's a big, complicated global supply chain and when a portion of it is distended as it is now by the events in Ukraine, on top of post-COVID, let's hope post-COVID, on top of staggeringly high inflation, it's a very difficult moment for global shipping, and it will have impact on the grain in particular,

and that, I think, needs to be a key focus. Very minor aside question. Is the military dealing also facing a labor shortage right now, like other entities are? We are seeing some pressure on our recruiting, yes. And so for the first time in a long while, for example, the Army has extended the tours of its recruiters. Those are the men and women who, you know, are out in the field trying to convince high school seniors to come join the military. And the reason they're doing that is because they're facing pressure, meeting their targets for all the reasons we've talked about. And by the way, as an aside, it's important to know, and this may support. many people, you know, who tend to think, oh, well, you know, if I can't go to college or I don't

want to go to college, I guess I'll just join the military. It's hard to be accepted as a volunteer in the U.S. military. Only about 25% of high school seniors are eligible for military service. You've got to be a graduate. You've got to have reasonably high grades. You've got to be in essentially perfect health. You've got to have no drug use, no arrests. Hello, I'm Michelle Hussein, and for more than 20 years, I was at the BBC. But all the time I was delivering the headlines, I wanted to go further than the news of the day, to spend more time with the people shaping our world. And that's what I'm doing here on this podcast, speaking to people from Nigel Farage.

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Listen and subscribe to the Michelle Hussein show from Bloomberg Week. Kend, wherever you get your podcasts. It doesn't ask interesting questions. Going back to the challenge right now in Ukraine, demining the water around Odessa or demining any water. It sounds difficult. What does it take to do that and what is the time frame for just that part to make it safe to move at all? Right.

So these are not floating mines. In other words, these are not mines that are just drifting all around. that's a much harder problem. Okay. These are mines that are fixed to the bottom. And therefore, you don't have to take them all out. You just got to take out enough so that you can drive a tanker up a channel. So you've got to demine the channels.

Okay. And that's a finite space that you have to do. Now, could Russia do some dirty tricks and throw some floating mines in there, conceivable, particularly if they felt they could do it without us knowing it? But we're watching for that. They know we're watching for that. So let's take as an entering argument that you have to clear the channels. You have mine sweepers, and there are several classes of these,

but there are ships that are devoted to this task. And they're quite capable. They have a very good sonar that can look into the water and find the mines. And then they have a remotely operated apparatus that can go and neutralize it. I don't want to go into more detail than that, but our capability in this regard is quite good. We practice constantly to clear a channel from Odessa into clear waters of the Black Sea would be a matter of some weeks. It certainly wouldn't be months and months. So one thing we've been talking about on odd lots for the past couple of years now are supply chains and logistics.

And it feels like the pandemic has really thrown into very sharp relief just how much those matter and how much. they are often taken for granted in the modern economy. And my understanding is that in military conflict, there has always been an emphasis on supply chains and logistics, because those are the things that can win or lose you wars. Can you talk a little bit more just in general about the importance of supply chains to military conflict? I can, Tracy. An old saying in the military is that amateurs focus on the strategy, the professionals are looking at the logistics. The business equivalent of that expression is execution, each strategy for lunch, meaning logistics, right? And, you know, again, Oddlotz, audience, that's what we all do for a living, moving through these global

supply chains. And what we've discovered, and our logisticians are the very best in the world, full stop military logisticians. But they've got a pretty controlled environment. And that sounds funny to say, right, because they're dealing with war. But they're also dealing from stockpiles. They have endless training. They constantly conduct. They have exquisite intelligence. They can mitigate the combat risk quite effectively. The military logisticians do not have to face the big challenge that the global supply chains face, which is that it's kind of, it's all open source. It's, it's, in many ways, it's market driven. It's not like these global shipping firms are getting together and training together and practicing together and are right a schedule that they're going

to follow for the next 10 years, which the military can do that because it has control over all these inputs in a way that big shipping companies just don't have control over the inputs. And as a result of that, the kind of supply chain issues hurt badly because they hit a system that had already moved so far to the just in time principle. And it was very vulnerable to these kind of distortions. And again, first it's COVID, then it's the war, and then now it's this rampant inflation. All that is severely distending these global systems. it's going to require pretty significant rewiring, I think. Is there anything that private industry could learn from the military when it comes to managing

supply chains? Well, I mentioned a couple of things. One is training. Another is information sharing with each other and with the government. And, of course, you know, they're in competition and that's hard. But, you know, look at the airlines on the issue of maintenance and safety. They constantly work together. and share information. Thirdly, and we talked about it already, work with the various governments,

build those relationships. Fourthly, international organizations being part of shipping professional associations, which many of these are a part of already, but also with the International Maritime Organization, for example, in London, be part of that kind of effort. There's four or five ideas for you. Admiral James Devrides, this was a real treat to hear your perspective and this sort of like deep knowledge that you have in this. Thank you so much for coming on odd lots. It's my pleasure. And I'll just mention it one more time. New book out, a maritime book that I think this audience would really like to risk it all.

Nine conflicts and the crucial of decision about making decisions under extreme pressure and real risk. I definitely want to read it now because just hearing you sort of like walk through. through the sort of, you know, the operation risk and the decision making and the difficulties really fascinating. And I'm definitely going to check out the book. So thank you for coming out. So Tracy, just even beyond the acute crisis that we're facing with the war in Ukraine and the commodity shortage in particular food, the role that the U.S. military or that military plays in normal times, just sort of keeping the global trade operations going, is definitely something that we haven't discussed much. Oh, totally. So,

I think when someone says, oh, we're going to have a military escort for a bunch of ships carrying grain out of Ukraine, I think a lot of people, their knee-jerk reaction is like, oh, this is a big, you know, departure or what the military normally does. But actually, a lot of policing on the seas is done by the military. Like someone has to keep those trade routes safe, and typically it's the military. Yeah, no, and obviously, you know, as he mentioned, there's piracy or criminality or. His line was that the oceans are the biggest crime scene in the world. So this is always going on. And now, of course, there's this acute issue of can we get grain out of Ukraine? Can the blockade be broken? Can it be broken in a way such that it doesn't dangerously escalate conflict?

And I have to say I still have some reservations about whether you could do that without provoking a response from Russia. But, you know, I also appreciate the admiral's statement that, well, you know, they're the aggressor. So maybe we shouldn't worry so much about the response. They're the aggressor and it's in international waters and it's not necessarily an offensive operation to simply escort a ship carrying grain. So it's an interesting idea. And of course, it is a crisis, the global food crisis and it's been done before or at least something analogous, such as the operation that he was part of in 1987. Yep. All right.

Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at The Stallwart. Follow our guest, Admiral James Stavrides. He's at Stavridis, Jay. He's also the author of the new book, To Risk at All, nine conflicts in the crucible of decision. Follow our producer, Carmen Rodriguez, at Carmen Armin. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. and check out all of our podcasts at Bloomberg under the handle at Podcasts. Thanks for listening.