When Geopolitics Pulls The Plug On Technology
Russia-backed Indian refiner Nayara Energy was denied access by Microsoft to its own data, email, and communication tools, which were fully paid for. The reason is that Nayara, a major buyer of Russian oil, was recently sanctioned by the European Union. Nayara petitioned the Delhi High Court for relief, and Microsoft restored services a day before the case was to be heard. Microsoft has stated that they are also following up with the EU regarding service continuity for the organisation.
To sum up, a US company blocked services to an Indian company to comply with EU sanctions. The services were suspended without notice despite no contracts being violated, and were not restored till the aggrieved party approached the court. To tackle such developments, companies will need to perform risk assessments and take mitigating measures, and governments should pursue multi-stakeholder mechanisms to balance geopolitical interests with economic or societal needs.
Geopolitics Invading Technological Decisions
Such actions are not without precedent. During the early stages of the ongoing Russia-Ukraine war, many companies withdrew from Russia either in response to sanctions or public pressure. This includes technology platforms such as Meta and YouTube blocking Russian state-owned media on their platforms, and many firms suspending services in Russia.
Ukraine had even asked the Internet’s governing body, ICANN, to remove the Russian domains from the Internet. While this request was denied, if allowed it would have meant that the Russian internet would be disconnected from the global internet and would have triggered a splintering of the global internet as we know it.
Recent advancements in AI have triggered a race for global AI domination between the US and China with both countries pursuing policies to create infrastructure, subsidise funding and create a favourable regulatory environment for AI innovation.The US has also imposed export controls on advanced semiconductors chips being imported to China to limit their progress in developing frontier artificial intelligence systems.
Such incidents highlight the growing entanglement of geopolitics in what are supposed to be purely technological or business decisions.
The Hidden Costs
Using technology to pursue geopolitical objectives leads to three detrimental outcomes. First, it leads to losing trust in contracts and business reliability. When multinational tech giants breach contracts to comply with foreign sanctions or enforce the whims of the state they have a large presence in, it undermines the reliability of global supply chains. The second and third-order impacts could even deter foreign investments and complicate cross-border partnerships.
Second, it leads to technology fragmentation and a push for digital sovereignty. Consider the scenario of ICANN granting Ukraine’s request to block Russian domains. It would have led to a “splinternet” where different regions each have their own isolated networks that may not interoperate with the rest of the world. Export controls on semiconductors or reluctance to cooperate on telecommunications standards and protocols could also lead to divergent technology paths. This leads to reduced global interoperability, increased consumer costs, and impeded innovation as resources are diverted to redundant systems.
Lastly, businesses exposed to geopolitical flashpoints risk financial losses and long-term reputational damage due to disruptions in technology supply chains. Over time, this leads to increased economic activity in sanctions-imposing blocs compared to elsewhere.
Navigating the Risks
Onerous regulatory interventions such as data localisation or indigenous procurement requirements reduce consumer choice and market competitiveness. While such requirements might be necessary in critical sectors like defence or energy, they can have long-term negative consequences if mandated for the broader economy. In a protected market, there are few incentives for domestic technology companies to innovate beyond a point, reducing quality and choice for consumers.
Therefore, it is better if individual companies assess risks and take mitigating actions based on their perceived risk level. For instance, a Russia-backed oil refiner might perceive a significantly higher risk than an IT services or consumer retail firm. For businesses with elevated risk perceptions, mitigation can involve diversifying technology vendors, prioritising domestic or geopolitically neutral vendors, establishing redundancy through regular backups, or incorporating protective clauses into contracts.
The increasing frequency of such geopolitical intervening in technological decision-making hints at a heavy national security focus in technological decision-making globally. This calls for increased emphasis on multistakeholder mechanisms for technology assessments both domestically and in multilateral settings. Considering the views of diverse stakeholders helps balance geopolitical concerns with societal and economic concerns.
To conclude, while geopolitical tensions continue to shape the technology landscape, strategic adaptations at the company and policy levels can help preserve access and interoperability, vastly benefiting the economy and society.