The Rising Geopolitical Threat – Economic Damage by Cyber Attack

The economic damage caused by cyber attacks in the Digital Age is becoming a geopolitical fault line. In time, cyber attacks will lead to kinetic warfare because of the increasing amount of collateral damage they cause.

In this article, I cover why digital attacks are becoming more impactful, including examples of recent events that showcase modern impacts of cyber attacks, and I’ll prescribe some immediate solutions society should adopt.

The bottom line: Cyber attacks are becoming a digital age fault line and require a modern and digitally native approach to security. The sooner these attacks are viewed from a digital age lens the more likely it is the world avoids physical conflict.

National Infrastructure is Vulnerable to Digital Attacks

Governments don’t need to resort to kinetic warfare to harm a geopolitical rival. Instead, they can use cyberattacks to economically cripple an enemy. Cyber attacks are effective weapons because modern infrastructure is increasingly integrated with digital systems.

“A cyberattack is a malicious and deliberate attempt by an individual or organization to breach the information system of another individual or organization. Usually, the attacker seeks some type of benefit from disrupting the victim’s network.” Source: Cisco – What are the Most Common Cyber Attacks?

But how and why do cyber attacks impact a nation? And why are they interesting alternatives to kinetic warfare?

  • Cyber attacks can paralyze modern life when used to shut down business and infrastructure like electrical grids
  • They can harm local supply chains leading to inflationary pressures that ripple throughout the target’s economy
  • Cyber attacks can inflict damage while providing plausible deniability through the stealth nature of hacking in order to avoid retaliation

We can expect that in the digital age – infrastructure will become more digital. More interoperable systems, more data capture, and more opportunities for single points of failure. As a result, we can expect cyber attacks to become an increasingly effective attack vector.

This reality necessitates a change in the way governments, businesses, and individuals think about operational security and disaster preparedness.

ie: We all need to start preparing for unexpected “grey swan” events. These events are likely to cause collateral damage such as rapid inflation, supply shortages, and localized runs on goods and services. All of which is a consequence of large scale cyber attacks.

Examples of Digital Disruptions Causing Chaos

The first informative example of a cyber attack’s impact was a recent power outage in Texas. Refer back to February 2021, when a major cold front moved across the US and took out major utilities infrastructure. The event itself wasn’t a cyber attack. But it’s an example of what to expect when a sizeable chunk of infrastructure fails in the digital age.

The power outage showcased the 2nd and 3rd order ripple effects when major utility systems fail. No power meant no heat, and no heat meant frozen pipes. And the frozen pipes burst causing significant water damage to homes and businesses.

No power harmed water treatment facilities which impacted drinking water.

The power outage also led to an inability to use modern payment infrastructure. This impacted many people who no longer carry meaningful amounts of cash. The US like many modern digitial cultures uses credit/debit cards and contactless mobile payment systems. So what do you do when the power goes out and you have no money?

Image showcasing the drop in card spending in areas where the power went out

A more recent example of an actual cyber attack was the ransomware attack on the Colonial Pipeline. An anonymous hacker group seized the pipelines computer systems and ransomed access. The gas pipeline was a significant part of the US gas supply chain. As a result of the attack, a panic set in, causing a run on local gas supplies. Ultimately, many gas stations completely ran out of gas.

This is another example of total breakdown of modern systems. What do you do if you cannot fill your car up with gas? If your business relies on gas to operate? What if you live paycheck to paycheck and gas prices suddenly skyrocket from a supply shock?

Colonial Pipeline paid a nearly $5 million ransom

As a final example, consider the extensive Solar winds attack that infiltrated many US government and corporate systems. One of the world’s superpowers was systematically compromised across national, state, local, and private levels. Based on the extent of the compromise, it seems likely that a rival nation state was behind the attack.

“We have been advised this attack was likely conducted by an outside nation-state and intended to be a narrow, extremely targeted, and manually executed attack, as opposed to a broad, system-wide attack,” the company said in a statement.”

If it can happen to the world’s top superpower, it can happen to any nation. And it most certainly can happen to any individual and business.

The Economic Consequences of Cyber Attacks

At a high level, stock markets lose value from the fear and uncertainty a major attack can cause. This drives investors to de-risk or sell assets and shift holdings to cash. When investors systematically de-risk it impacts a nations ability to fund growth initiatives.

Any type of cyber induced supply chain shock will lead to inflation and inflation has considerable 2nd and 3rd order effects. For example, reduced supply of gas during the initial days of the Colonial Pipeline shutdown led to panic buying and gas lines. In the short run, this caused gas stations to completely run out of gas.

In the longer run, it drove prices up across the country as gas was reallocated. Because of gas shortages and rising price, many businesses and individuals incurred increased costs. For example, it would be more expensive for a person to drive to work and more costly for a lawncare business to operate it’s business with rising fuel costs for lawnmowers. These inflated costs ripple across an economy and can quickly impact the costs of other goods and services.

In extreme circumstances, business and travel could come to a complete halt. Had the pipeline not paid the ransom and had gas not been rerouted from elsewhere, a longer term outage could have had larger economic impacts.

The Rising Consequences

Because the Digital Age is a time of greater digital integration, we can expect the economic fallout from cyber attacks will increase. To date, nations appear to be content to operate in the shadows against one another. Operating under the assumption that the consequences of tit for tat cyber attacks are simply table stakes. Its what they all do to each other. But if the past few years have proven anything, it’s that there are increasing consequences to cyber warfare.

The relatively small $5 million Colonial Pipeline ransom showcases the fact that it wasn’t even about the money. It was about economic damage and the cover of plausible deniability. And these consequences may reach an inevitable tipping point. At what point in time does the fallout from a cyber attack lead to physical and kinetic warfare?

Consider this – what if instead of attacking a pipeline it was a bank. And instead of gas lines, you had a run on a national bank? Would that raise the stakes enough for physical violence?

Strategies for Digital Age Resilience

It’s important that we consciously think about cyber attacks as recurring events which will increase in frequency. Events that will have an escalating impact over time. And although we can no longer think of them as grey swan events, we can work to become more resilient as if they were grey swans.

  • At the individual level, we need to provide basic cyber security best practices as a required curriculum in high school
  • Global Superpowers should hold a Geneva style Convention for international cyber rules of engagement – to establish common standards and the cyber equivalent of unforgivable acts
    • To come up with processes of de-escalation
  • Individuals should focus on becoming resilient to infrastructure failure by using localized tools like Tesla’s at home battery units
  • Prioritizing at home generators and other off grid power technologies like roof mounted solar panels
  • It may make sense to get a Starlink connection as backup internet along with your power generator in the event of a localized telecoms blackout
  • Focus should be placed on eliminating single points of failure with redundant and decentralized systems
    • Example: if you own a generator, battery unit, and solar panels, can you sell energy back to your local community in the event of regional grid disruptions?

The bottom line is that cyber attacks are going to become more frequent. The economic consequences will become more severe. And at some point, a cyber attack will lead to kinetic warfare. As individuals, we can take steps to prepare for these outcomes and reduce the economic burdens when they happen.

I’m piecing together a new narrative that makes sense of society’s shift into the Digital Age. The goal: to give you the facts and tools necessary to successfully navigate an increasingly digital life. I cover topics and narratives you can’t fully appreciate because you’re in the thick of it. Providing insights and analysis that are not always covered or accepted by conventional thought.

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Photo by Michal Matlon on Unsplash

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