These Companies May Decide the Fate of Ukraine

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Editor's Note: Bill Patalon's readers enjoy regular access to his high-profit research and best money-making, market-beating ideas. Today Bill looks behind a global crisis that's playing loudly out on the front pages everywhere, yet the most important factor is almost entirely being missed. Since Bill's been watching this trend for years, he sees, and shares, for us his one-of-a-kind insights...

If you've been watching the developments between Russia and Ukraine in recent days, then I'm sure you've seen reports of the sobering military buildups taking place on both sides of the border.

Today I want to spend a little time updating you on these escalations.

But then I plan to tell you about the real skirmish there - one that's not being reported on by the mainstream media. In fact, it may have already ended the battle in Moscow's favor.

Kiev just doesn't realize it yet.

The deciding factor in this skirmish is something we've been telling you about for more than two years.

And it just keeps gaining in importance - so much so, in fact, that we Main Street Americans need to watch it carefully just to protect ourselves.

This "X-Factor" goes by a lot of names.

But today we're going to refer to it as the "Invisible Front" of modern warfare.

And to set the scene, let's first take a look at what the mainstream media is looking at - the military buildups on each side of the Russia/Ukraine border...

Dueling Views

Over the weekend, the state-run RIA Novosti news agency claimed the latest satellite photos "clearly show the accumulation of a large number of Ukrainian military equipment and weapons on the border with the Russian Federation and in the vicinity of Slavyasnk."

According to RIA, a Russian Defense Ministry source says the buildup includes more than 15,000 troops from the Ukraine Army and National Guard, about 160 tanks, 230 infantry fighting vehicles and armored-personnel carriers (APCs), and as many as 150 mortars, howitzers, and multiple launch rocket systems (including the BM-30 "Smerch" andBM-21 "Grad" truck-mounted launchers).

This buildup is big enough "to wipe... the city and all its inhabitants from the face of the earth," the alleged Russian Defense Ministry source told RIA. "This concentration of troops in one area is not compatible with the potential of self-defense forces, armed with only a small number of pistols and submachine guns."

The North Atlantic Treaty Organization (NATO) has a very different view of what's going on.

While Russia is lambasting the Ukrainian military buildup, NATO commanders contend that satellite images taken of areas on the Russian Federation side of the Ukraine border depict Russian military forces deployed in more than 100 makeshift bases. And according to the latest report by The Wall Street Journal, NATO has described these troops as being in "a state of high readiness" and allege the forces could make a major move in as little as 12 hours after receiving a high-level "go" order.

The Journal report says that "a senior NATO military official described the Russian military movements as 'destabilizing to the region, while NATO's secretary-general [late last week] called on Russia to remove its troops stationed there."

Moscow claims the images are "old" and "out of date." But the Obama administration believes in them enough to say that U.S. officials are looking for ways to counter those Russian troop movements.

And, following a pretty thorough review of available satellite imagery, The Washington Post essentially concluded that Russia's military was gearing up for action. The newspaper studied Russian military movements in six key areas near the Ukraine border and concluded that "NATO's argument that these satellite images represent a military buildup does carry some weight... especially near Kuzminka, where an isolated area not used for military exercises in the past is now seeing a lot of activity. Given Kuzminka's strategic location, not far from Donetsk, that certainly seems like something to watch."

Kuzminka, you see, is somewhat remote from normal Russian military centers. It's only 80 miles from Donetsk, an industrial center that's the fifth-largest city in Ukraine. There are few natural boundaries that would slow a Russian onslaught if federation forces decided to move into Ukraine from that direction.

And remember, too: Back on April 7, pro-Russian protesters took over some administrative buildings in several eastern centers - including Donetsk - and declared that the city of Donetsk is now the People's Republic of Donetsk. Ukraine's central government in Kiev has condemned the move. But having a sympathetic populace on the ground could serve as a kind of "fifth column" that would make the city an easy conquest for Russian invaders.

Ukrainian Prime Minister Arseniy Yatsenyuk wants to get the country to the May 25 presidential elections. He's cozying up to Western Europe and has talked about ceding more power to the country's regions in an effort to defuse some of the unrest.

He's also staying on the offensive in the international arena, saying that Russia is looking to start World War III by occupying Ukraine "militarily and politically" and creating a conflict that would spread to the rest of Europe.

Scary stuff, to be sure.

But this incursion may actually be over very quickly - thanks to the "invisible front."

I'm talking, of course, about cyber warfare.

And, according to some pretty savvy analysis by DefenseOne, a trade journal covering national-security issues, Russia may have already licked Ukraine in cyberspace.

The "Invisible Front"

For several years now here in Private Briefing¸ we've been talking about how the United States, China, and Russia have been adding major muscle to their "cyber armies."

Indeed, in a report in mid-March, we detailed how Russia had joined the "Cyber-Hacking of America Club," and how that nation - like China - has managed to inflict cyber harm on U.S. computer networks and probably purloined important secrets along the way. We've talked about the growing global influence of China's "Internet Army." And we've warned you about the damage that we believe the Syrian Electronic Army (SEA) could inflict on Main Street Americans.

The brand-new DefenseOne report bolsters the case we've been making.

"Don't wait for cyberwar between Ukraine and Russia to break out ahead of the actual shooting," writes DefenseOne Technology Editor Patrick Tucker. "Ukraine already lost that [battle], too. Russia may have unfettered access into the Ukrainian telecommunication systems according to several experts. It's access that Russia can use to watch Ukrainian opposition leadership, or, in the event of an escalation in the conflict, possibly cut off telecommunications within Ukraine."

In short, Russia already has its hands around Ukraine's virtual throat.

As part of the real-world conflict in Ukraine, we've seen sieges (and takeovers) of government buildings, ethnic clashes, blood-shedding protests, and misinformation campaigns (like the aforementioned claims and counter-claims over the satellite photos). In other words, violence - and lots of it.

But on the cyber front, the relatively low-level exchanges between hacker groups have taken the form of temporary website attacks called "displacements" and "distributed denial of service" (DDOS) attacks, where websites are flooded with so much phony traffic that they are rendered inaccessible.

But the reason the cyber-front battle hasn't been fiercer is that Russia already controls so much of Ukraine's digital and telecommunications assets. And why attack something that you already control, one expert told DefenseOne.

"Russia already had access [to the Ukrainian telecommunications infrastructure] for years," says Jeffrey Carr, CEO of cybersecurity player Taia Global and the author of "Inside Cyber Warfare: Mapping the Cyber Underworld." And this reality is "true for almost all of the Commonwealth of Independent States. They all rely at some point on Russian technology."

For one thing, Russian telecom firms VimpelCom Ltd. (Nasdaq ADR: VIP) and Mobile TeleSystems OJSC (NYSE ADR: MBT) each do "considerable business" in Ukraine, the trade journal reports. For instance, MTS had about 22.4 million subscribers in that country as of September, making it Ukraine's No. 2 mobile provider, Reuters reported. And VimpelCom gets about 8% of its cash flow from that market.

"It's Russian companies that are providing the mobile services. That gives the Russians an avenue in," James Andrew Lewis, director and senior fellow of the Strategic Technologies Program at the Center for Strategic and International Studies, told DefenseOne. "There's an advantage to having ownership, having insight, knowing the legacy system and having relationships, and being physically present in adjacent areas. That all makes it easier for them."

Here's a scary example, according to The New York Times. Back in January, when protestors were demonstrating against the pro-Russian regime of then-President Viktor Yanukovych, several people in the protest area suddenly received this ominous text message: "Dear subscriber, you are registered as a participant in a mass disturbance."

Then there's Ukraine's communications-intercept system, which allows the government to tap into the civilian telecommunications system. That's a lot like the Russian intercept system, known as SORM, DefenseOne's Tucker explained.

SORM was developed by Russia's KGB as a "backdoor" way to eavesdrop on all the country's electronic communications - like the NSA's hated PRISM program, but more powerful and fettered by far fewer legal constraints, Tucker says.

"The current iteration, SORM 3, allows the Russian Federal Security Service (FSB) backdoor access into landline, mobile and email communications," Tucker writes. "Ukraine has its own SORM system modeled after Russia's. But, as Russian journalists Andei Soldatov and Irina Borogan explained in Wired back in 2012, Russian companies such as IsKratel manufacture equipment that Ukraine uses to maintain its system. Other manufacturers of SORM equipment include Juniper Networks, Huawei, Cisco andAlcatel-Lucent out of France. The simple fact that SORM equipment manufacturing firms are a matter of public record suggests vulnerability to hacking. The same technology that allows Ukraine's Intelligence Service to eavesdrop in Ukraine may give Russia the same amount of access into Ukrainian communications."

Does the Russian encroachment into Ukraine's telecom systems mean it would be easy for Russian cyber warriors to cause a telecom "blackout"?

Most experts say "no" to that - including several who say that there's no need: Its deep reach into Ukraine means it already has near-total access for intelligence gathering.

But one expert cautioned folks not to be fooled.

Seven years ago, for instance, Russia allegedly launched a series of cyber-attacks on Estonia. The assault, which started on April 27, 2007, was ignited by that country's disagreements with Russia about the relocation of war graves and a Soviet-era statue. The attack essentially shut down the website of the Estonian Parliament and crashed those of Estonian banks, government ministries, broadcast and newspaper outlets, and other key organizations.

The assault was so sophisticated, in fact, that it's now viewed as a case study.

Then, in the 2008 skirmish with Georgia, pro-Russian forces successfully attacked such websites as those of news organizations and the Georgian Ministry of Foreign Affairs.

Reprising either with Ukraine would certainly be doable, several experts said. Indeed, Carr, the Taia Global CEO, warns that Russian cyber soldiers have been "holding back." And if the current buildup turns into a full-scale conflict, you can certainly expect federation forces to dump the "stealth" act and go all out.

"The bottom line is that if the Russian government wanted to shut down Ukraine's power and telecommunications, they could do so at will," he told the trade journal. "If this becomes a full-scale war, you can expect a definite interruption of services - strategically planned. And there's nothing that Ukraine could do to stop it."

In short, this battle was over - before it was even fought.

And those are the same worries we have for America, were it to fall prey to cyber-attacks from China, Russia, Iran, or the SEA.

As New York Times writer David E. Sanger wrote back in February, this "new and untested tactic [has the potential] to transform the nature of warfare."

That's why it's being referred to as warfare's "Invisible Front."

And that's why we'll keep watching it for you.

About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish… and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.

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