6 months later, conflict in Ukraine continues to impact data centers

Six months after Russia launched its invasion of Ukraine, the impact of the war is still being felt in the data center industry, though not necessarily in the way many insiders expected.

The Russian-Ukrainian war had immediate consequences for data centers and the digital infrastructure space. Most major data center and cloud providers pulled out of Russia, while the war created further supply chain disruptions for everything from microchips to fiber optic cables. Space digital infrastructure startups that worked with the Russian space agency had to scramble to find other launch partners.

But one of the main concerns of many industry players, that Russia would launch increasing cyberattacks on digital infrastructure in the United States and Europe, has not materialized. Rather, it is escalating energy prices in Europe, due in part to the loss of Russian oil and gas, that is proving to be an existential threat to some data center providers.

Europe’s energy crisis threatens small data center providers

Russia’s invasion of Ukraine has exacerbated an energy crisis in Europe that could see electricity costs rise by up to 1,000%. Analysts suggest Europe could experience regular power cuts this winter – particularly if Russia cuts exports further – as the cold fuels demand. It’s no surprise that the worst energy crisis to hit Europe in a decade is deeply felt in the data center industry, an asset class whose size is measured in megawatts, not square feet. .

The brunt of the pain is felt by smaller data center providers operating a traditional retail colocation model, say industry analysts.

Data center giants with large European footprints like Equinix and Digital Realty impose metered power leases that pass energy costs onto tenants and implement sophisticated hedging strategies and power purchase agreements with utilities that can reduce tenants’ exposure to price fluctuations. Small operators, on the other hand, typically have the price of a fixed amount of electricity tied to each tenant’s rent, meaning they are liable when energy prices spike. This structure becomes an existential threat to companies in the markets that are experiencing the largest increases in electricity rates.

“Retail colocation providers in the UK are currently the most affected,” wrote FTI Consulting in a recent report. “Many suppliers have recently been caught off guard, and it is too late to mitigate price risk. In an environment of rising energy costs, remedies or defenses are not extensive for these colocation providers. »

There have already been casualties. The UK division of data center provider SunGard has been compelled to administer in March after failing to renegotiate leases with tenants to account for rising energy costs.

Other operators were forced to dramatically increase prices overnight to stay afloat. More recently, the French data center operator OVHCloud announced at the end of August that the company was increase prices by up to 10%that the company attributes to the end of its energy blankets.

While soaring energy prices aren’t a matter of life or death for giants in the data center space, even the largest providers have been forced to make significant adjustments to their operations.

Equinix and Digital Realty, which together have more than 200 data centers across Europe, confirmed to the Financial Times at the end of last month that they are storing fuel for their emergency generators in anticipation of blackouts this winter. Digital Realty said it was buying more diesel than normal and establishing priority delivery agreements with European suppliers. Equinix, which typically keeps its emergency generator tanks filled to 60% capacity, will now fill them to 90% at many of its European sites.

“We’ve been making contingency plans since the war in Ukraine broke out,” Gary Aitkenhead, Equinix’s senior vice president of operations Europe, Middle East and Africa, told FT. “We are ready to run for up to a week.”

Fears of cyberattacks have not materialized, but the threat remains

In the immediate aftermath of Russia’s invasion of Ukraine, many across the data and digital infrastructure space expressed fears of widespread cyber warfare from Russia and its hacking groups affiliated with the government – attacks on digital infrastructure in Ukraine and its allied nations designed to bring down communications, power and other critical systems, both military and civilian.

This escalating international cyberwar has not materialized, experts say. At least not yet.

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“We shouldn’t diminish Russia’s capabilities because they haven’t been used yet,” said Irina Borogan, a senior fellow at the Center for European Policy Analysis, speaking to the think tank on Thursday. russian cyberwar symposium.

“Russia still has thousands of IT engineers ready to lend the state a helping hand on cyber, and private security companies are involved in cyberattacks through official and unofficial contacts with security services. security and the army, and they are always ready to provide expertise for the Kremlin and to participate directly in the attacks,” Borogan added.

In the early days of the conflict, the worst fears of an extended digital war seemed to be confirmed as Russia succeeded disabled a key satellite communication system and effectively cut off much of the Ukrainian Internet. As US-based tech giants like Microsoft and Amazon Web Services engage in high profile efforts to transition Ukraine’s physically vulnerable data centers and digital infrastructure to cloud-based systems outside the country, which some feared would put the hyperscale giants in the crosshairs as key targets of attack.

So why haven’t we seen the cyberwar that many predicted?

One factor could be disorganization. Russia does not have a centralized cyber command, with its capabilities distributed among a handful of agencies and private groups of varying levels of sophistication responding to different arms of Russia’s military, political, and intelligence apparatuses. But even if Russian cyber forces are not as advanced a tool as some initially feared, Russia has already demonstrated its ability to carry out sophisticated digital attacks on large-scale infrastructure, such as shutting down much of of the Ukrainian power grid during a hack. attack in 2015.

Others point to the fact that the Russian government and military, both philosophically and structurally, are dealing with so-called information warfare – the use of social media and other digital means of communication to shape the narrative and public sentiment – as part of its cyber warfare strategy, with information warfare often taking priority. This means that more resources can be devoted to operations that use social media to alter public opinion both in Russia and abroad rather than attacks on communications or other infrastructure.

According to Liisa Past, national director of cybersecurity at the Estonian Ministry of Economic Affairs and Communications, this focus on digital messaging strongly informs what she calls Russia’s “tactical restraint” – its decision not to deploy all the force of its cyber capabilities against Ukraine, its allies or foreign IT infrastructure providers who support them.

She said using cyberattacks to disable communications systems or power civilian populations would effectively cut off the channels through which they wage information warfare, as well as their ability to conduct online surveillance and intelligence. electromagnetic.

“Understanding the centrality of Russian cognitive operations also explains why there have been restrictions in cyber operations: if you believe in the necessity of info ops, you need the communication networks through which you propagate those info ops “, Past said at the CEPA symposium. “You can’t monitor the systems you’ve shut down, and operationally that might just be more valuable.”

Ramon J. Espinoza