6 Months Later, Ukraine Conflict Continues To Impact Data Centers
Six months after Russia launched its invasion of Ukraine, the war’s impact is still felt across the data center industry, but not necessarily in the ways many insiders expected.
The Russia-Ukraine War carried immediate consequences for the data center and digital infrastructure space. Most major data center and cloud providers withdrew from Russia, while the war created further supply chain disruptions for everything from microchips to optical fiber cables. Space-based digital infrastructure startups that had been working with the Russian space agency had to scramble to find alternative launch partners.
But one of the primary concerns of many in the industry, namely that Russia would launch escalating cyberattacks on digital infrastructure throughout the U.S. and Europe, hasn't materialized. Rather, it is escalating energy prices in Europe, driven in part by the loss of Russian oil and gas, that is proving to be an existential threat for some data center providers.
European Energy Crisis Threatens Smaller Data Center Providers
Russia’s invasion of Ukraine has exacerbated an energy crisis in Europe that could see power costs rise as much as 1,000%. Analysts suggest Europe could see regular blackouts this winter — particularly if Russia further reduces exports — as cold weather stokes demand. It is little surprise that the worst energy crisis to hit Europe in a decade is being deeply felt across the data center industry, an asset class where size is measured by megawatts, not square feet.
The brunt of the pain is being felt by smaller data center providers operating a traditional retail colocation model, industry analysts say.
Data center giants with big European footprints like Equinix and Digital Realty mandate metered power leases that pass energy costs through to tenants and implement sophisticated hedging strategies and power purchase agreements with utilities that can reduce tenants’ exposure to pricing fluctuations. Smaller operators, on the other hand, generally have the price of a set amount of power tied into the rent for each tenant, meaning they are on the hook when energy prices skyrocket. This structure is becoming an existential threat for companies in markets that are seeing the highest increases in power rates.
“Retail colocation providers in the UK are currently the most significantly impacted,” FTI Consulting wrote in a recent report. “Many providers were recently caught off guard, and it is too late to mitigate pricing risks. 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 was forced into administration in March after failing to renegotiate leases with tenants to account for rising energy costs.
Other operators have been forced to dramatically raise prices overnight to stay afloat. Most recently, French data center operator OVHCloud announced in late August that the company is raising prices by as much as 10%, which the company attributes to its energy hedges coming to an end.
While spiking energy prices may not be a matter of life or death for the behemoths of the data center space, even the largest providers have been forced to make significant adjustments to their operations.
Equinix and Digital Realty, which between them have more than 200 data centers across Europe, confirmed to the Financial Times late last month that they are stockpiling fuel for their backup generators in anticipation of blackouts this winter. Digital Realty indicated it was buying more diesel than normal and establishing higher priority delivery agreements with European suppliers. Equinix, which typically keeps field tanks for its backup generators filled to 60% of capacity, will now fill them to 90% across many of its European sites.
“We’ve been doing contingency planning since the war in Ukraine broke out,” Gary Aitkenhead, Equinix’s senior vice president of Europe, Middle East and Africa operations, told FT. “We’re prepared to run for up to a week.”
Fears Of Cyberattacks Haven't Come To Fruition, But The Threat Remains
Immediately following Russia’s invasion of Ukraine, many across the data and digital infrastructure space expressed fears of widespread cyber warfare by Russia and its government-affiliated hacking groups — attacks against digital infrastructure in Ukraine and its allied nations intended to bring down communications, power and other critical systems, both military and civilian.
This escalated international cyberwar hasn't materialized, experts say. At least not yet.
“We shouldn’t diminish Russia’s capabilities because they haven’t been used yet,” said Irina Borogan, Senior Fellow at the Center for European Policy Analysis, speaking Thursday at the think tank’s symposium on Russian cyberwarfare.
“Russia still has thousands of IT engineers ready to give a hand to the state on cyber, and private security companies are involved in cyberattacks through both official and unofficial contacts with the security services and the military, and they are always ready to provide expertise to the Kremlin and to participate in the attacks directly," Borogan added.
In the first days of the conflict, the worst fears of extensive digital warfare seemed to be confirmed as Russia successfully disabled a key satellite communication system and effectively cut off much of the Ukraine’s internet. As U.S.-based tech giants like Microsoft and Amazon Web Services engaged in highly publicized efforts to transition Ukraine’s physically vulnerable data centers and digital infrastructure to cloud-based systems outside the country, some feared it placed the hyperscale giants in the firing line as key targets for attack.
So why haven’t we seen the cyberwar many predicted?
One factor could be disorganization. Russia has no centralized cyber command, with its capabilities divided between a handful of agencies and private groups of varying levels of sophistication answering to different arms of Russia’s military, political and intelligence apparatuses. But even if Russia’s cyber forces aren't as well-honed a tool as some initially feared, Russia has previously demonstrated its ability to carry out sophisticated digital attacks on large-scale infrastructure, such as shutting down much of Ukraine’s power grid in a hacking attack in 2015.
Others point to the fact that the Russian government and military, both philosophically and structurally, treats so-called information warfare — the use of social media and other means of digital communication to shape narrative and public sentiment — as part of its cyber warfare strategy, with information warfare often taking priority. This means more resources may be going toward operations that use social media to shift public opinion both within Russia and internationally than toward attacks on communications or other infrastructure.
According to Liisa Past, national cyber director at Estonia’s Ministry of Economic Affairs and Communications, this focus on digital messaging heavily informs what she calls Russia’s “tactical restraint” — its decision not to unleash the full force of its cyber capabilities against either Ukraine, its allies or supportive overseas IT infrastructure providers.
She said using cyberattacks to disable communications systems or power for civilian populations would effectively cut off the channels through which they conduct information warfare, as well as their ability to conduct online surveillance and signals intelligence.
“Understanding the centrality of Russian cognitive operations also explains why there’s been restraint in cyberoperations: If you believe in the necessity of the information operations you need the communications networks through which you propagate those information operations,” Past told the CEPA symposium. “You can’t surveil systems that you’ve cut, and operationally that might simply be more valuable.”