Ukraine’s economy is another victim of Russia’s ‘hybrid warfare’

KIEV, Ukraine

One by one, embassies and international offices in Kyiv have closed. Flight after flight was canceled when insurance companies hesitated to cover planes arriving in Ukraine. Hundreds of millions of dollars in investments dried up in a matter of weeks.

As Russian troops surround much of the country, Ukrainian businesses large and small are no longer planning for the future – they can barely predict what will happen from week to week.

It is in Ukraine, not Russia, that the economy is eroding fastest under the threat of war. Even before Russian troops entered rebel-held areas in the east of the country and Russian President Vladimir Putin recognized the independence of the breakaway region, Ukraine was the biggest loser in the atrocious slow motion aggression.

“Why are we already suffering the consequences? And Russia, which actually threatens the whole world, in Europe, does not suffer any consequences?” asked Andrey Stavnitser, CEO of port operator TIS Group.

Squeezing Ukraine’s economy is a key destabilizing tactic in what the government describes as a “hybrid war” intended to eat away at the country from within. Ukraine’s president is also juggling state-sponsored cyberattacks, a Russian-backed separatist movement and the threat of 150,000 Russian troops surrounding his country from three sides.

Economic woes include restaurants that dare not keep more than a few days’ worth of food on hand, stalled plans for a hydrogen production plant that could help wean Europe off Russian gas and uncertain terms for navigation in the Black Sea, where container ships must carefully edge their way around Russian military vessels.

Stavnitser said the Black Sea ports are operating as usual for now, but it’s only a matter of time before the same insurance issues that have halted commercial flights start to hit the EU. shipping industry. Ukraine is one of the world’s leading grain exporters, loading container ships that carry 12% of the world’s wheat supply and 16% of its corn.

Alex Riabchyn is a former member of the Ukrainian parliament who now leads a project to install hydrogen plants for the national energy company Naftogaz. The idea is to give Europe – and in particular its biggest economy, Germany – a stable new source of hydrogen, which can be used to produce low-emission energy for transport, l industry and other uses.

What he now hears from European investors is “you can buy everything you can produce, but coming to invest to build these factories is too risky”.

German Foreign Minister Annalena Baerbock acknowledged over the weekend that the constant threat to Ukraine “has very real effects – on investments, on air traffic, on jobs and on people’s daily lives. “.

She said Group of Seven ministers from major industrial nations have pledged to ensure Ukraine receives financial stability assistance.

Since the start of the crisis in January, the national currency, the hryvnia, has steadily lost value, and it plunged 1% on Tuesday after Russia recognized the two breakaway regions ruled by separatists backed by Russia. Last week, the United States offered a $1 billion loan guarantee and the European Parliament approved $1.3 billion in loans to Ukraine to cover financing needs this year.

But in late January, Ukrainian President Volodymyr Zelenskyy said $12.5 billion had been withdrawn from accounts in the country. Last week, he called on parliamentarians and businessmen who had fled to return. More than 20 charters and private jets left Kyiv last week, carrying some of the country’s most prominent executives.

“The more the government urges not to panic, the more nervous companies are,” said Volodymyr Sidenko, an analyst at the Razumkov Center.

In Russia, Margarite Simonyan, head of Russian news channel RT, gloated last week that “Kiev’s economy is in tatters”, calling it “a small but nice thing”.

But Deputy Prime Minister Olga Stefanishyna said destabilizing Ukraine’s economy was not a side effect of the Russian threat, but the goal. This undermines trust in government and forces Ukraine to divert attention and resources from needed reforms. It is, she said, an essential pillar of Russia’s “hybrid warfare”.

“It is really important that we are resilient like we have never been before and we are doing our best to preserve stability. But the longer this tension and escalation continues, the weaker the Ukrainian economy may become,” she said.

The Center for Economics and Business Research estimated this month that the conflict with Russia cost Ukraine $280 billion in lost gross domestic product between 2014 and 2020 – those losses are expected to increase this year .

The United States and Europe on Tuesday drew up a series of limited sanctions, including targeting several Russian officials and banks funding the Russian armed forces, and limiting Moscow’s access to EU capital and financial markets.

Additional plans to target trade from breakaway regions are unlikely to have much effect on them or on Russia, as they have been largely isolated from the international community since 2014.

Daniel Fried, a former US diplomat who helped draft sanctions in 2014, said the challenge in designing new sanctions is that Russia is already pulling off what he called “the slow strangulation of Ukraine”. .

“When we saw the airlines pulling out of Kyiv, they are not pulling out of Russia. They withdraw from Kiev. Putin gets what he wants without a war.

Kyiv restaurateur Ievgen Klopotenko said he only keeps a few days’ stock in his kitchens, to prevent his money from literally rotting if the crisis worsens. Planning more than a year into the future, he said, is madness.

“If something happens, I don’t know, I’ll be open,” he said, gesturing outside the window overlooking one of Kyiv’s wide, sunny streets as if imagining a day when they would be filled with soldiers, not families looking for brunch. “If I need to cook for the army, I will cook for the army.”

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Yuras Karmanau contributed to this report.

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