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Ukraine’s Economy Under Fire from Russia’s Hybrid War

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Source: Modern Diplomacy

Embassies and international offices in Kyiv began to close one by one. When insurance companies refused to cover planes coming in Ukraine, flight after flight was canceled. Within weeks, hundreds of millions of dollars in investment had dried up.

With Russian forces encircling parts of Ukraine, major and small enterprises can no longer plan for the future; they can scarcely predict what will happen week to week.

Under the danger of conflict, Ukraine’s economy is deteriorating at the quickest rate, not Russia’s. Ukraine was the largest loser in the excruciating, slow-motion attack even before Russian forces poured into rebel-held territories in the country’s east and Russian President Vladimir Putin declared the separatist region’s independence.

“How come we are already feeling the consequences?” And Russia, which is threatening the whole globe, is not facing any consequences in Europe?” questioned Andrey Stavnitser, CEO of TIS Group, a port operator.

Squeezing Ukraine’s economy is a crucial destabilizing technique in what the administration refers to as “hybrid warfare” aimed at eating the country apart from the inside. In addition, the Ukrainian president is dealing with state-sponsored cyberattacks, a separatist movement backed by Russia, and the danger of 150,000 Russian troops surrounding his nation on three sides.

Restaurants are afraid to keep more than a few days’ worth of food on hand, plans for a hydrogen production plant that could help Europe wean itself off Russian gas have stalled, and shipping conditions in the Black Sea are uncertain, with container ships carefully navigating around Russian military vessels.

For the time being, Stavnitser added, the Black Sea ports are working normally, but it’ll only be a matter of time until the same insurance issues that have halted commercial aircraft affect the maritime business. Ukraine is a major grain exporter, filling container ships with 12 percent of the world’s wheat and 16 percent of the world’s corn.

Alex Riabchyn, a former member of Ukraine’s parliament, is currently leading a project to build hydrogen facilities for the country’s state-owned energy business, Naftogaz. The goal is to provide Europe — particularly Germany, the continent’s largest economy — with a reliable new supply of hydrogen that can be utilized to generate low-emission energy for transportation, industry, and other applications.

“We can purchase whatever you can make,” European investors tell him today, “but coming here and investing to create these factories is too hazardous.”

The continual threat against Ukraine, according to German Foreign Minister Annalena Baerbock, is “having very concrete impacts – on investments, on air traffic, on employment, and on people’s everyday lives.”

She said that the ministers of the Group of Seven key industrial nations committed to assist Ukraine achieve financial stability.

The national currency, the hryvnia, has slowly lost value since the conflict began in January, and it fell 1% Tuesday after Russia recognized two breakaway areas commanded by Russia-backed rebels. The US granted a $1 billion loan guarantee last week, while the European Parliament authorized $1.3 billion in loans for Ukraine to meet its financial requirements this year.

However, Ukrainian President Volodymyr Zelenskyy announced in late January that $12.5 billion had been removed from bank accounts in the nation. He urged members of parliament and businesses who had left to return last week. Last week, over 20 charter and private planes flew out of Kyiv, carrying some of the country’s most powerful businessmen.

“The more the government tells people not to worry, the more worried companies get,” said Volodymyr Sidenko, a Razumkov Center expert.

Last Monday, the president of Russia’s state-owned RT TV network, Margarite Simonyan, gloated that “Kyiv’s economy is in tatters,” calling it “a minor but good thing.”

But, according to Deputy Prime Minister Olga Stefanishyna, the destabilizing of Ukraine’s economy is the objective, not a side effect of the Russian threat. It erodes trust in the government and compels Ukraine to redirect money and attention away from vital reforms. She described it as an important component of Russia’s “hybrid war.”

“It’s critical that we are as resilient as we have never been before, and that we do everything we can to maintain stability.” “However, the longer this escalation and tension continues, the poorer the Ukrainian economy will become,” she warned.

According to the Centre for Economics and Business Research, Ukraine’s war with Russia cost the country $280 billion in lost GDP between 2014 and 2020, with losses anticipated to rise this year.

On Tuesday, the US and Europe reached an agreement on a set of limited penalties, including targeting specific Russian leaders and institutions that fund the Russian military, as well as limiting Moscow’s access to EU money and financial markets.

Additional measures to target commerce from the separatist areas are unlikely to have much of an impact on them or Russia, given that they’ve been essentially cut off from the rest of the world since 2014.

The issue in creating any fresh sanctions, according to Daniel Fried, a senior US diplomat who helped negotiate penalties in 2014, is that Russia is already succeeding in what he calls “the creeping strangling of Ukraine.”

“When we watched the aircraft leave Kyiv, we knew they weren’t leaving Russia. They’ve decided to leave Kyiv. Putin is obtaining what he wants without having to go to war.”

Ievgen Klopotenko, a Kyiv restaurateur, said he only maintains a few days’ worth of goods in his kitchens to prevent having his money rot away if the situation intensifies. He believes that planning more than a year ahead is foolish.

“If anything happens, I don’t know,” he added, waving out the window to one of Kyiv’s vast sunny avenues, as if picturing a day when they might be crowded with troops rather than families searching for breakfast. “I will cook for the soldiers if I am required to do so.”

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