How Putin has already weakened Ukraine’s economy

KYIV, Ukraine—Pavlo Kaliuk, an independent real estate broker in the Ukrainian capital, sold and rented properties to clients from the United States, France, Germany and Israel. Then, in November, when Russia began sending troops along the country’s border, the deals quickly dried up.

“In Kyiv, if you talk about mid-level or upper-level apartments, most transactions are on hold because we really don’t know what will happen tomorrow,” said Mr Kaliuk, 34.

Ukraine, which has been at war with Russia since 2014, is once again in a state of chilling suspended animation. The United States estimates that a total of 190,000 Russian troops and Moscow-backed secessionists are encircling the country and inside separatist-held territory as President Biden and other Western leaders warn that an invasion or an attack could happen any day and leave tens of thousands injured. or killed.

Without outright declaring war or taking steps that would trigger the harsh sanctions promised by the West, Russian President Vladimir V. Putin has once again succeeded in destabilizing Ukraine and making it clear that Russia could wipe out the economy of the country. The evacuation announced last week of American, British and Canadian citizens has caused panic. Several international airlines have halted flights to the country. Russian naval exercises in the Black Sea revealed the vulnerability of Ukraine’s critical ports for commercial shipping.

As for real estate?

“The number of applications is getting less and less every day,” Mr Kaliuk said.

The anxiety sweeping through Kyiv is exactly what Mr Putin hopes to achieve, according to Pavlo Kukhta, adviser to Ukraine’s energy minister. “What they want to do is the equivalent of winning the war without firing a single bullet, causing massive panic here,” Mr Kukhta said.

Timofiy Mylovanov, president of the Kyiv School of Economics and a former economic development minister, said his institution estimated the crisis had already cost Ukraine “several billion dollars” in the past few weeks alone. A war or a long siege would only aggravate the situation.

“Either you get an invasion or your economy suffers,” he said.

The first blow came on Monday when two Ukrainian airlines said they were unable to obtain insurance for their flights, forcing the Ukrainian government to create a $592 million insurance fund to maintain planes in flight. On February 11, London-based insurers had warned airlines that they would not be able to insure flights to Ukraine or those overflying its airspace. KLM Airlines, a Dutch company, responded by saying it would halt flights. Many Dutch passengers were on board Malaysia Airlines flight MH17 when it was shot down over pro-Moscow rebel-held territory in 2014. German airline Lufthansa said it was considering a suspension.

On Tuesday, Ukraine was subjected to a massive cyberattack, as hackers flooded servers hosting websites until the servers were overloaded and shut down. Officials blamed Russia, although the Kremlin denied any involvement. Still, Ukrainian officials said it was the largest distributed denial-of-service attack in the country’s history and targeted government ministries and banks.

“They want people to start running on the banks,” Mr Kukhta added. “War is a hybrid that the Russians play in several areas, including the economy.”

Earlier in the week, Irina Gorovaya and other Kyiv entrepreneurs organized a “Stay In Ukraine” campaign to try to rally people behind local businesses that are being hit by the economic upheaval. Ms Gorovaya, chief executive of Mozgi Group, a creative agency, said festivals and other events are rapidly losing money because people are too hesitant to buy tickets.

“People are sitting at home thinking about what will happen tomorrow,” she said.

On the southern coast of Ukraine, the arrival of the Russian Navy to conduct exercises in the Black Sea was another reminder of Ukraine’s vulnerability, both militarily and economically, because in the event of war , the country’s critical ports could face a blockade. So far, Russia has allowed one corridor to remain open for commercial shipping, and there have been no disruptions to operations at Ukrainian ports.

“We don’t have any guarantees, but for now we are operating normally,” said Aleksandr Mukhin, who works at the port development office in Mykolaiv, southern Ukraine.

During a port visit this week, the sweet, burning smell of sunflower oil, one of Ukraine’s top exports, wafted through the air. The oil was pumped through a series of pipes into a bright red Italian ship, the Saracena. Ukraine exports about 300,000 tons of sunflower oil per year.

During the Second World War, the port was the scene of heavy fighting; part of it remains unrepaired after the heavy shelling that took place as Soviet forces fought to retake it from the Nazis.

The port of Odessa, the country’s largest oil and gas terminal and a major hub for grain exports, is also seen as a possible target, especially given the significant sympathy in the city for pro-Russian separatists. in 2014. Some military analysts have warned that Russia may try to take Odessa if the army invades.

But even without a blockade or all-out attack, ports may still be hampered by fear of risk among international insurers. Tuesday, the London Marine Insurance Market listing Russian and Ukrainian waters of the Black Sea and the Sea of ​​Azov as high risk, making it more expensive to transport goods to and from ports. This will increase economic pressure on Ukraine, which relies on its Black Sea ports to export grain.

A retired US Army Lieutenant General, Ben Hodges, recently compared with Russian ground and naval forces encircling a country like “a boa constrictor around Ukraine, stifling its economy and further threatening its sovereignty.”

The Kremlin aims “to turn Ukraine into a failed state, which it thinks it can achieve by applying constant pressure”, he posted on Twitter, “without actually launching a new offensive”.

But the US response to the crisis has also infuriated some people, whether it’s spreading panic with alarmist warnings of an impending invasion or the decision to evacuate some embassy staff from Kyiv and set up a temporary office in the western city of Lviv, close to the border with Poland.

“When someone decides to move the embassy to Lviv, he must understand that such news will cost the Ukrainian economy several hundred million dollars,” said David Arakhamia, the leader of the ruling party, the Servant of the People’s Party, in a television interview, adding: “Every day we count the losses of the economy. We can’t borrow in foreign markets because the rates there are crazy. Many exporters refuse us.

Olena Bilan, chief economist at Dragon Capital, an investment firm, said Ukraine’s economy was expected to grow nearly 4% this year, but the military crisis cut that forecast by almost half.

Even so, Ms Bilan said, Ukraine is far better prepared economically than when Russian aggression began in 2014. Its foreign exchange reserves are at historic highs and it has largely decoupled its economy from Russia, apart from imports of oil and coking coal for the steel industry.

Ukraine is also set to divest from the Russian power grid, Kuhta said, and financial aid from the European Union and the United States is helping to reassure worried investors and insurance companies.

“We live in such conditions which have not been so stable for eight years already,” said Mr. Kaliuk, the estate agent. “I got used to it and I try to be flexible.”

Today, Mr. Kaliuk said, only one group of foreign investors seems unfazed – Belarusians trying to escape the rule of strongman Alexander G. Lukashenko, one of Mr. . Putin.

“Ukraine is the border between the free world and the world of dictatorship,” Kaliuk said. “We are lucky to be on the right side of the border. It is our destiny, to protect our own freedoms and to stand in solidarity with the free world. After thinking for a moment, he added that it was “not luck”; that it had been paid for with the blood of those who died in the 2014 uprising that ousted a Moscow-backed government from Kiev and the 14,000 people who died in the ensuing war. “We have to fight for this,” Mr. Kaliuk said.

Michael Schwirtzcontributed reporting from Mykolaiv.

Christi C. Elwood