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were different: they were designed to damage Russia’s economy as much as possible. She in effect launched an economic war against Russia.
Cost of war
This war is already looking like it will be one of the most expensive ever. The total cost of the war to the Ukrainian economy is estimated to have risen
to $660bn by the Kyiv School of Economics (KSE), of which just the
Europe has also been slow to react
to the mounting economic crisis in Ukraine that has already seen the National Bank of Ukraine (NBU) double interest rates to 25% on June 2, and devalue the hryvnia by 25% on July
21 in an effort to shore up its collaps- ing finances, and the government let national gas champion Naftogaz default on a $335mn bond on July 26 after ordering the company not to pay in order to “preserve cash.”
reserves (GIR) held in foreign banks
that was totally unexpected and caused the Russian financial system a massive shock. Of all the possible sanctions discussed prior to the attack, freezing the CBR money was never even mentioned.
Then the SWIFT sanctions cut off seven banks – including giants Sber and VTB that between them account for half of Russia’s banking assets – from the inter- national messaging system on March
2, effectively making it impossible for Russian banks to send dollars abroad. SWIFT sanctions were discussed only as a nuclear last-resort option, yet they were imposed in the first week.
And in a series of seven packages, sanction was piled on sanction targeting most of Russia’s dependence on Western markets, including the debilitating sanctions on technology and equipment that is Russia's sanctions soft underbelly, as
bne IntelliNews detailed in a feature a year before the war started.
Even more devastating than the official sanctions was the self-sanctioning by major international companies that started to shutter their Russian busi- nesses within weeks of the start of the war. In a widely quoted list, Yale claims over 1,000 companies with turnover equivalent to 40% of GDP have left
the market, although a bne IntelliNews deep dive into the Yale report has since argued the pain from the multination- als exit will be a lot less dramatic.
Worse to come
These are the immediate calls on Western cash to prop Ukraine up while it fights tooth and nail on the battlefield. However, there is more to come as Russia brings its economic weapons into the fray. The fight so far has been concentrated in the kinetic war in Ukraine’s fields and forests,
but as the autumn approaches it will be increasingly fought in bankers’ boardrooms and at the checkout of the local supermarket.
Gazprom threw Europe’s energy markets into a tizz after it reduced flows of gas
to Europe by 60% in June and then
“Ukraine is running out of money, as it is running a monthly deficit of some $5bn”
physical damage is $108bn, with $186bn needed to repair the essential housing and infrastructure should peace come. Others, such as former Ukrainian finance minister Natalie Jaresko, say the cost to rebuild Ukraine could easily run to $1 trillion or more.
But the cost to the West will be immea- surably higher. Donors have already committed $86bn in aid to Ukraine, with the US bearing the lion’s share of some $40bn in arms, including over $8bn in weapons.
Just this cost is starting to tell, as in
July for the first time since the war started Ukraine’s allies made no new commitments to arms or aid at all, according to Kiel Institute of World Economy (KIWE) that has been tracking the promises.
And Ukraine is running out of money, as it is running a monthly deficit
of some $5bn. Ukrainian President Volodymyr Zelenskiy has appealed to his partners to come up with some more cash to cover the budget outgoings
but the promised Western financial aid has been dogged by bureaucratic delays. The US promised $9bn in loans and grants of budget support, but after dragging its feet for months it finally cleared a disbursement of $4.5bn to be paid immediately, which is still only half of the pledged full amount.
The EU has also been sitting on a mirror €8bn loan to Ukraine to match the US money but said it could not send it in July or August as it didn’t have the ready resources. It has since said the money will be transferred in September.
Extreme sanctions
Until now the West has attempted to impose “one-way” sanctions – those that hurt Russia but do little damage
to Western economies. However, with the failure to adopt the mooted oil price cap sanctions as part of the seventh package of sanctions introduced on July 21, the only option going forward
is to use “two-way” sanctions that do as much damage, or more, to Western economies as they do to Russia.
As bne IntelliNews wrote in its first take of the damage the conflict will cause: “Russia loses from its war in Ukraine, even if it wins. China wins from Russia’s war in Ukraine irrespective of whether Russia wins or loses. The US also wins from both a Russian victory and a defeat, but its win is less if Russia wins. And everyone else, especially Ukraine, has already lost regardless of the outcome.” The economic consequences of the war were visible in the first month, but it is only now that they are starting to be felt in earnest.
In the first week, the West imposed the CBR sanctions that froze access to over $300bn of Russia’s gross international
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