Two years on from the start of Putin’s illegal invasion, Ukraine has undergone significant trade shifts and faced difficult disputes with some of its closest neighbours and allies.
Russia, meanwhile, continues to face a mountain of sanctions from western countries including the UK.
The Daily Update takes stock today of how the war is affecting the two countries, as well as the influence of trade in the conflict.
Expensive reconstruction
A new report published today (22 February) by the Economist Intelligence Unit argues that the war is likely to be a “protracted conflict without a clear-cut resolution”, citing record defence spending by both sides as a sign that neither expects an imminent solution.
Looking to the situation after the war, the report says that “any significant reconstruction” of the parts of Ukraine damaged or destroyed in the war will “remain out of reach”. It argues that the World Bank’s estimated cost for reconstruction one year ago – totalling some US$411bn over ten years – is now outdated; more recent estimates put this at US$1trn.
It will be particularly difficult to persuade investors to help fund that reconstruction when there is likely to be a continued risk of further violence, the study’s authors suggest.
“The best that can be hoped for is that the war becomes a lower-intensity and more localised conflict, preventing further damage in areas that to date have not been affected by the war.”
Russia also hit
The war is not without significant consequences for Russia domestically. Increased import costs, owing to sanctions, are combining with a “poor demographic outlook”, exacerbated by the deaths of thousands of young Russians, to lead to significant inflation, with domestic demand outstripping production capacity. The report’s authors conclude:
“Actual inflation is much higher than the reported figures, and the acceleration in real wage growth will start to fade. As time passes, these strains will increasingly erode the domestic political consensus.”
Grain controversy
An ongoing dispute between Ukraine and Poland – in which the latter has expressed concerns over cheap Ukrainian agricultural goods flooding its market – has intensified this week, following an incident in which Polish farmers blockaded Ukrainian grain-carrying trains, leading to some of the crop spilling over.
The Ukrainian infrastructure minister, Oleksandr Kubrakov, has responded to the incident by describing Polish protestors as “out of control”, according to the FT. A total of around 7,000 Ukrainian trucks have been blocked from entering Poland since the protests began, as have around 2,500 seeking to enter Ukraine. Trains carrying Ukraine’s exported grain have also been blocked.
The incident and the sustained fury of Polish farmers over Ukrainian grain – that they see as undercutting their products owing to tariff waivers by the EU – formed the focus of discussions between the Ukrainian government and Poland yesterday.
Ukraine is reported by Bloomberg to be mulling a new export route along the Danube river to dodge the difficulties posed by Poland. Kubrakov spoke in an interview at the Munich Security Conference to say that “we are planning container transportation via the upper Danube”, given Romania is “more predictable” than the Polish border.
Exports would be sent along the Danube to Constanta in Romania from Ukraine’s Izmail port with a view to reaching Germany. The plans aim to bring Ukrainian exports back up towards their pre-war levels. Kubrakov added:
“Our plans for this year is to remove all artificial obstacles for exporters and we are working to improve domestic logistics.”
A poll reported on today by Ukrinform found that Ukrainians see Poland – and the US – as less friendly towards their country than they did in 2023.
New sanctions on Russia
A new round of sanctions is set to imposed Russia in the coming days, on top of those it already faces following its invasion of Ukraine.
The UK is looking to freeze the assets of six Russian prison chiefs who were in charge of Polar Wolf, the prison where Russian opposition leader Alexei Navalny died last week. Foreign secretary Lord David Cameron said:
"Those responsible for Navalny's brutal treatment should be under no illusion – we will hold them accountable.”
Prime minister Rishi Sunak, meanwhile, said that the country was considering “all options to hold Russia and [Russian president Vladimir] Putin to account”, while opposition leader Sir Keir Starmer said that Putin “has stolen not just the wealth but also the future and democracy of the Russian people” as some Conservative MPs called for more sweeping sanctions.
Sanction strain
The existing regime of sanctions on Russia is limiting its ability to provide necessary ammunition to its forces in Ukraine, western officials have claimed in a report by BBC News.
They argued that Russia’s “inability to access Western components is severely undermining Russia's production of new systems and repairs of old systems”. To make up for the shortfall in higher-quality military equipment, they added, Russia has been requisitioning equipment that was intended for export for its own army.
The officials interviewed argued that, while Russia has not relinquished ambitions of “subjugating” Ukraine, it is reaching the limits of the ammunition it can supply without access to western markets. They make the case that increasing supply of equipment to Ukraine gives it a chance to exploit that difficulty.
It follows a report published earlier this month, and reported on by the Daily Update, which found that “the time to act is now” on further Russian sanctions.
That report, by the International Working Group on Russian Sanctions, said that Russia’s war financing efforts had benefitted from an “extraordinarily supportive external environment” of high oil and gas prices. This situation is coming to an end, opening a window of opportunity for western nations seeking to bolster support for Ukraine.
