The economic repercussions of Russia’s invasion have been significant for Ukraine. According to the World Bank, the country’s GDP might fall by up to 45 percent by 2022. The direct infrastructural damage caused by Russia’s aggression is estimated to be approximately $80 billion, according to the Kyiv School of Economics. And the eventual cost of rebuilding the country is projected to be much higher — Ukraine’s former central bank governor Valeria Gontareva has warned that it is already approaching $600 billion and may exceed one trillion dollars.
Despite the invasion’s mounting costs – not only for Ukraine but also for Russia – Russian President Vladimir Putin appears unwilling to de-escalate. On April 12, Putin declared that peace talks had come to a “dead end” and that his “special military operation” in Ukraine would continue until all of its objectives were met. For the first time since its troop pullout from the region, Russia launched a new wave of missile strikes on the Ukrainian capital, Kyiv, three days later. Attacks in Ukraine’s second city, Kharkiv, have increased since then, and Russian troops are preparing to launch a fresh offensive in the Donbas region.
Putin appears hell-bent on razing every Ukrainian city and village that stands in the way of his invasion, showing little regard not only for civilian lives but also for the country’s economic future, which he claims to be striving to “de-Nazify.” He also appears incompetent – or unwilling – to develop, let alone sustain, the economy of any land he manages to wrest from Ukrainian control.
Moscow, for example, has made no effort to re-establish the economy of the Donbass regions it captured eight years ago. The Yenakiyeve steel factory, which was in good operating order when Moscow seized control of it in 2014, has struggled since then. Even Putin’s prized possession from the 2014 assault, annexed Crimea, where he has made billion-dollar investments in recent years, is still struggling economically.
In Russia’s hands, Mariupol is now facing an even worse fate.
Even after the start of the 2014 war, the population of the key port city has always been pro-Moscow and has continued to vote for parties seen as pro-Russian. While the citizens of Mariupol were not pleased about Ukraine’s steady shift away from Russia, they never wished for Russian military intervention in the city – and with good cause.
Mariupol is now in ruins after nearly two months of indiscriminate shelling and fierce combat. Ukrainian forces are making a heroic last stand from the heart of the Azovstal steelworks, one of Ukraine’s largest, but the city’s future seems bleak. Thousands have died, and there is almost no infrastructure remaining to care for survivors once the battle has ended. Given Moscow’s track record in the occupied Donbas, there’s reason to expect that if it manages to keep Mariupol in the long run, it won’t bother to rehabilitate the city or its steelworks.
For a long time, all Ukrainians living in areas controlled by Ukraine and under Russian occupation will be subjected to the terrible economic effects of Russia’s aggression. These economic issues will be exacerbated by the West’s economic war on Russia, which will probably continue barring a fundamental shift in Russian policy or leadership.
However, the West can financially punish Russia for its continuous aggression while simultaneously ensuring that it pays for the harm it causes to Ukraine’s economy.
To do this, Western countries should not only freeze Russian assets but also create a ledger for the costs borne by Ukraine as a result of the invasion, both direct and indirect damages. Naturally, Moscow will fight any such initiative tooth and claw, as it has in the past. For example, under present regulations, Moscow was able to avoid paying more than $50 billion in compensation to former shareholders of Yukos, the country’s once-dominant oil corporation, which it nationalized in 2004. However, by working together and agreeing on a new legal framework, Western governments can ensure that the Ukrainian people, not attorneys, gain from the seizure of Russian assets.
Additionally, Ukraine’s international debts should be transferred to Russia’s balance sheet in order to stop the country’s economic bleeding. Those debts don’t have to be there indefinitely. Making them Moscow’s burden – at least for the time being – could incentivize Moscow to make concessions, with Moscow on the verge of a nasty default despite a low debt-to-GDP ratio.
Even if all of these measures are implemented, Ukraine’s recovery will require Western investment and support. As a result, in addition to holding Russia accountable for its actions, Western nations must devise a “Marshall Plan” for Ukraine.