Two reactions to Ukraine-Russia trade amid war
Senior Russia analyst for Radio Free Europe/Radio Liberty and author of The Power Vertical blog “This presents a thorny dilemma for Ukraine. For Russia, there isn’t really a distinction between politics and business. The Kremlin has essentially weaponized trade, commerce and finance. The goal is to ensnare elites in the former Soviet Union and beyond in the web of corrupt deals that emanate from Russia and establish a so-called Eurasian business space. I call this a zone of corruption and it is a key tool in establishing a sphere of influence. It is also one of the main reasons the Kremlin was so opposed to Ukraine signing an Association Agreement with the European Union. Given geography, history, and established networks, and Ukraine’s dependence on Russia for things like energy, it will be difficult – but not impossible – for the authorities in Kyiv to escape Moscow’s embrace. An obvious first step would be to really tackle corruption, not just in words but in deeds. Another would be to develop sectors of the economy – like information technology – that can become sources of wealth but are in no way dependent on Moscow. Ukraine and Russia are not just in a war in the traditional military sense. They are also engaged in a war of governance. If Ukraine can prove that a transparent rule-of-law-based system can flourish on its soil it will win the war of governance – and have a stronger hand in the military conflict. If Kyiv fails here, it risks being absorbed by Russia’s zone of corruption.”
London-based analyst with Bluebay Asset Management company “Since the EuroMaidan (Revolution that ousted Ukrainian President Viktor Yanukovych on Feb. 22, 2014), and (Russia’s war) in Donbas, there has been a marked decline in trade, energy, and financial ties between Russia and Ukraine. For example, only 4–5 years ago Russia still accounted for around 40 percent of Ukraine’s total trade turnover, which is currently down to around 10 percent, and set to go lower again this year. Meanwhile, whereas five years ago Ukraine was still importing 20 billion cubic meters of gas from Russia – close to half consumption – last year it was close to zero, and overall Ukrainian gas imports have gone down to around 10 billion cubic meters from 40+ billion cubic meters 10 years ago. The recent battle over trade flows to (Kremlin-controlled areas of the Donbas) have also seen Kyiv put additional pressure on the remaining Russian banks operating in Ukraine, which have now been levied with sanctions which are just likely to accelerate their exit. Even in the military field, while the talk is of a frozen conflict in Donbas, the reality is that the Ukrainian economy has learned to live with the status quo, as reflected in the 2.3 percent real gross domestic product growth posted last year, and expectations – pre-blockade of 2.5–3 percent growth this year, and broader macroeconomic stabilization. Any economic leverage which (Kremlin-controlled areas of the Donbas) exerted seems to have been reduced over time – and indeed, Kyiv’s decision now to cut off trade to (separatist areas) suggests a decision to adapt a worse-case scenario, and put the cost of maintaining (separatist areas) onto Moscow directly, as is the case with Crimea, but also Transnistria (in Moldova), Abhazia and South Ossetia (in Georgia).