Inside Ukraine’s ‘asymmetric economic warfare’ against Russia

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They are warriors with suits and briefcases – a small guerilla force of scholars, bankers and consultants who have become field marshals in a parallel war with Russia: the campaign to inflict debilitating economic pain on Moscow.

The West has already imposed a suite of punishing sanctions on Russian President Vladimir Putin and his oligarchs, severing transportation links and freezing part of the vast war chest the Kremlin had accumulated before its invasion of Ukraine. None of that has turned Mr. Putin away from a war that has killed thousands and reduced entire towns to rubble.

But across Ukraine’s political establishment, keyboard soldiers are conceiving new ways for the world to strike back without military force – up to and including deliberate attempts to cause an uprising in Russia by leaving its civilians hungry.

“It’s a little bit like asymmetric economic warfare,” said Tymofiy Mylovanov, who is president of the Kyiv School of Economics and an influential figure in Ukraine’s work to research and recommend financial measures other countries can use against Russia.

“It’s a gloves-off situation,” he added. “The target is on the entire economy.”

It is an effort that has become one of Ukraine’s leading national priorities.

At one Kyiv think tank, 50 analysts are studying sanctions and monitoring enforcement. The Ministry of Finance has made the case for action to the International Monetary Fund, World Bank and investment banks. The Foreign Ministry has deputized its emissaries to enlist other governments in the fight. The Ministry of Digital Transformation has used Twitter to name – and, it hopes, shame – foreign technology companies that had maintained business ties with Russia: Xerox, Microsoft, Samsung, ASUSTeK, Intel, PayPal, Hitachi and UnionPay. (PayPal subsequently suspended its business in Russia.) The National Bank of Ukraine has issued calls to action that have included urging the guardians of Russia’s foreign reserves to allocate those funds to Kyiv for rebuilding.

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The bank is no instrument of combat expertise. But it is now “on the financial front of this war,” its Deputy Governor, Sergiy Nikolaychuk, said in an interview.

Ukraine has decried Russia’s indiscriminate attacks, pointing to evidence that Russian forces have employed cluster bombs, incendiary devices and dumb bombs in urban areas rather than precision-guided weaponry. Thousands of Ukrainian civilians have died.

The leaders and cheerleaders of Kyiv’s financial war want the economic counterattack on Russia to be every bit as indiscriminate. No other country has been willing to come to Ukraine’s military defence, but Kyiv has sought to draft to its side the whole world – Russia’s military allies included – in its economic war.

“We have to do as much harm to the Russian financial system as possible in order to diminish the possibilities for them to finance this military invasion,” Mr. Nikolaychuk said.

And if that causes pain to people in Russia, whose ruble-denominated savings have already lost nearly half their value and whose jobs – and, perhaps, future ability to feed themselves – the sanctions threaten?

So be it, said Mr. Nikolaychuk.

“Frankly speaking, we are much more concerned about the deaths of Ukrainian people,” he said.

Sanctions have already cut off much of Russia’s access to global financial and aviation systems. Russian banks that are traded on Western exchanges have seen their share prices crash almost to zero. Europe has pivoted away from plans to increase supplies of Russian energy and is now pledging to pare back consumption.

But Ukraine is also looking ahead to the next target: Russian food supplies. It is time, Mr. Mylovanov said, to constrain Russian access to the technologies it needs to keep its people fed, such as fertilizer manufacturing and seed genetics.

That might be even more threatening than other measures, he said.

The National Bank of Ukraine is working to halt Russian trade, too. On Friday, the bank approached European insurers, asking them to stop providing coverage for Russian imports and exports.

It’s time to “erase Russia from the economic map of the world,” said Andrii Klymenko, a Ukrainian expert on sanctions imposed on Russia after its 2014 annexation of the Crimean peninsula. “Instead of naive intentions to ‘change behaviour,’ sanctions policy has turned a full-scale economic war into the destruction of an aggressor that threatens the world,” he said.

Some of that is wishful thinking. Europe’s dependence on Russian natural gas is so strong that no dramatic change is likely for years. Energy exports stand to keep vast amounts of foreign currency flowing into Russia for years to come.

And European resistance to the Kremlin is by no means uniform. Serbia, for example, has refused to sanction Russia. So many Russians are now travelling to Europe through Belgrade that Air Serbia is doubling the number of its flights from Moscow.

But the U.S.-backed sanctions have produced unlikely victories for Ukraine, even among countries closely allied with Russia. Air Astana, Kazakhstan’s flag carrier, is suspending flights to Russia, citing an inability to secure insurance. China has refused to supply parts to Russian airlines. Even Chinese banks are likely to tread carefully in Russia, analysts believe, since a misstep could jeopardize their ability to transact in U.S. dollars.

“In his worst nightmares, Putin was not expecting this sort of response,” said Roman Sheremeta, an economist who is the founding director of American University Kyiv, a new academic institution.

Mr. Sheremeta is helping to draft a petition that will demand the U.S. Securities and Exchange Commission force all publicly listed companies to disclose business ties with Russia. He is hopeful this will increase the reputational stain of maintaining such ties. “This stuff is hard to forgive and forget,” he said.

For those working with the Ukrainian government to draft sanctions, no step is too small. One effort resulted in some European central banks refusing to work with cash delivery companies that carry physical euros to Russia. “The moment you put a sanction on that, they don’t have cash,” Mr. Mylovanov said.

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His own analysis suggests the current raft of economic measures will cause a 20-per-cent contraction in the Russian economy, make the country’s unemployment rate spike by 10 percentage points and create a rise in inflation to 20 per cent. Russia likely has sufficient reserves to sustain itself for several years. But there are questions about the liquidity of some of its holdings, particularly those in gold. If Russia begins to sell those to China, gold prices are likely to plummet.

Even so, one particularly difficult question remains for those directing the economic war against Russia: Is there any hope these measures can end the shelling of Ukrainian cities?

So far, the answer has been no.

Mr. Mylovanov looks at it from the perspective of corporate theory. When a company faces major disruption, the academic literature suggests, it can give up, pivot to something different or double down. Mr. Putin is doing the latter. “He’s doubling down at what he is good at. And he is good at terror and force,” Mr. Mylovanov said.

To end that, Ukraine needs Mr. Putin to lose access to the tools he requires for that strategy. In other words: “His generals need to stop obeying orders,” Mr. Mylovanov said. “So what does it take for a general to start seeing him as more toxic than the alternative?”

Mr. Putin has already co-opted the Russian military, in part by making it complicit in atrocities.

What’s needed, Mr. Mylovanov believes, is an effort to separate the generals from their President – perhaps by offers of amnesty – while seeking to cause such domestic upheaval that military leaders no longer see Mr. Putin as their best guarantor of stability.

That, he argued, is why it’s important to use food as the next major weapon against Russia.

“If people start protesting in Siberia because the prices of food are rising a year from now, then Putin will lose power,” he said.

“Once they have food security issues, then this will potentially threaten political stability in Russia – and that’s when the generals are going to switch sides.”

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