How Putin has already weakened the Ukrainian economy

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KIEV, Ukraine – Pavlo Kaliuk, a freelance real estate agent in the Ukrainian capital, has sold and rented properties to clients from the United States, France, Germany and Israel. Then, in November, when Russia began deploying troops along the country’s border, business quickly dried up.

“In Kyiv, when you talk about mid-level or higher-level housing, most of the business is on hold because we’re really not sure what’s going to happen tomorrow,” said Mr Kaliuk, 34.

Ukraine, which has been at war with Russia since 2014, is once again in a state of frightening restlessness. The United States estimates that a total of 190,000 Russian troops and Moscow-backed secessionists are encircling the country and separatist-held territory, while President Biden and other Western leaders warn that an invasion or attack is taking place any day and tens of thousands of people are wounded could or killed.

Without directly declaring war or taking any action that would trigger the harsh sanctions promised by the West, Russian President Vladimir V. Putin has again managed to destabilize Ukraine and make it clear that Russia could ruin the country’s economy. The evacuation of American, British and Canadian citizens announced last week has caused panic. Several international airlines have suspended flights to the country. Russian naval exercises in the Black Sea have revealed the vulnerability of Ukraine’s critical ports for merchant shipping.

As for real estate?

“The number of inquiries is getting fewer every day,” said Mr. Kaliuk.

According to Pavlo Kukhta, an adviser to Ukraine’s energy minister, the fear sweeping through Kiev is exactly what Mr Putin hopes to achieve. “What they want to do is tantamount to winning the war without firing a single bullet by creating massive panic here,” Mr Kukhta said.

Timofiy Mylovanov, president of the Kyiv School of Economics and former economic development minister, said his institution had estimated that the crisis had already cost Ukraine “several billion dollars” in recent weeks. War or a long siege would only aggravate the situation.

“You either get an invasion or your economy suffers,” he said.

The first big blow came on Monday when two Ukrainian airlines said they could not insure their flights, forcing the Ukrainian government to set up a $592 million insurance fund to keep the planes running. On February 11, London-based insurers had warned airlines that they could not insure flights to Ukraine or those flying over its airspace. Malaysia Airlines, which shot down a plane over pro-Moscow rebel-held territory in 2014, responded by announcing it would suspend flights. Germany’s Lufthansa said it was considering a suspension.

On Tuesday, Ukraine faced a massive cyberattack as hackers flooded the servers hosting websites until the servers overloaded and shut down. Officials blamed Russia, although the Kremlin denied involvement. Still, Ukrainian officials said it was the largest distributed denial-of-service attack in the country’s history, targeting government departments and state banks.

“They want people to start walking on the banks,” Mr Kukhta added. “The war is a hybrid played by the Russians in several areas, including the economy.”

Earlier in the week, Irina Gorovaya and other entrepreneurs in Kyiv organized a “Stay in Ukraine” campaign to try to attract people to local businesses affected by the economic upheaval. Ms Gorovaya, the managing director of Mozgi Group, a creative agency, said festivals and other events are losing money quickly because people are reluctant to buy tickets.

“People sit at home and think about what’s to come tomorrow,” she said.

On Ukraine’s southern coast, the arrival of the Russian Navy to conduct exercises in the Black Sea was another reminder of Ukraine’s military and economic vulnerability, as the country’s critical ports could face a blockade in the event of war. So far, Russia has allowed a corridor to remain open for merchant shipping and there have been no service disruptions in Ukrainian ports.

“We have no guarantees, but at the moment we are working normally,” said Aleksandr Mukhin, who works at the development office in the port of Mykolaiv in southern Ukraine.

During a port visit this week, the sweet, burnt smell of sunflower oil, one of Ukraine’s top exports, hung in the air. The oil was pumped through a series of pipes into a bright red Italian ship, the Saracena. Ukraine exports about 300,000 tons of sunflower oil annually.

During World War II, the port was the scene of heavy fighting; Part of it has still not been repaired from the heavy bombing that occurred as Soviet forces fought to retake it from the Nazis.

The port of Odessa, the country’s largest oil and gas terminal and a major transshipment point for grain exports, is also seen as a possible target, especially given the city’s widespread sympathy for pro-Russian separatists in 2014. Some military analysts have warned that Russia could try to take Odessa when the military invades.

But even without a full-scale blockade or attack, ports can still be hampered by fears of risk from international insurers. London marine insurance market on Tuesday listed Russian and Ukrainian waters in the Black Sea and Sea of ​​Azov as high risk, which makes transporting goods to and from the ports more expensive. This will increase economic pressure on Ukraine, which relies on its Black Sea ports for grain exports.

A retired US Army Lieutenant General, Ben Hodges, recently compared Russia’s land and sea forces are encircling a similar country like “a giant snake around Ukraine, suffocating its economy and further threatening its sovereignty.”

The Kremlin aims to “make Ukraine into a failed state, which they believe they can achieve through constant pressure,” he tweeted, “without actually launching a new offensive.”

But the American response to the crisis has also infuriated some people, whether by inciting panic with alarming warnings of an imminent invasion or by deciding to evacuate some embassy staff from Kiev and set up a temporary office in the western city of Lviv in the Near Ukraine set up border with Poland.

“If someone decides to move the embassy to Lviv, he must understand that such news will cost the Ukrainian economy several hundred million dollars,” David Arakhamia, the head of the ruling servant of the People’s Party, said in a TV interview, adding: ” Every day we count the losses of the economy. We can’t borrow from foreign markets because interest rates are crazy there. Many exporters reject us.”

Olena Bilan, the chief economist at Dragon Capital, an investment firm, said Ukraine’s economy is expected to grow nearly 4 percent this year, but the military crisis has almost halved that forecast.

Despite this, Ms. Bilan said, Ukraine is far better prepared economically than it was when Russian aggression began in 2014. Its foreign exchange reserves are at historic highs and it has largely decoupled its economy from Russia, barring oil and coking coal imports and the steel industry.

Ukraine is also preparing to disconnect from Russia’s power grid, Mr Kuhta said, and financial support from the European Union and the United States is helping to reassure investors and worried insurance companies.

“We live in such conditions, which have not been so stable for eight years,” said Mr. Kaliuk, the real estate agent. “I’ve gotten used to it and try to be flexible.”

Today, according to Mr Kaliuk, only one group of foreign investors seems unfazed – Belarusians trying to escape the rule of the strongman of Aleksandr G. Lukashenko, one of Mr Putin’s closest allies.

“Ukraine is the borderland between the free world and the world of dictatorship,” said Mr. Kaliuk. “We are lucky that we are on the good side of the border. This is our destiny, to protect our own freedoms and stand in solidarity with the free world.” After thinking for a moment, he added that it wasn’t “luck”; that it was paid for in the blood of those who died in the 2014 uprising that drove a Moscow-backed government out of Kiev, and the blood of the 14,000 people who died in the war that followed. “We have to fight for it,” Mr. Kaliuk said.

Michael Schwartzcontributed reporting from Mykolayiv.

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