The economic cost of Russia’s war in Ukraine

**Liana Byrne** (0:01)
The economic front line stretching from Moscow's petrol pumps to Ukraine's grain fields.

**Elina Rybakova** (0:06)
So I think Putin is just trying to put a brave face on a rather poor economic performance.

**Alex Letyssa** (0:11)
Practically every day, we are kind of target for the Russian drones. Our team has developed right now some kind of anti-drone machines.

**Liana Byrne** (0:19)
It's World Business Report from the BBC World Service. I'm Liana Byrne. Four and a half years after Russia launched its full scale invasion, on the show we examine whether sanctions and Ukrainian attacks are making the war increasingly difficult for Moscow to afford. Ukraine's grain exports are being choked off just as the harvest arrives. And seven million drones in a single year. Now the conflict is creating a radically different model for the global defense industry.
That's the sound of the first Russian missiles striking towns and cities across Ukraine as Vladimir Putin launched his full scale invasion on the 24th of February 2022 Four and a half years later, the war continues. In this special edition of World Business Report, we examine how this grinding conflict has reshaped the economies on both sides, and how long can each of them continue to bear the cost. Ukraine president Vladimir Zelensky remains defiant. Here he is speaking on the fourth anniversary earlier this year.

**Vladimir Zelensky** (1:33)
Putin has not achieved his goals. He has not broken Ukrainians. He has not won this war.
We have preserved Ukraine and we will do everything to secure peace and justice.
Less than a week until spring, we are getting through the hardest winter in history. This is a fact and it's very difficult. Difficult for all of us. But just as on the first day of the war, we continue to build our tomorrow.

**Liana Byrne** (1:59)
Now the economic strain is becoming increasingly visible inside Russia. Just today, President Putin acknowledged that Ukrainian attacks and Western sanctions are weighing on the Russian economy. Growth is running at around 1 percent, but he still sought to paint a positive picture, insisting that the attacks had caused, in his words, no critical consequences.

**Vladimir Putin** (2:23)
Economic dynamics are generally modest, but positive. GDP growth is around 1 percent. Moreover, in the first half of the year, GDP growth was 0.6 percent. In the second quarter, it was 1.3 percent. It is clear that economic growth is affected by a number of factors, including external pressure and terrorist attacks on industrial facilities and infrastructure. Of course, there are no critical consequences from such attacks. There have not been and cannot be.
But of course, they cause us harm. This is obvious.
We understand it, see it and know it.

**Liana Byrne** (3:08)
The thing is, those reassurances are being tested at the petrol pumps. Reports say fuel stations in Moscow are limiting purchases because of shortages. Russia's Deputy Prime Minister Alexander Novak confirmed the country, which normally exports fuel, has started to import it. Elina Rybakova is an economist with the Peterson Institute for International Economics in Washington. She says the cost of the war is becoming more difficult for Russia's economy to absorb.

**Elina Rybakova** (3:35)
It is very significant pressure on the society more broadly. So Russia is one of the largest oil producers and oil exporters, but Ukraine's strategic strikes on Russian refineries have cut sharply Russia's ability to produce fuel. And at a time this summer, you know, there's been some improvements, but at a point this summer, almost 40% of Russia's refining capacity was down.
And that's what has led to dramatic cuts in Russia's ability to export and now has finally switched to forced Russia to import fuel.

**Liana Byrne** (4:08)
Now, President Putin says growth will be around 1% this year after just 0.6% in the first half. Do you think he's putting a brave face on it?
Is Russia's economy actually quite weak?

**Elina Rybakova** (4:20)
Russia's economy now is in stagflation. What we economists call stagflation, I love the name, because it means to have zero growth, but you still have elevated inflation. Being so precise for Russian growth as saying about 1% or 0.6%, I think it is precision. Russia's economy contracted in the first quarter this year. It was mostly flat in the second. There has been some recovery. I do not see what's going to drive Russia's growth into the end of the year. So I think 1% is generous. I think it's more likely to be closer to zero.
And inflation is likely to be persistent at the same time, both headline inflation and core inflation.

**Liana Byrne** (5:02)
Another thing President Putin said that I thought was quite interesting is that he acknowledged that attacks on industrial infrastructure are affecting growth, but then he says they have been no critical consequences. Do you think that assessment is credible?