On Tuesday, it was four years since Vladimir Putin launched Russia’s full-scale assault on Ukraine. He had, of course, already waged a war for eight years before that, and influence operations for much longer, but that was when “the war” crossed the threshold to register as an existential challenge to Europe’s security and way of life.

Since this is a newsletter about economics, I wanted to mark the occasion by observing how much of Ukraine’s war of survival is an economic matter. So here follows a tour d’horizon of some important economic aspects of Ukraine’s struggle.

On Monday, Valeriy Zaluzhny — formerly Ukraine’s top military commander, now its ambassador to the Court of St James’s, and potentially his country’s president — addressed Chatham House (you can watch the event here). What is striking about the ex-soldier’s speech is that it is largely about economics — the economic logic of state of the art warfare technology.

Listen to the entire speech, the main thesis of which is that recent “technical and technological progress has resulted in a profound transformation of all domains, sea, air, land, outer space, cyber, which continue to be rapidly transformed through the advance of AI”. I highlight some excerpts here. Zaluzhny talks about how conventional combat has been transformed by the “kill zone” (which my colleagues have depicted in this chilling piece of visual journalism):

The battlefield has become completely transparent. This has led to the creation of a robotic kill zone, which today extends at least 25 kilometres deep . . . Classic air battles are also rare in this war, mostly because of the pertinent costs . . . One can state with confidence that manned aircraft have got their own kill zone and that the personnel are increasingly moving away from this zone.

. . . about the increased relative value of human lives:

[This] long and highly intense [war has] showed that oddly enough, the most valuable resource in such a war is human resources, because it takes a lot of time to restore them — which is much longer than, for example, production cycles for weapons . . . 

. . . and in my view most importantly, about the role of the energy system:

. . . energy supply can no longer exist and to be defended in the form in which it was created in the 1950s . . . Decentralisation went from being a question of efficiency to a question of national survival.

Energy decentralisation involves a transition from a few large energy sources to many small ones distributed across the territory. This is the implementation of the concept of distributed generation where electricity and heat are produced closer to the consumer at local low capacity power plants, renewable power plants and micro and mini grids. It is precisely this architecture that will significantly increase the resilience of the energy system in the face of the threat of weapons of attrition. This is an extremely complex process, but it is obvious and predictable — unlike promises not to destroy such a system or to produce more air defence systems.

. . . the reconstruction process should begin now, without waiting for a peace deal, which may never happen, and a new format of peacekeepers should be launched, who do not fight but rebuild. The main conclusion is that the energy system has become a new front in the war and its stability determines the outcome of the conflict.

Given the fundamental importance of economics in this war, here are some other key observations.

First, Ukraine’s economy continues to hold up remarkably well for the pressure it is under. Half a year back, I made a comparison of growth rates in Ukraine (starting from the new baseline of a large chunk of the economy being violently cut off and millions of refugees leaving the country) and Russia. I concluded then that Ukraine had consistently outperformed its attacker, on growth and other metrics (such as inflation). There is little reason to change that conclusion. Russia’s economy is coming under increasing strain. The European Bank for Reconstruction and Development’s latest forecasts, out today and charted below, see Ukraine continuing to outperform Russia in the coming years.

One aspect of the Ukrainian economy’s resilience is how well its labour market has coped with the enormous shock of the war — including military mobilisation and large-scale internal and outward migration — as an analysis for the Rockwool Foundation Berlin makes clear. Below I reproduce their chart of the fall in labour supply; on the demand side, there have also obviously been enormous needs to reallocate work to war-related needs.

Second, the structure of the Ukrainian economy is ever more Europeanised: a report from the Vienna Institute for International Economic Studies shows that the EU’s share of Ukraine’s exports “rose from 36% in 2021 to no less than 57% in 2024”.

Note that this was an intensification of a change that was already under way. In economic terms, as well as in political terms, Ukraine had been turning towards democratic Europe and away from Russia since 2014. Indeed, this was the topic of the newsletter I wrote on the day of the full-scale invasion, which I titled “Ukrainians are being punished for choosing Europe”.

The Vienna Institute report nevertheless highlights areas in which Ukrainian-EU economic integration is stagnant or failing to live up to its potential. Most strikingly, the two sides signed a strategic partnership on critical raw materials in 2021 that so far has very little to show for it, despite the overwhelming logic in its favour. In contrast, the Trump administration has made resource access for US companies a central point of its dealings with Kyiv. Another area is renewable energy and related manufacturing where, too, the potential reciprocal benefits are self-evident but the big strategic opportunities so far have not been grasped.

Third, the financing of Ukraine is also now largely an intra-European affair. Below is a chart of the Kiel Institute’s tracker of financial and military support for Kyiv. It shows that since Donald Trump returned to office, US support has fallen to virtually nothing. But Europe has stepped up, increasing its funding to fully make up for the lost contribution.

There are two lessons to draw from this. One is that there should never have been any doubt about Europe’s ability to fill the gap when the US cut and ran (total disbursed support to date has cost Europeans less than 1 per cent of one year’s national income). So big is the European economy that even significantly larger Ukraine support would be a rounding error in a macroeconomic perspective. And again and again, European leaders have proved they have the will to help Ukraine. I, for one, am confident that the latest Hungarian spanner in the works will quickly be overcome or sidestepped — and that, eventually, Europe will use Russia’s blocked foreign exchange reserves to compensate Ukraine. A step to take immediately is to segregate the relevant assets and liabilities out of the financial institutions where they sit at present, as I have recommended many times.

The other lesson is that for all the White House bluster about Kyiv having to come to the table and accept a deal, the US has very little leverage left. It cannot withhold any more financial support, and the US military hardware it sends to Ukraine it sells (and the Europeans pay) at market prices. That still leaves the possibility of cutting off vital intelligence. But even that is unlikely to be as pivotal as it used to be, given the transparency of the kill zone.

Fourth, the fundamentally economic nature of the war means it remains as important (if not more) to impose greater costs on Moscow as it is to finance Kyiv. The Ukrainians know this, of course — witness this nice profile of their chief sanctions official in the New York Times.

Beyond taking action on the blocked reserves, that means continuing to tighten the sanctions on Russia and those who aid and abet it. The EU’s 20th sanctions package, which the rest of Europe must be relied on to join as well, promises to broaden the ban on servicing Russia’s crude oil exports — removing the exemption for sales below the price cap that the US insisted on last time Europe wanted to do this. This must now be pushed through. More generally, more can be done to throttle Moscow’s pipeline of hydrocarbon revenue. (Encouragingly, the UK has just added to its sanctions.)

Put all this together, and it’s not much of an exaggeration to say that Europe and Ukraine are, economically, the much stronger side in this war. It is time to realise this, and press the victory home.

Other readables

● This week I wrote that Europe has economic chokeholds on other powers that it must start to use strategically. Since then, I have come across another study of the many areas where the US has deep dependencies on the EU.

● An African video games studio is turning the museum heist genre against the west’s colonial past.

● Why, precisely, are Chinese electric vehicles so cheap? And: the US is right to ban their connectivity components altogether.

● Alan Beattie has the only take you need on US tariff turmoil.