Path to peace in Ukraine starts with Putin’s finances

Tightening economic pressure on Vladimir Putin is key to bringing the three-year war to an end,

- Owen Matthews

How close is Russia’s economy to collapse? As Donald Trump’s negotiators open direct talks with the Kremlin, Kyiv’s European allies hope that a final push on sanctions against Russia could be Ukraine’s last – and best – hope of victory. Time is running out before Ukraine stands to lose all the territory currently held by Russia.

Almost three years ago to the day, Putin intended his full-scale invasion of Ukraine to be a three-day operation that would force regime change in Kyiv. Neither Putin nor his military or economic planners anticipated a grinding war that now soaks up more than 40 percent of Kremlin spending.

Nor did they expect Europe to impose serious sanctions, and even less did they anticipate the destruction of three of the four Gazprom gas pipelines under the Baltic Sea that before the war supplied more than 30 percent of Europe’s gas.

The result in Russia has been rampant inflation, currently running at more than 9 percent, crippling interest rates of 21 percent, and runaway price hikes on staple goods that far outpace the headline inflation rate and have hit ordinary Russians hard.

Last summer the price of eggs jumped by 42 percent, bananas by 48 percent, tomatoes by 39.5 percent and potatoes by 25 percent. The Russian ruble has lost over half of its value since Putin first invaded Crimea in 2014, and over $600bn of the Kremlin’s foreign currency reserves have been frozen in Western banks.

More than 1,000 Western businesses – including Ikea and McDonald’s – pulled out, as did Western car manufacturers. Imports of Western goods, especially technology, are now expensively routed through sanctions-busting neighbors like Kazakhstan and Georgia. And last month Russian utility companies hiked prices for electricity by up to 250 percent.