THE ECONOMIC VICTORY UKRAINE CAN WIN

Both World War 1 and World War 2 began as military campaigns. Little thought was given by the Germans or anyone else as to the longevity of the war and the importance of long term economics in WW1. They quickly recognized that they could defeat the British through crucifying their sea based trade. The U-Boat, never intended as such, quickly became the weapon to have. The British refused to believe in the convoy system despite history having pointed to its efficacy in the Napoleonic wars 100 years before. Eventually, after tremendous losses that literally brought the British Isles to within days of disaster, the tide turned. Convoys transformed the losses, the U-Boats were defeated. As much as anything the British blockade of Germany, which required no submarines to enforce, was complete, as the Royal Navy terminated all trade between Germany and the outside world.

Germany embarked on WW2 with almost the same degree of abandon it did WW1. The U-Boats were few and Britain learnt its lesson, quickly moving to the convoy system. Despite huge losses, the WW2 U-Boats never came close to the effect they had in WW1. Besides which, the American capacity to replace the losses with the Liberty Ship program – the record for which was keel laying to operational delivery in 24 hours, a feat that seems almost incomprehensible today, overcame the capacity of the U-Boats to destroy. Coupled to improving air cover, they too were defeated.

Japan embarked on the war in December 1941 very much from an economic point of view. It knew it could never beat the United States in peace time, it depended on US scrap metal and oil, as well as oil and rubber from the Dutch East Indies (modern Indonesia). All of which was sanctioned by the Americans because of the Japanese ongoing war in China. They either attacked and grabbed what they could and hoped for a peace later, or they were doomed. That gamble didn’t pay off.

Time and again, the enemies of freedom have misjudged their own power and the moment. Putin thought he was going to pick on a country that had near zero fighting power, no willpower and no real allies. Nobody was coming to save Ukraine, the western powers were weak, they needed Russian energy to prop up their economies and keep their people warm. Besides it would all be over in 3-7 days, and nobody would really care.

Just as Germany thought it would all be over by Christmas in 1914 (well everyone did to be fair), and just as Hitler thought he could negotiate with Britain as it stood alone in 1940, despite seemingly having no chance of winning, the British refused. They would fight on.

The price was high. German bombers attacked industrial and power infrastructure, ports and production, as well as mounting terror raids on cities. U-Boats attacked our merchant shipping from day one. But it changed nothing in the end. There are so many similarities between Ukraine’s stand now and Britain’s then, it inspires in us something of a similar link through history. We perhaps, more than many understand.

Russia, like the dominating power of Nazi Germany in 1940 thought it was all conquering in 2022. Ukraine and her allies proved that to be wrong. Once Moscow realized the disastrous mistake it had made and went into head long retreat in September 2022, so much so that the question of battlefield nuclear weapons came to be considered, a new plan was needed. The ramping up of the war against Ukraines economy was to begin. A never ending flight of drones and cruise missiles would inevitably undermine the country so badly that it would paralyze it for good, and peace on Russian terms could be imposed.

Yet that has not happened. Despite almost 5,800 drone attacks on infrastructure in 2024, Ukraine still fights on. Its allies provide it with air defences and equipment to stave off as many missiles and drones as they can manage. Despite debilitating hits on the thermal power generating system particularly, rolling blackouts and electricity shortages, the resilience of the people is staggering. They just get on with it. What else can you do? You go to the shelters, you go to work, your kids go their underground schools. In homes and small factories across the country millions of components are being manufactured into drones for the front line. Food is prepped for the solders on the front, distribution and transit goes on to keep the frontline operating.

As the Russians shut down the power grid, a new war has emerged, that of replacement power supplies. Imports from neighbors like Poland, 800 megawatts of solar power panels installed in war time in juts 2024, thousands of diesel generators, camouflaged power nodes, a realization that the post war grid is going to have to be very different to survive another conflict.

The passive economics of the war have had their own victory. Grain exports have soared to pre-war levels. As Russian harvests fail and the cost of fuels there rises, Ukraine produces more now with less land than it did before the invasion. Its even donated grain to Syria.

A thriving defence industry, carefully decentralized so that no single part can be targeted and prove fatal to critical programs, has grown up, so much so that its looking at exporting excess equipment to raise money for the state budget. Joint programs with allies, ammunition manufacturing, artillery manufacturing, it’s all happening even as Russia rains down its murderous drones.

On the home front, the passive war is a shockingly effective example of a different kind of war economy, forged out of necessity rather than conquest.

Yet that economy has taken what its enemy has thrown at it and turned it around in ways that are singularly more devastating and more damaging than anyone ever imagined possible.

The relentless campaign against Russian oil refinery infrastructure is taking a terrible toll on the economy, driving oil refining to a near standstill domestically. The cost of having to import finished product isn’t one Russia ever expected to face. The cost of repairs to the expensive and technically sophisticated equipment is beyond reasonable and difficult to acquire. The refining industry is near collapse, not just because of the damage but because it’s becoming financially unviable. Attacks on ammunition and electronics factories, railways and ammunition dumps, fuel distribution and storage, cause ever increasing costs, inconvenience and problems hard to overcome. They chip away at efficiency, at budgets, at morale, at food production, at daily life. Increasing costs, fueling inflation, forcing up interest rates. Every single attack is one more cumulative piece of Russian capability lost. This is Ukraine’s modern equivalent of the U-Boat war – only they are waging it against Russia’s land based economy, and its slowly but surely having its effect.

At sea the sanctions and their ever tightening grip are becoming progressively more damaging to Russian economic power. It needs the oil to be bought and paid for any way it can. It spent a fortune buying up dodgy old tankers to get around the sanctions, and now the latest round of controls has seen stalwarts like India and China refuse to allow the grey fleet tankers into ports to offload. Over the course of the coming weeks that’s billions of dollars not flowing into Russian coffers, it’s a massive amount of money, as much as $200 billion over the next year.

Add to that the final nail in the coffin on the gas trade with Europe that will come into force, and that already devastated stalwart of the Russian economy has dropped from hero to zero.

The only way Russia can save its oil industry is to shut huge swathes of it down. It cannot refine excess oil, its storage facilities simply cannot cope with the 8 million barrels a day it’s pumping – and that’s way below its capacity. More will have to be closed. There’s no other way. The cost of that is high, the cost of reopening it is even higher.

The incoming US administration hopefully will see the simple fact that they are the ones who can leverage Russia more than anyone else. They and the EU and the Ukrainians are on the cusp of breaking Russia this year. The screws must tighten further. There can be no leeway for an agreement that the US imposes on Ukraine at Putin’s behest. His indecent desire to see the next president in person and quickly, should tell you all you need to know about how desperate he is. Now’s the time to come down harder, to leave him with no doubt that Ukraine and Ukraine alone will determine how the war with Russia ends, no matter what Putin thinks of it.

This is not Munich 1938, or the division of some colonial empire sphere of influence. Those days are gone. America has a chance to get Ukraine across the finish line and break the Russians and their war. We cannot squander this opportunity. The next president must be shown that he can be the leader of a US led triumph in ending the war fairly and without sacrificing American allies.

We are so close. We cannot let Putin off the hook he knows he’s on. His advances in Ukraine are not by any means war ending. He’s squeezing the economic blood from the stone, there’s not much left. The new administration cannot be allowed to loose this moment. Yet they so easily could.

Victory can be Ukraine’s in the end. In many ways it hangs in the balance. Will sanity prevail in the United States? Ignore what the administration says, look only for what it actually does. In the next few months we will finally know with some certainty how this might end. Ukraine can win the peace process if the next US administration holds the line on Russia.

The Analyst