The third front: How the Ukraine conflict became an economic war of attrition

How the war in Ukraine unfolds in its second year will be decided as much by dollars and cents (or rubles and hryvnia) as by bombs and bullets, say experts who warn the economic battlefield in Eastern Europe has become a critical front in the conflict.

Ukrainian President Volodymyr Zelenskyy's repeated calls for donations of weapons continue to dominate headlines as the Russian Army carries on a grinding offensive in the eastern Donbas region.

"Ukrainians, when I talk to them, they say there are three fronts to the war," said Matthew Schmidt, an expert at the University of New Haven Connecticut, who also taught at the U.S. Command General Staff College. "There's the eastern front, there's the southern front, then there's the economic front."

On Monday, U.S. Treasury Secretary Janet Yellen visited Kyiv to reaffirm the American economic aid crucial to keeping the Ukrainian government afloat and continuing the war effort.

CBC News has been on the ground covering Russia's invasion of Ukraine from the start. What do you want to know about their experience there? Send an email to ask@cbc.ca. Our reporters will be taking your questions.

"I know people talk about war in terms of the battlefield, right?" said Schmidt, who wrapped up his own visit to Kyiv last weekend. "They talked about tanks and planes and troop movements. I taught military theory [at the command college] and I can tell you what we talked about was politics and economics."

The Ukrainian economy "cratered" after Russia's full-on invasion last year, said Schmidt — a roughly 30 per cent contraction driven by the displacement of people and businesses and the attacks on infrastructure.

The Russian military's reputation has taken a massive hit due to its failure to conquer Ukraine. But when you consider the drive to exhaust Ukraine's economy, said Schmidt — an aspect of Russia's war efforts that rarely gets talked about — the results look much different.

"If you look at the purpose of the Russian kinetic force, it's actually achieved a lot because its purpose is not just to kill Ukrainians but to crater the economy, and then create an economy to change the political situation," he said.

The Ukrainians themselves realize they're fighting an economic war for survival, Schmidt said — which is why Zelenskyy's government recently wiped out half the regulations required to open a new business in Ukraine.

In a very real sense, Schmidt said, the war has been reduced to a question of which economy will collapse first — Ukraine's or Russia's. 

Howard Shatz, a senior economist at the U.S non-profit think-tank RAND Corporation, said Russia's economy has performed better than expected during the war, despite the effect of western sanctions.

Right before the full invasion, the Bank of Russia had been projecting that the country's 2022 gross domestic product would rise by two or three per cent. Right after troops crossed the border, the bank projected Russian GDP would fall by eight or 10 per cent.

The World Bank and the International Monetary Fund issued similar forecasts.