The economic consequences of the conflict in Ukraine

The conflict in Eastern Ukraine has dealt a particularly heavy blow to economic relations with Russia. When the secessionist rebellion escalated into a full scale war, a significant part of industrial enterprises in Ukraine stopped. The country lost a significant share of exports and the reduction of the Ukrainian GDP is expressed in two-digit numbers. Kiev along with the European Union and the US imposed sanctions against Russia over its actions in Crimea and the Donbass. Moscow responded by sending its own punitive measures against Ukraine and its Western supporters.

Around the same time, the Ukrainian government began to reduce imports of Russian gas because of the price dispute and began to search for new energy partners. To this end, it beginning reverse to import Russian natural gas from neighbouring countries-EU members such as Poland, Hungary and Slovakia. (Although technically it’s supplies from Russia, are not subject to the contractual terms which apply to direct imports from this country.) By the beginning of 2016 Ukraine fully refused from gas imports from Russia.

In combination, these measures have seriously undermined the bilateral trade between the two countries. In 2013, when the Euromaidan protests has not yet reached its peak, annually Ukraine exported goods to Russia for $ 15 billion. A year later, this figure had fallen to 9.8 billion dollars, and in 2015 amounted to only 4.8 billion. In 2016, the volume of Ukrainian exports to Russia fell to $ 3.6 billion, accounting for only eight percent of its total volume. But the share of the EU in Ukrainian exports in the same year increased to 37%.

In 2017, the trend is further gaining momentum. In the beginning of the year, right-wing activists and veterans of the war in the Donbass organized an informal blockade on Railways and motor roads linking separatist territory and Ukraine. They blocked the supply of anthracite. The leaders of the breakaway Autonomous republics of Donetsk and Lugansk in response took control of working on their territory of the Ukrainian enterprises and companies, putting them under “external control”. Kiev reacted and instituted an official embargo against the two republics. Now almost all economic activity between Ukraine and the rebellious regions stopped.

Apparently, the Ukrainian and the Russian economy in the coming years will increasingly move away from each other. Freed from its long dependence on Russia, Ukraine will pay attention to other markets, particularly in Europe, and will seek new buyers for its exports and new energy suppliers.