The costs of Russia’s invasion of Ukraine

This is an audio transcript of the Behind the Money podcast episode: ‘The costs of Russia’s invasion of Ukraine’

Michela Tindera
In the months before Russia attacked Ukraine last year, Pavlo Bondarenko says he could feel the tension building.

Pavlo Bondarenko
It was only the question when it’s going to happen. So back in December, I already procured all this stuff for survival, like for three days’ survival. And it was a time when everybody was really nervous because it was constant constant pressure when it’s going to happen.

Michela Tindera
Pavlo is 28 years old and he lives in Ukraine’s capital, Kyiv. But despite that feeling of constant pressure last year, at the same time, he also felt focused — focused on his podcast production company that he had co-founded a couple of years before.

Pavlo Bondarenko
I finished building this studio on the 16th of February, like a week before. And actually I was I was doubling down on all the tasks on the, on the podcast production. I knew that maybe it will be the last chance for me to try to chase my dream.

Michela Tindera
A little over a week after Pavlo finished his studio, he found himself, his city and his country under attack. From there, Pavlo says Kyiv changed dramatically in the first months of the invasion.

Pavlo Bondarenko
First stage was there the February March when it was a risk for Kyiv and the war was really close. It was on the streets of Kyiv. I mean, the only people who left in Kyiv, people who are involved in army or voluntary activities. So it was like really scary, but really like action movie star thing. We lived in the basement of this office building, so we were sleeping on mattresses that they screwed off of my studio. They were for soundproofing and we use them just to sleep on the floor, and it was completely abnormal. But then we moved back to our apartments and we started to figure out how to live this new life.

Michela Tindera
A new life for Pavlo meant volunteering with Ukraine’s defence efforts. He went from a budding podcast producer to helping gather equipment and funds for the war.

Pavlo Bondarenko
And the beginning it was really chaotic because we were trying to do everything, purchasing cars, getting some stuff from Europe.

Michela Tindera
He started by raising money for some friends he had in the military.

Pavlo Bondarenko
And actually it was really hard to manage because for one week we needed like $30,000. For another week we needed $5,000. Then it switched to raising money with Twitter.

Michela Tindera
Using social media allowed him to reach a wider audience to fundraise. Pavlo isn’t with an organised charity or company to do this. He works with a team of less than a dozen people to ship supplies to Ukrainian soldiers. As the one-year anniversary of Russia’s invasion looms, Pavlo’s life has changed a lot. But he’s also now feeling a sense of déjà vu. Nobody is forecasting the end of the war any time soon. Russia continues to throw more weapons and troops into their own efforts. They recently mobilised some 300,000 fresh recruits.

Pavlo Bondarenko
It’s like, it feels like time moves like five times faster than it was normally. And it’s a constant rush. And all people in Ukraine are waiting for another offensive attempt by Russians. So this is like a little bit of the same feelings than it was last year. But this time I feel much more prepared and much more aware of what actions I can do to prevent that.

Michela Tindera
Pavlo says he hasn’t really had time to think about how he feels about his life and how much it’s changed.

Pavlo Bondarenko
And the only thing I try to do now is just to manage my house, my awareness of the situation, and to focus on persistence. Not on some like really dramatic and cool things, just on boring stuff that I can do every day. And I talk about most of about my volunteer efforts because I think that it’s so now the best strategy to survive is to do every day some of work and then and do it regularly every day. Joy is an act of resistance. The thing that joy is an act of resistance is like the motto that they try to remember the hard times when they feel like constantly overwhelmed.

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Michela Tindera
I’m Michela Tindera from the Financial Times. It’s been one year since Russia launched its full-scale invasion of Ukraine, and the cost of that has rippled out into so many different places. So today on Behind the Money, we’re going to have a longer episode than we typically do. We’ll be spending this time examining the different layers of cost that this last year of war has had. That’s the personal cost to individuals, to Ukraine as a country and to the rest of the world. As you heard, we wanted to start with Pavlo’s story as a 28-year-old living in Kyiv when the invasion began. Next, we’ll zoom out to talk about what’s happened to Ukraine’s domestic economy. Then we’ll jump to the war’s effect on global food prices. And finally will end on how the war has shifted the world’s energy markets in irrevocable ways.

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To understand what’s happened to Ukraine’s economy, I spoke with the FT’s Europe editor Ben Hall. He says that first, we need more context.

Ben Hall
Ukraine was one of the poorest, is one of the poorest countries in Europe with a largely Soviet-legacy economic structure. And it had been suffering the after-effects of multiple crises through the 30 years of independence. Starting with the hyperinflation and brutal transition after the collapse of communism and independence in the 1990s, then the financial crisis, then a very, very severe recession after Russia annexed Crimea in 2014 and stirred up a war in the east of Ukraine and then the pandemic.

Michela Tindera
For many years, Ukraine’s economy has been dominated by the production of commodities. That’s things like steel, coal and agricultural crops. Those industries have been largely controlled by oligarchs, and that’s led to corruption in business and politics.

Ben Hall
These were men who made their fortunes through political connections largely, and then maintained their fortunes and increased their fortunes by using their political influence to make sure others did not challenge them. And it’s one of the reasons that has held the Ukrainian economy back. It’s made the economy uncompetitive because these are wealthy men who are trying to extract rents from their assets and don’t want competition. And that has meant that the Ukrainian economy has lacked dynamism.

Michela Tindera
Still, at the end of 2021 just as Ukraine was emerging from the worst of the Covid-19 pandemic, things were starting to look brighter.

Ben Hall
Ukraine was beginning to recover and was enjoying some kind of international investor interest as an emerging economy.

Michela Tindera
Then the invasion began.

News clip 1
Russian President Vladimir Putin has launched a major military operation against Ukraine.

News clip 2
Russian tanks rolling across the border from Belarus in the north and Crimea in the south.

Michela Tindera
Millions of Ukrainians, mostly women and children, fled the country. Five to six million more were internally displaced. Ben estimates that a third of all Ukrainian companies completely stopped production.

Ben Hall
Then there was the direct impact of the fighting itself. Take Mariupol, for example, the city in the south-east of the country. The Ukrainians fought a last-ditch resistance in one of the steel plants there. Those two steel plants were essentially destroyed and those two steel plants alone accounted for 40 per cent of Ukraine’s steel output. The Russians have also bombed all sorts of other bits of heavy-industry oil refineries, other industrial plants. Russia’s effective blockade of the Black Sea has meant that it’s been very, very difficult for the remaining factories working in Ukraine to actually export their goods of steel and farmers to export their grain. So even those bits of Ukrainian industry and agriculture that are working normally have really struggled to get their goods to market.

Michela Tindera
One bright spot in Ukraine’s economy over the past year has been its technology sector.

Ben Hall
It’s been much easier for Ukrainian tech companies to keep going because workers with a laptop can essentially work from anywhere. So this sector has actually done pretty well and even appears to have increased its sales in 2022 and obviously now accounts for a much larger share of Ukrainian exports, which have overall shrunk because of the war. And I suspect what’s happened is a lot of foreign companies have wanted to support Ukraine by employing the tech sector.

Michela Tindera
With the tech sector rising, power started shifting away from the oligarchs who held so much of it. Especially away from the ones accused of supporting or colluding with Russia.

Ben Hall
They will have had their TV stations shut down or they will have been expelled from the country. But also those oligarchs who are not pro-Russian, who are Ukrainian patriots have also suffered in this war, not least because many of their industrial assets have been badly damaged in the fighting. All their business activities have suffered because of the problems in getting exports out of the country or because of other disruption caused by the war. You’ve seen the government, for example, seize and nationalised assets owned by oligarchs to serve the war effort. And I think you’ve seen a real shift in Ukrainian public opinion because of the war, which is a desire to want to see Ukraine change for the better over the longer term.

Michela Tindera
Ben says that the war has proven how resilient and adaptable the country can be. Still, as long as Russian missiles are battering Ukrainians and their infrastructure, this year is likely to be another grim one.

Ben Hall
There’s a huge backlog now of infrastructure that needs to be repaired and rebuilt and that will probably take many months before that work even starts to happen.

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Michela Tindera
Before the invasion, Andriy Vadatursky’s family grain business Nibulon was booming.

Andriy Vadatursky
We had one of the best years in the history before the war started, because basically we had the biggest crop ever because Ukraine produced more than 100mn tons of grains. There was a shortage of grains in the world. Shortage so that’s why the demands were high. The prices were high.

Michela Tindera
Andriy’s father founded the company in the 1990s. It employs around 6,000 people and operates out of a southern Ukrainian city that’s known as a grain hub for the country.

Andriy Vadatursky
Everything was working well until 24th of February and actually everything stopped just one and one morning.

Michela Tindera
Ukraine is a major exporter of grain and sunflower oil, but that ground to a halt at the start of the invasion. Russia blocked millions of tons of crops from leaving Ukrainian ports.

Andriy Vadatursky
Some of our fleet was stolen, the grain was stolen, some our employees were killed. That’s the new reality. We actually stopped receiving the credit lines from abroad. International finances just disappeared because of the war risks in Ukraine.

Michela Tindera
Things got even harder for Andriy. Over the summer his mother and father were killed in an early-morning missile strike, and the very next day, Andrey says he had to take over the company under these tragic circumstances.

Andriy Vadatursky
I had to find the way and to try to predict the future. Tried to plan the financing, plan to discuss with the banks the future and the different possibilities which exist in the company when nobody knows how to predict the future. Your decision is influenced in not only the life of 6,000 people, but others — the farmers, the relatives of employees. It’s a huge economic effect. Actually, the banks as well, and also because their financial results depend on our performance as well, because we are big creditors for many banks. And it’s important for them to nibble on these sort of in the debts.

Michela Tindera
But Andriy is still pushing forward.

Andriy Vadatursky
We will never become the same company as it was before the war. The same as Ukraine. Ukraine will never be the same as before the war. It will be different. How different? We don’t know. So the most important is to survive, to save the business during this period of time. And then hope for rebuilding it back.

Michela Tindera
The hits that Ukraine’s grain industry has taken over the last year have been felt in different ways around the world. That’s because of the important role that Ukraine plays in the supply chain. Here’s the FT’s commodities correspondent Emiko Terazono.

Emiko Terazono
It’s the No 5 wheat exporter, and a lot of countries in the Middle East and Africa rely on Ukrainian grain. It’s the No 3 exporter of corn, which is a main source of feed for livestock. And it’s a big producer of sunflower oil. It’s the No 1 exporter with a share of just under 40 per cent of the world’s international market.

Michela Tindera
But Ukraine wasn’t the only country playing an important role in the supply chain.

Emiko Terazono
Russia is the world’s largest exporter of wheat, and the fear was that the war would also mean that Russian wheat and also fertiliser would stop flowing out of the country.

Michela Tindera
And a lot of it did. In response to the invasion, western nations and companies restricted how they traded with Russia. Many countries that relied on the more affordable Ukrainian and Russian grain had to find expensive alternatives.

Emiko Terazono
Proximity is very important in grain trading. If you’re Somalia and Yemen relying on aid, so what happens is the aid agencies buy from Russia and Ukraine, and then send that off to places that are extremely poor. But the war made that impossible.

News clip 3
The food crisis here in Tunisia and much of north Africa.

News clip 4
In north-west Syria, prices for food are skyrocketing.

News clip 5
11,000 tons of wheat arrived in Lebanon this week, but this will be the last shipment from Ukraine.

Emiko Terazono
So countries which rely on the Black Sea have been hit very, very hard. Turkey, for instance, relies on both Russia and Ukraine for wheat, and its food Inflation has soared. If you’re in one of the war-torn African countries and you need food aid, that’s also been affected by the war as well. So the scars are quite deep, I would say.

Michela Tindera
Last summer, the most vulnerable countries were bracing for famine. The prices for food and other commodities had peaked around May. And food became this focal point of accusations between the west and Russia. The west accused Russia of weaponising food. Russia blamed the widespread food crisis on western sanctions, even though food and fertilisers were exempt from the restrictions. Then in July, the United Nations and Turkey brokered a deal between Russia and Ukraine to get grain moving out of the Black Sea ports again.

Emiko Terazono
That really calmed nerves and brought prices down. It was regarded as a huge breakthrough because a lot of people were saying, “Well, what’s in it for Moscow?” I guess Putin needed the developing countries onside to convince them it wasn’t the invasion that was causing food insecurity around the world. It was sanctions from the west as a result of the invasion. So it was a bit of a twisted logic on his side, I think. But the fact that the grains started flowing was a huge relief to everyone concerned.

Michela Tindera
One year on, food prices aren’t near the peaks they hit last year.

Emiko Terazono
I think prices have stabilised. They’ve come down from their post-invasion peaks, although that’s still historically quite high. I think the stability is quite precarious though, and when I talk to officials in places like the World Bank, one of them described to me that the current situation is flying with one engine and the risk of something going wrong, like the grain deal not being renewed or energy prices going up again, or bad weather in one of the key producing countries, that could send grain and fertiliser prices soaring again.

Michela Tindera
So Ukraine’s economy has suffered huge blows this year. The world’s food security teeters on the brink. You could at least make the argument that inflation and food scarcity are a predictable outcome of war. But perhaps less predictable has been the effects of this invasion on the world’s energy markets.

Tom Wilson
The full-scale invasion of Ukraine by Russia last year has had a seismic impact on the oil market. I mean, really far beyond what anybody might have previously anticipated and ultimately unprecedented in the history of the oil market.

Michela Tindera
That’s the FT’s energy correspondent Tom Wilson talking there. He says that by the time the invasion happened, global energy markets were already under strain.

Tom Wilson
Basically, ever since world leaders signed the Paris climate agreement in 2015, pressure had been building on western oil and gas companies to slow and in some cases, cease investment in new fossil fuels. And then that pressure accelerated during the Covid pandemic, when restrictions on movement crushed oil demand overnight, led to further shutdowns of big oil company operations. And that led to lots of predictions that maybe it was the mountain peaked, maybe at the end of the oil era. But then when we were coming out of the worst of the Covid pandemic at the end of 2021, and restrictions were being lifted in lots of parts of the world, then we saw this massive resurgence of demand for oil and gas as industry went back to work, as people started to drive and travel again. I think a lot of people forget how strained global energy markets were already at the end of 2021.

Michela Tindera
Soon after news of Russia’s attacks broke, Tom opened an email on his phone.

Tom Wilson
Three days after the invasion started, I was actually in the park in London with my kids, and received a press statement from BP, the British-headquartered oil company, that it was going to exit their joint venture with Rosneft.

Michela Tindera
He knew instantly that this was an unprecedented announcement. Rosneft is one of Russia’s state-owned oil producers, and BP owned about 20 per cent of that business.

Tom Wilson
I think at the time the statement dropped from their press officer, I was actually on the phone with a source who previously worked at BP, knowledgeable about the business. That person had said to me, “BP won’t leave”. The joint venture is too important, they’ll hold on, they can weather the storm.

Michela Tindera
But that didn’t happen. Now, it’s important to say that before Russia started this invasion, it was the largest exporter of energy in the world.

Tom Wilson
Not the second-largest or the third-largest, but the biggest. It was responsible for about 10 per cent of the world’s oil and a third of Europe’s gas. Historically, the energy industry has taken that position. It’s felt that, you know, the world needs energy. Oil and gas is a vital source that underpins the global economy. So therefore this kind of been a view that energy can be apolitical and that oil and gas companies can continue to operate in places where wars are going on. There are countless examples of that through history. So I was surprised at the pace at which the BP management took that decision. With hindsight, it’s easy to say, “Yeah, that was the only option”. But at the time they certainly could have waited and gauge, “OK, how does this play out? How does the west respond to the invasion?” But this one was different. And it was really that decision that then triggered the swath of exits that followed, both from other western oil and gas companies like Shell and Exxon and also from other western banks and insurance providers and professional service companies that all made efforts to wind down their business in Russia as a consequence.

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Michela Tindera
Tom says BP’s exit from Russia signalled the beginning of the biggest change in the global oil market in many decades.

Tom Wilson
The impact of Russia’s invasion of Ukraine on the oil market has been profound. We’ve had other energy crises such as in the 1970s which led to the formation of the Opec cartel. And this is really on a par with that, if not more significant, because of the lasting impact it’s going to have on the way in which oil moves around the world.

Michela Tindera
EU sanctions have banned the import of Russian petroleum products into the region, and that has since pushed Russia’s oil exports out to other parts of the world.

Tom Wilson
So as a consequence of those European sanctions, what we’ve seen is basically a big game of musical oil barrels. So now we’ve got the situation in the oil market where you used to buy lots of Russian barrels, but that’s no longer happening. And instead, Russia is sending its oil mainly to India and China, who are paying a massive discount. China has ramped up imports massively, as has India, which was importing very little Russian crude before but is now importing a million barrels a day, if not more. And then Europe, for its part, is getting its oil now from the Middle East and from the US.

Michela Tindera
This has significantly changed the balance of power in oil markets and in the world’s economy. And Tom says he thinks it’s unlikely to go back to the way things were any time soon.

Tom Wilson
I think we will see this year, and that will continue into 2024 and 2025, is the rising power and influence of the Middle Eastern oil producers and specifically Saudi Arabia that they’ve benefited over the past 12 months from this period of really high prices. So they are cash-rich, and we’ve seen that demonstrated by the flow of western bankers and business executives who are going to Riyadh, going to Abu Dhabi, to try and raise capital for investments.

Michela Tindera
Tom says that another example of this was President Biden’s trip to Saudi Arabia last summer at the height of the energy crisis, when oil prices were over $100 a barrel.

News clip 6
President Biden touched down in Jeddah, Saudi Arabia, Friday.

News clip 7
This morning, he is arriving in Saudi Arabia for a controversial meeting with the Saudi crown prince. The goal to convince the Kingdom to ramp up oil production and bring down gas prices.

Michela Tindera
But Tom says that when push came to shove, Saudi Arabia did the opposite.

Tom Wilson
It announced a slew of cuts to its production targets and the production targets of the other members of the Opec+ producers cartel that it runs. The White House was livid in response. But really, the fact that Saudi was willing to reject that call for help from Washington, the fact they were willing to reject that overture for the first time also to me signalled a new era where Riyadh and the other major producers in the Middle East would be more forceful going forward when it comes to oil policy.

Michela Tindera
Higher oil prices have also meant record profits for oil companies all over the world. That includes even those US and European companies that early on faced a financial hit when they agreed to walk away from their Russian projects.

Tom Wilson
It was seen as a financial sacrifice or commercial sacrifice they were making by committing to divest assets that historically been quite lucrative. But that commitment has been more than made up for the record profits that they made due to high oil prices. So Exxon last year made $55bn, which is the highest annual profit ever recorded by a western oil company. Chevron made $35bn. Shell and BP also made their highest ever annual profits. Russia’s biggest oil companies did incredibly well. Oil prices were near record levels for most of the year, which meant huge profits for Rosneft.

Michela Tindera
Tom says that the war over the last year may have been a wake-up call when it comes to how people think about energy security.

Tom Wilson
I think there’s been a tendency to feel in parts of the west that the world was almost moving into a post-industrial period where we no longer needed big industry and we didn’t really need energy because we had all of these technological solutions. But ultimately, oil and gas continue to underpin most parts of the modern economy, and I think that have been forgotten. And the energy crisis sparked by the invasion has reminded everybody of that fact. But I think the other positive looking forward is that it has forced governments, particularly in Europe, but also in the US, to wrestle with the realities of the energy transition, possibly for the first time. Previously those potentially a sense that maybe there could be a smooth transition from a polluting hydrocarbon-based world to a low- or zero-carbon future. And I think the past 12 months basically showed us how difficult that transition is going to be, how rocky it might be unless it is carefully managed.

Michela Tindera
When I interviewed Pavlo Bondarenko for this show, he spoke to me from the office in Kyiv where a little more than a year ago he was running his podcast company.

Pavlo Bondarenko
Now I understand why I was pushing so hard, because this was a . . . now I understand that at the time I was completely happy. I did what I wanted. And it’s like it fulfils my heart that I did what I wanted. And I do not want to come back to podcast production at the moment because these things changed drastically. So it’s like a closed chapter for me now and but I close it in high note that I cannot allow, you know, that everything was just destructive, everything went bad. No, I did it on my own terms.

Michela Tindera
As he said earlier, he told me he doesn’t have much time or desire to reflect on what’s happened to him over the last year. But he did have a few thoughts on the cost of this year and what it meant for him.

Pavlo Bondarenko
To give a perspective, I’m just an ordinary, completely globalist hipster that I was involved in, like in the general. And I used to listen all western music. I read everything in English and I was in this fear of, of culture and, and now I’m still listening to some queer post-punk or indie bands. But at the same time I am pushing boxes with strings and all of this stuff to the postal service. And I had a few friends which I am attended funerals, so because they were killed by Russians. But I think the most of change of me is that now I just understood and accepted that I couldn’t die any moment, and I need to be prepared for that. And this is like, no, like drama shit that, “Oh my God, I’m going to die. I need to do something.” No. So we’re going to have like a tourniquet, a bandage. And also we always prepared to, if something bad to happen in Kyiv, we just grab our backpacks and we have like all the clothes, of the things just to straight we go by legs somewhere out of Kyiv and it’s puts a lot of strain on you, on your mental health and on your body.

Michela Tindera
Whether it’s been the toll on individual Ukrainians, those who have lost family and friends, lost a business, lost their homes, or the effects on global food and energy markets — these stories we’ve shared today are just a few examples of how Russia’s invasion of Ukraine has left a significant mark on our world over the last year.

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Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco and Breen Turner. Special thanks to Julia Barton and John Paul Rathbone. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.

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