Lure of the EU

Despite the deep historical and cultural links between Russia and Ukraine, the latter has been moving closer to the EU both politically and economically since 2014, slipping from Moscow’s sphere of influence just as the Russian bear becomes more aggressive. 

Some six in 10 Ukranians want to join the EU compared to a fifth that would support a customs union involving Russia, according to a poll late last year, while 54pc back joining Nato.

While Russia remains the top destination for Ukrainian products, around a tenth of exports, this is dwarfed by rising exports to EU countries, which account for around 40pc. Meanwhile, Ukraine plans to apply for EU membership as the economies of recent entrants such as Poland boom.

“I think Putin’s greatest concern is a stable, prosperous Ukraine right across the border from Russia,” says Joseph Dresen, an expert at the Woodrow Wilson Center.

“In the far distant or maybe not far distant future, Russian citizens [will] have an example of people who very much look like them and talk like them that are enjoying a ‘normal life’… a prosperous Ukraine on its border serving as an example of how Russians could be living.”

For Russia’s oligarchs, he adds, that there “would be a lot of opportunity for further theft and graft from the state efforts to reconstruct” Ukrainian territory following an invasion.

Last week Joe Biden reportedly told Ukraine’s president Volodymyr Zelensky to “prepare for impact” as an invasion is almost a certainty, warning that the capital Kiev could be “sacked”.

Despite the economic prizes and political control on offer in Ukraine, Dresen and other experts question whether these could possibly outweigh the costs of harsh sanctions and market turmoil that Russia could face. 

Already Russian and Ukrainian assets have sold off heavily in anticipation of an invasion, with the ruble last week slumping to its lowest level versus the dollar since November 2020. 

Sliding stock prices and plunging bonds would tighten financial conditions for Russian businesses and a suite of sanctions would ramp up the pressure on Moscow. 

‘Ferocious’ sanctions to come

Sanctions that have been floated include effectively banning Russia from using US dollars, restricting access to debt markets and excluding the country from international payments system Swift, making it harder for its banks to do business. 

Sanctions on Russian oil and gas, meanwhile, would deal a huge blow to its energy-dependent economy yet would also come at a highly sensitive moment for inflation-battered European households.

In the event of an invasion, says Peach, “we can be pretty certain that there’s going to be a pretty ferocious response from the US and the EU.

“There’s going to be some very restrictive sanctions that are going to cause a lot of pain to Russia’s economy and financial markets.”

Moscow has had a taste of the potential impact, with its economy having badly suffered in the mid-2010s after being hit by a combination of plunging oil prices and international sanctions.