Ukrainian bread prices may surge 25% in the coming months, but according to industry officials, the driver isn’t a wheat shortage—it’s Russia’s systematic attacks on energy infrastructure, pushing electricity, logistics, and production costs through the roof.

Russia’s energy warfare strategy has proven more effective at inflating food costs than destroying Ukraine’s agricultural capacity, revealing a sophisticated shift in economic warfare tactics.

Despite an 11% grain harvest drop this summer, Ukraine still produces three times more wheat than it consumes domestically, with 21.8 million tons harvested versus just 6-7 million needed for internal consumption, Denis Marchuk, deputy head of the Ukrainian Agri Council, told Ukrainian media.

When power costs more than wheat

The price disconnect reveals how Moscow’s strategy has evolved from targeting farms to incapacitating the entire food production chain through energy infrastructure strikes.

Russia’s escalating attacks reached new intensity just two nights ago when Moscow launched over 800 drones at Ukraine simultaneously, killing civilians in Kyiv.

This represents a massive escalation from February 2022, when the Energy Minister Herman Halushchenko reported Russia had conducted 30 mass strikes on energy infrastructure—attacks that now occur with unprecedented frequency and scale.

Industry pushes back on price projections

While the strategic shift is clear, the economic impact varies across Ukraine’s food industry. However, Marchuk’s 25% price hike projection should be taken with a grain of salt.

For now, it seems to represent the upper range of actual impacts, as industry representatives often emphasize worst-case scenarios when discussing regulatory or economic pressures.

Ukraine’s National Bank raised interest rates to 14.5% in January to combat overall inflation, which reached 15.9% in May before moderating to 14.1% in July 2025.

Industry projections vary on the exact scale of increases, with some estimates more conservative than Marchuk’s 25% figure.

At the end of August, Yuriy Duchenko, director of KyivKhlib bakery, told AgroReview that bread prices may rise 15-20% by the end of 2025, citing increased costs for flour, energy resources, and wages as key drivers.

The KyivKhlib director noted that most bakery enterprises currently operate at the edge of profitability, with some forced to work at a loss—creating additional pressure on the industry and increasing the likelihood of further price increases.

Bread costs have already surged significantly, with prices rising 20% in 2024, according to Duchenko.

Current retail prices reflect this inflation: rye bread averaging 45.83 hryvnias ($1.11) for a 300-gram loaf in major Ukrainian supermarkets as of August 2025, while standard loaves (450 grams) now cost an average of 36.7 hryvnias ($0.89)—nearly 9 hryvnias ($0.22) higher than the previous year.

Agriculture survives, industry struggles

These price pressures highlight a crucial asymmetry in Russia’s economic warfare: while Ukraine’s agricultural sector has proven remarkably resilient, energy-dependent industries remain highly vulnerable to systematic infrastructure attacks.

The country has lost 70% of its power generation capacity to Russian strikes, yet grain production remains sufficient for domestic needs.

This summer’s drought and damaged irrigation systems in southern oblasts reduced harvests, but northern and western regions compensated with strong yields—Lviv Oblast achieved 6.64 tons per hectare, well above national averages.

When electricity becomes more expensive and unreliable, bakeries face higher operational costs, logistics companies pay more for fuel, and the entire food production chain becomes costlier—even when the grain remains affordable and abundant.

This is strategically more sophisticated than directly bombing food facilities.

By targeting the energy backbone, Russia can inflate costs across multiple sectors simultaneously while maintaining plausible deniability about “targeting civilian infrastructure.”

Ukraine’s state power operator finished building physical barriers around key equipment just as Russia continues targeting energy facilities nationwide.

Supervisory board member Yuriy Boyko announced Thursday that Ukrenergo has completed the first phase of passive protection construction for critical equipment at its substations, with the second phase set to finish by the first quarter of 2026.

The milestone comes as Ukraine races to physically shield its power infrastructure from relentless Russian attacks that have destroyed 70% of the country’s generating capacity since February 2022.

According to Boyko, the company has completed the first phase. It is now actively constructing the second phase, with over 80% of the second phase scheduled for completion by year’s end during a briefing at the Media Center of Ukraine in Kyiv.

Engineering protection for 20-70 hectare sites

The passive protection focuses on the most critical equipment at Ukrenergo’s massive substations spanning 20-70 hectares each. Boyko explained that it’s impossible to cover entire substations, and therefore, resources must concentrate on the most critical elements, particularly autotransformers, which the Russians actively targeted in the war’s first year.

Boyko noted that work progresses more slowly in frontline regions where air raid alerts and military risks create extended pauses.

Three levels of protection against attacks

Ukraine has developed multiple protection levels for its energy system. The first level involves gabions—wire cages filled with rocks or sandbags—and sandbags protecting 90 facilities across 21 regions from debris.

The second level uses concrete structures around Ukrenergo’s primary network, covering 22 substations and 63 autotransformers in 14 regions as of January 2025.

The third level protects against direct missile strikes. In 2023, the United States provided 20,000 tonnes of reinforcing steel through USAID, and by January 2025, third-level protection had begun at 22 sites.

Strategic push for decentralization

The protection construction aligns with President Volodymyr Zelenskyy’s recent directive to National Security and Defense Council Secretary Rustem Umerov to coordinate additional short and medium-range air defense procurement while increasing funding for drone manufacturers.

Ukraine’s energy strategy now emphasizes replacing large, vulnerable power plants with hundreds of smaller distributed generators. In 2024, Ukrenergo purchased 600 MW of auxiliary generation services, and almost 500 MW from new facilities will come online by 2026.

Ukraine’s parliament failed to pass a critical local government oversight law required for EU funding yesterday, potentially jeopardizing access to billions in European financial support as a key reform deadline expired in March.

The Verkhovna Rada rejected draft law №13150 with only 206 votes in favor of the required 226.

The legislation would have established oversight mechanisms for local government decisions and created a registry of municipal acts—requirements embedded in Ukraine’s €50 billion Ukraine Facility agreement with the European Union.

Another missed EU reform target

Ukraine has already missed its 31 March 2025 deadline for implementing this reform. This is part of a broader pattern of legislative delays that risk the country’s access to Europe’s largest financial support package during wartime.

The Ukraine Facility provides quarterly payments based on Ukraine meeting specific milestones, including democratic governance and rule of law requirements.

These bodies would have the authority to demand corrections to illegal decisions and take violators to court when necessary.

Why local oversight matters during war

The European Union structured the Ukraine Facility around strengthening democratic institutions even as Ukraine fights Russia’s invasion. At least 20% of the program’s €5.27 billion in grants must support sub-national authorities, making local government accountability essential for unlocking EU funds.

The Ukraine Facility regulation specifically mandates “effective democratic mechanisms and institutions, including a multi-party parliamentary system and the rule of law,” as well as systems “to effectively prevent, detect and correct irregularities, corruption and in particular fraud, all forms of corruption, including high-level corruption, or any other illegal activity ”

Stakes beyond one law

Since March 2024, the EU has expended over €12 billion to Ukraine under the facility, funding teacher salaries, healthcare workers, and essential government operations while the country allocates domestic resources to defense.

The failure comes as Ukraine depends on international financing to cover roughly half its $37.5 billion external funding needs for 2024.

Beyond the Ukraine Facility, the country relies on additional EU support through the European Peace Facility and bilateral aid from member states.

Parliament had initially approved the bill for further development in May, but the final version failed to gain sufficient support nearly four months after the EU’s implementation deadline.

Ukrainian farmers watched their southern fields turn to dust this summer. A late and cold spring combined with the worst drought in decades slashed grain production by 11% and threatened the country with $1 billion in lost export revenue.

The harvest crisis reveals how bad weather, combined with destroyed irrigation systems in the central and eastern regions and war raising fertilizer prices, is a recipe for a perfect storm.

When the water stopped flowing

Kherson Oblast tells the story in stark numbers. The region lost its entire 55,000-hectare winter crop—fields that once produced 8-10 tons per hectare now struggle to reach 1-2 tons in the parched earth left behind after Russia blew up the Kakhovka dam in 2023.

“If these regions had irrigation, we could have avoided the losses. They could have produced 3-4 million tons of grain and oilseeds,” Deputy Minister of Economy Taras Vysotskyi said, commenting about the agricultural wasteland that was once Ukraine’s grain powerhouse.

The destruction rippled across southern Ukraine. Zaporizhzhia and Mykolaiv oblasts watched yields crash 30-50% as irrigation systems dried up and farmers calculated whether it was worth planting crops that might never grow.

The great shift north

The ongoing war is redrawing Ukraine’s farming map in real time.

Northern and western regions stepped up to fill the gap, achieving record yields: Lviv Oblast: 6.64 tons per hectare; Khmelnytskyi Oblast: 6.47 tons per hectare; Chernivtsi Oblast: 6.40 tons per hectare.

But geography can’t replace infrastructure.

Acting First Vice President of the National Academy of Agricultural Sciences Ihor Hrynyk explained that due to rising resource prices, farmers are forced to reduce the amount of fertilizers applied, not provide adequate plant protection, cut back on agrotechnical measures, and abandon irrigation.

The billion-dollar squeeze

The World Bank predicts global grain prices will fall 11% later in 2025, creating a potential double squeeze that could cost Ukraine $900 million to $1 billion in export revenue.

For now, Deputy Economy Minister Vysotskyi notes prices “for the farmer remain high, really good,” but this may not last as global markets adjust to oversupply elsewhere.

Ukrainian consumers brace for higher food costs

The production drop threatens to increase domestic food prices just as Ukrainian families struggle with wartime inflation. Bread prices typically rise when wheat harvests fall, and an 11% grain reduction could force Ukraine to import more expensive grain or ration domestic supplies to maintain export revenues.

Corn to the rescue—maybe

However, corn’s resilience means the overall grain harvest may shrink by only 3-7% instead of the feared double-digit decline.

Russia profits from Ukraine’s agricultural struggles

Ukraine’s reduced grain exports create opportunities that Russia has quickly exploited.

The timing benefits Russia’s broader strategy of using food as leverage. Russia previously withdrew from the Black Sea grain deal that allowed safe passage for Ukrainian exports, and has repeatedly targeted Ukrainian agricultural infrastructure throughout the war.

For Ukrainian farmers counting their losses, the drought represents not just a natural disaster but another blow to the country’s ability to fund its defense through agricultural exports—revenue Moscow would prefer to capture for itself.

This represents a fundamental shift in Ukraine’s energy narrative, from vulnerability to strength, and maybe even regional dominance on the energy market one day.

Ukraine is rapidly becoming a net energy exporter to Europe, with August 2025 exports reaching a record 450,000 MWh—the highest monthly figure since integration into the European Network of Transmission System Operators for Electricity (ENTSO-E) on 16 March 2022.

The scale of this reversal is staggering. Just over a year ago, Russia’s systematic attacks destroyed 61% of its generation capacity.

International volunteer experts are exploring large-scale distributed generation projects that could position Ukraine as Europe’s new low-cost electricity supplier.

Western regions lead the reconstruction model

Zakarpattia Oblast exemplifies this transformation. In spring 2025, regional officials met with Canadian volunteer engineers from “Technology United for Ukraine” to explore what could become billion-dollar distributed generation projects using gas turbine and hydrogen technologies.

The volunteer organization, led by president Brian Robinson, brings experienced engineers willing to conduct technical and economic feasibility studies and attract donors for distributed generation development—expertise that traditional consulting firms hesitate to provide in active war zones.

But Zakarpattia’s energy ambitions extend beyond meetings.

The region already hosts Ukraine’s only multi-megawatt wind turbine production facility, launched by Friendly Wind Technology in May 2024, capable of producing up to 20 wind turbines annually ranging from 4.8 to 5.5 megawatts.

More ambitious still is the planned 1.5-gigawatt hydrogen valley project, featuring an initial 100 MW electrolyser capacity powered by 120 MW solar and 80-160 MW wind installations. Operations are expected to start in 2035.

Geography drives strategy

Zakarpattia’s location makes it ideal for Ukraine’s energy export ambitions.

At the same time, its borders with Hungary and Slovakia provide direct pipelines into European energy markets.

Ukrainian workforce and production costs could make electricity produced here competitive across Central Europe, positioning the country to replace Russia as the continent’s energy supplier.

This would help the EU simultaneously overcome Russian and fossil fuel dependency.

From defense to export strategy

Ukraine’s energy transformation, already well underway, follows a clear strategic evolution. State power operator Ukrenergo declared more than a year ago that decentralizing electricity production through hundreds of small power plants was the only way to protect against Russian attacks.

The export numbers show that what began as a defensive necessity is turning into an offensive economic strategy.

Volunteer expertise fills the gap

Here is also where the Canadian engineers come into play. Their involvement in Zakarpattia reflects a broader pattern in Ukraine’s reconstruction: specialized technical assistance increasingly comes from unexpected sources as traditional institutions remain cautious about active war zone operations.

“Such potentially rapid solutions will increase the region’s energy potential and strengthen the national energy system,” regional officials commented after the spring discussions.

The volunteer-driven approach offers advantages beyond mere expertise. Unlike commercial consultants, volunteer organizations can focus purely on technical feasibility and donor attraction without commercial constraints that complicate larger institutional projects.

What needs to happen next

For Ukraine’s west to fulfill its potential as an energy export hub, several elements must align.

Feasibility studies like those proposed for Zakarpattia need completion and implementation; international financing must move from discussion to commitment; projects require seamless connection to European grid systems, and individual regional projects should complement rather than compete.

The success of initiatives like the Zakarpattia hydrogen valley and distributed generation projects will determine whether Ukraine’s western regions become mere reconstruction examples or strategic economic centers driving the country’s post-war prosperity.

If volunteer feasibility studies successfully attract the donors they target, Ukraine’s west could emerge as the launching pad for energy independence, transforming Ukraine from a Russian energy victim into Europe’s new electricity supplier.

Russian Railways’ cargo volumes dropped 5.4% in August 2025 compared to the previous year, marking the third consecutive quarterly decline as sanctions and war costs devastate Moscow’s economy.

According to Ukraine’s Center for Countering Disinformation, the state railway monopolist transported just 92.2 million tons in August, down from 97.2 million tons in August 2024.

Over eight months, total shipments fell 7.1% to 738.8 million tons compared to 2024 levels.

Economic backbone crumbles under pressure

The railway data exposes how deeply the war has damaged Russia’s economic foundation. Russian Railways handles 87% of the country’s cargo transport excluding pipelines, making freight volumes a direct indicator of industrial activity across key sectors from construction to metallurgy.

The steepest declines hit Russia’s most strategic industries. Construction materials shipments collapsed 15%, ferrous metals dropped 17.3%, and coal fell 3.6%.

Oil shipments decreased 4.9% due to refinery maintenance issues, while grain transport plummeted 30.7% following poor harvests and export restrictions.

Earlier data published by Russia’s own Interfax on 12 August showed similar patterns through July, with cargo volumes down 6.2% over the seven months to 739.3 million tons. Domestic shipments fell 8.9% to 437.9 million tons, while international cargo dropped 2.1% to 301.4 million tons.

Sanctions bite deeper as infrastructure crumbles

The transportation crisis reflects broader economic stagnation gripping Russia nearly four years into its war against Ukraine. Western sanctions have severed access to critical railway components, forcing the state monopolist to trim its planned investment program by nearly 40%, cutting spending from 1.3 trillion rubles to 834 billion rubles for 2025.

The company now faces deficits of 2,500 engineers and 3,000 locomotive crews, forcing cancellation of approximately 200 train services daily.

Ukrainian drone strikes continue targeting Russian rail infrastructure. For example, a recent attack on 21 August struck a railway substation in Voronezh Oblast, disrupting military supply lines and civilian cargo movement.

War economy shows strain

The railway decline parallels Russia’s broader economic struggles. Military spending consumes 6.3% of GDP—the highest since the Cold War. The war economy’s temporary GDP boost masks structural problems, including chronic labor shortages and vanishing productivity gains.

Transport indicators typically warn early about economic downturns, as reduced cargo volumes signal decreased industrial production and weakening domestic demand. The consistent quarterly declines suggest Russia’s economic foundation continues deteriorating under the weight of sustained warfare and international isolation.

The Center for Countering Disinformation reported on 10 August that Russian Railways was forcing employees to take unpaid “vacations” due to financial constraints—another indicator of the state monopolist’s mounting difficulties.

Russia’s metallurgy industry suffered its worst performance since Moscow launched its full-scale invasion of Ukraine, with production plummeting 10.2% in July compared to the same month last year, according to Rosstat data cited by Ukraine’s Center for Countering Disinformation.

The metallurgy collapse delivers concrete evidence that Western sanctions are systematically degrading Russia’s capacity to sustain its war against Ukraine and signals that Moscow faces mounting difficulties maintaining current military production levels.

Key metallurgy companies report massive losses

The industry’s flagship enterprises are buckling under the pressure.

Magnitogorsk Metallurgical Plant—a critical supplier for Russia’s defense sector—slashed steel output by 18%. In comparison, Mechel reduced sales by 11% and Tubular Metallurgical Company lost up to 22% of sales. Companies are reporting billion-ruble losses.

Magnitogorsk reported profits plummeting ninefold to 5.6 billion rubles ($62 million) in the first half of 2025, while revenues dropped by a third. The company’s cash flow turned negative, with expenses exceeding income by 4.9 billion rubles (approximately $55 million) in the second quarter alone.

Magnitogorsk supplies steel for armored vehicles and artillery systems, while companies like Tubular Metallurgical produce materials essential for missile manufacturing. Each percentage point of production decline means fewer tanks, shells, and weapons systems reaching Russian forces.

Broader corporate crisis grips Russian economy

The metallurgy sector’s troubles reflect a deeper crisis across Russian industry. According to Rosstat data cited by Izvestia, nearly one-third of Russian companies reported losses in the first half of 2025—the highest level since the pandemic.

Coal mining enterprises suffered the most, along with utilities, transportation, and scientific research businesses—all sectors supporting military-industrial production.

The Purchasing Managers’ Index (PMI)—a key indicator that measures changes in business conditions with readings below 50 signaling declining activity—fell to 47.0 in July for Russian manufacturing, down from 47.5 in June, marking the steepest decline since March 2022.

Sanctions systematically choke supply chains

Already a month ago, Reuters reported companies reducing their production levels, client demand declining, and customers having financial difficulties—all of this impacting both output and new orders.

Ukraine’s Center for Countering Disinformation identified what it called “obvious” causes behind the metallurgy collapse: sanctions, loss of foreign markets, sharp drops in domestic metal demand in construction and machinery, plus restrictive Central Bank policies limiting investment.

Experts cite expensive credit, weak demand, tax increases, sanctions, and rising costs as the main drivers of corporate losses.

Weak demand could leave steelmakers unable to sell up to 6 million tons of production—nearly 10% of last year’s output.

Industry outlook

Severstal CEO Alexander Shevelyov called the second quarter “extremely difficult for the industry,” estimating that weak demand could prevent steelmakers from selling up to 6 million tons of production. This represents a massive loss of potential military materials.

For Ukraine’s allies, the data suggests their sanctions strategy is working as intended—systematically degrading Russia’s long-term military capacity rather than delivering immediate knockout blows.

The Center for Countering Disinformation assessment warns of the collapse risks “mass layoffs, factory shutdowns, and further economic decline in regions critically dependent on metallurgy”—problems that will further constrain Russia’s defense production capacity while creating domestic political pressure on the Kremlin.

Construction sites multiply across Ukraine while factory floors stay empty. The National Bank’s August business survey reveals an economy moving at fundamentally different speeds—a division that signals resilience and vulnerability for the country’s long-term prospects.

Strategic implications emerge immediately

This sectoral divide marks Ukraine’s transition from an export economy to a reconstruction economy—a fundamental shift that may outlast the war.

The data prove that Western allies’ reconstruction aid works exactly as intended: it stimulates domestic activity and maintains consumer confidence. But it also exposes the limits—private industrial investment won’t return until security dramatically improves.

The split offers a roadmap for global businesses watching Ukraine.

The winners: builders and traders

Construction companies hit their fourth month of optimism in August, with their business confidence index reaching 54.0—the only major sector firmly in positive territory.

Builders expect more orders, expanded workforces, and steady material supplies as reconstruction accelerates.

The optimism reflects a geographic shift: Western regions like Lviv and Ivano-Frankivsk lead activity as internal migration and safety drive housing demand, while companies struggle with acute labor shortages—over 150,000 missing workers force wage increases of 23%.

Trading firms, such as retailers, food distributors, and consumer goods companies, joined the optimism at 51.8, buoyed by consumer spending and fresh harvest supplies.

These companies have stayed positive for six consecutive months, suggesting Ukrainian purchasing power remains intact. At the same time, the National Bank reports that trading companies express concerns about inventory levels, suggesting supply chain pressures beneath the surface optimism.

The strugglers: factories and services

While construction enjoys predictable six-month order backlogs, manufacturers face an entirely different reality. Manufacturing confidence barely moved to 48.7—still below neutral—as companies grapple with destroyed facilities and an export market collapse.

Services firms scored worst at 47.0, hammered by expensive logistics, electricity price hikes, and chronic staff shortages. Most expect to cut jobs rather than expand.

The economic gamble

Ukraine essentially bets its future on reconstruction while its industrial base hemorrhages capacity. Construction sites signal resilience, but can’t replace the export earnings that once powered the economy.

Whether this proves sustainable depends on donor fatigue, military progress creating safe export corridors, and whether industrial companies can survive long enough to benefit from eventual peace.

For now, the cranes keep rising while factory chimneys stay cold. Ukraine’s economic survival depends on which trend proves more durable.

The National Bank of Ukraine reported businesses improved their economic expectations in August, with the business activity expectations index rising to 49.0 from 48.3 in July.

The index, based on monthly surveys of real-sector companies about their expected performance, uses 50 as the neutral threshold, meaning Ukrainian businesses remain slightly pessimistic but are moving toward stability.

Domestic resilience emerges

Construction companies led the optimism, with their index hitting 54.0 in August. They have stayed positive for four consecutive months as reconstruction projects and sustained domestic demand provide steady work.

Trading firms have maintained optimism for six months as new harvest supplies reach markets and consumer spending holds up.

Service companies remained the most cautious at 47.0, citing expensive logistics, higher electricity prices, and skilled worker shortages.

The drivers behind this cautious improvement include energy stability, decelerating inflation, and what the NBU calls “brisk consumer sentiment”—suggesting Ukrainian purchasing power hasn’t collapsed despite the war.

The aid lifeline making it possible

But this domestic resilience exists only because foreign partners keep Ukraine’s external accounts afloat. Balance of payments data released alongside the business survey reveals the underlying dependency.

The current account deficit nearly doubled to $4.1 billion in July compared to last year, as imports surged 19.9% while exports managed only 3.1% growth.

Foreign direct investment collapsed from $3.2 billion to just $1.1 billion in the first seven months of 2025. Instead, governments and international organizations provide the lifeline: $17.8 billion in net financial flows this year compared to just $7.3 billion last year.

Ukraine’s $43 billion reserves look healthy, but exist because donors keep filling the tank. Without this support, the domestic confidence businesses report would evaporate quickly.

Strategic implications

This combination reveals both the success and the limits of Western aid strategy. The money works—Ukraine’s economy functions and companies plan for the future rather than just surviving day-to-day. Businesses can focus on reconstruction and meeting consumer demand because external support handles the macroeconomic gaps.

But the deepening dependency raises sustainability questions.

For now, the arrangement holds: international support enables domestic stability, which maintains business confidence, which keeps the economy functioning.

Whether this virtuous cycle continues depends on factors far beyond Ukraine’s borders—donor fatigue, military developments, and shifting political priorities in supporting countries.

The cautious optimism Ukrainian businesses report may prove justified, but only if external support continues at unprecedented levels.

Verkhovna Rada’s finance committee chair Danylo Hetmantsev announced the program on Sunday, building on previous warnings from officials that “the lack of coverage for military risks is a significant obstacle to attracting investors for Ukraine’s reconstruction and economic development,” as former deputy economy minister Oleksiy Sobolev, now Ukraine’s minister of economy, environment, and agriculture, noted last year.

The plan splits coverage into two tracks: direct state compensation for war damage in frontline areas through Ukraine’s Export Credit Agency, and premium subsidies elsewhere to make insurance affordable for businesses and households.

How Ukraine plans to make war-risk insurance work

Frontline zones: The Export Credit Agency will directly compensate damaged property in the highest-risk areas near active combat through a claims-based system.

Safer regions: The government will subsidize insurance premiums across the rest of the country, making commercial coverage affordable for both Ukrainian businesses and foreign investors.

The program still needs legislative amendments to expand the Export Credit Agency’s mandate and a Cabinet decision on budget allocation. Hetmantsev described the costs as “moderate” but provided no specific figures.

“This was a challenging path. Thanks to the Cabinet of Ministers and NBU for constructive cooperation, and I expect final decisions,” he wrote on social media.

Ukraine’s war-risk experiments show promise

Ukraine isn’t building this system from scratch.

Maritime success: The Unity facility, built with Marsh, Lloyd’s, and Ukrainian state banks, drove down war-risk rates for Black Sea shipping and expanded in March 2024 to cover all non-military cargo.

International backing: The World Bank’s MIGA expanded political-risk insurance for Ukraine in 2024, while broker Aon and the US Development Finance Corporation unveiled a $350 million scheme for Ukrainian businesses earlier this year.

Private market entry: A London-backed reinsurance program launched this year, offering property coverage—but only for assets more than 100 kilometers from the front lines. This shows how distance-to-combat still shapes pricing.

What investors have been waiting for

The new system aims to unify these fragmented pilot programs into comprehensive rules that private insurers and international reinsurers can price against. According to Oleksiy Sobolev, the goal is to create “a single pool, clear rules, and ultimately the ability to attract international reinsurers to this market.”

The original concept, developed last autumn by Ukraine’s National Bank, Ministry of Economy, and Ministry of Finance, envisioned financing through mandatory insurance payments and international donor support.

Coverage would protect against physical war damage, with mandatory insurance initially covering mortgaged property and residential construction projects.

The investment math that matters

If Ukraine can deliver predictable budget support and attract international reinsurer participation, the program could shift investment calculations from “uninsurable” to “expensive but manageable”—unlocking bank lending and foreign direct investment far beyond the maritime corridor.

However, the program’s scale and speed will determine whether this becomes a genuine turning point or just another limited pilot in a market still fundamentally priced for war.

Ukraine’s approach builds on proven models—the Unity shipping facility demonstrated that strategic state participation can dramatically reduce private market pricing while attracting commercial capital. The question is whether Ukraine can scale this from ships to the entire economy while the war continues.

For international investors who have spent three years watching Ukrainian opportunities from the sidelines, the program represents the missing piece that could finally make the risk calculable rather than simply unacceptable.

Russia’s oil cash machine is breaking down. Rosneft just posted a catastrophic 68% profit collapse, with free cash flow plunging 75%. This is the clearest sign yet that Western sanctions combined with Ukrainian strikes are systematically dismantling the Kremlin’s war funding.

The numbers are brutal: net income crashed from 773 billion rubles ($9.68 billion) to just 245 billion ($3.07 billion) in the first half of 2025, while revenue fell 18% despite steady production.

Most telling?

Free cash flow collapsed to just 173 billion rubles ($2.17 billion)—a 75% drop that’s catastrophic for a company that paid out $6.78 billion in dividends and needs billions more for Arctic projects and war funding.

Ukraine’s drone war pays dividends

Rosneft CEO Igor Sechin’s complaints tell the whole story. He blamed “tighter EU and US sanction restrictions” for forcing steeper discounts on Russian crude, while a stronger ruble crushed export earnings.

Even more revealing, Sechin is now publicly griping about the OPEC+ strategy (the cartel of 22 major oil producers, including Russia and Saudi Arabia, that coordinates global production), showing Russia can no longer influence global oil policy from a position of strength.

The man once skeptical of OPEC cooperation is now begging the cartel to prop up prices.

Meanwhile, Ukrainian drone strikes are systematically crippling Russian refining capacity. Depending on sources, up to 17% of Russia’s refining capacity is offline, with some regions introducing fuel rationing and wholesale gasoline prices up 45% despite falling global crude prices.

The strategic validation

For Western policymakers, Rosneft’s collapse validates the slow-squeeze approach.

The company still managed to raise capital spending 10% to 769 billion rubles ($9.63 billion), focusing on remote Arctic projects like Vostok Oil that won’t deliver volumes for years. But it’s paying 2024 dividends of 542 billion rubles ($6.78 billion)—more than triple this year’s actual cash generation.

That math doesn’t work long-term.

Watch these numbers

Two metrics matter most: Russian crude discounts to Brent prices and USD/RUB exchange rates. Small moves in either can swing Russia’s oil revenues by billions.

Rosneft now budgets conservatively at $45/barrel oil—signaling Moscow expects prices and sanctions pressure to persist. Combined with Ukrainian infrastructure strikes and Western financial restrictions, Russia’s oil empire faces its toughest test since the Soviet collapse.

The takeaway for global energy markets: economic warfare is working—slowly and systematically.

Only to discover they still can’t find available tickets due to the same structural problems that have plagued the system for years.

This shows Ukraine’s broader challenge with state enterprise reform: companies like railway operator UZ excel at customer-facing modernization while struggling with deeper institutional governance. The mismatch between good PR and bad governance shows the limits of surface-level reforms in transforming Soviet-era institutions.

This pattern carries stakes beyond Ukraine’s borders.

Western partners have earmarked billions for Ukrainian infrastructure reconstruction, with the EU alone pledging €50 billion ($58 billion) through 2027. If Ukraine’s largest state enterprises can’t solve fundamental capacity problems while excelling at public relations, it raises questions about whether reconstruction funds will address real inefficiencies or create more impressive-looking dysfunction.

For EU integration, Ukraine must prove its institutions can deliver results, not just better customer experiences.

Modernization meets Soviet-era constraints

Meanwhile, UZ—world’s sixth largest rail passenger transporter and world’s seventh largest freight transporter—has accelerated customer improvements during wartime rather than postponing them. CNN reported last year that the railway operates 55 accessibility-adapted passenger cars, while over 10,000 employees received disability awareness training. In 2023, following social media campaigns, UZ introduced women-only compartments on four main routes.

These changes represent genuine modernization. UZ opened its first merchandise shop in November 2022 at Kyiv’s Central Station, followed by a second at Lviv’s main station in late 2023.

The company also has an online shop selling model trains, traditional tea cup holders, mugs, railway-branded clothing, and travel utensils—moves that signal UZ’s confidence in its public image and commitment to European-style customer service.

These financial pressures compound UZ’s governance problems beyond ticket shortages. In 2022, anti-corruption prosecutors charged three officials with embezzling 103 million hryvnias ($2.5 million) through diesel fuel procurement schemes, manipulating prices to overpay by 10% on 55,000 tons of fuel.

This was followed in 2024 with charges against the former chairman and eight employees for equipment contract fraud.

This pattern reflects a broader challenge across Ukrainian state enterprises.

In March 2024, then-First Deputy Prime Minister Yulia Svyrydenko argued that companies like UZ, the postal service Ukrposhta, and energy transmitter Ukrenergo demonstrate successful reform through supervisory boards and professional management.

That may be the case, but governance reforms remain fragile while customer-facing improvements prove more sustainable. UZ successfully modernizes the passenger experience because those changes require operational adjustments on a lower organizational level rather than systemic institutional transformation.

Wartime performance vs. institutional problems

The railway’s wartime operational record illustrates this tension well. According to company data, UZ transported 25 million long-distance passengers in 2023, including 2 million to EU countries, while handling 14 million tons of freight by November—a 34% increase in freight volume from the same period in 2022. These operational successes occurred alongside governance failures.

UZ’s approach—prioritizing visible customer improvements over trickier changes in structural governance—may reflect wartime pragmatism rather than reform strategy.

Or the avoidance thereof.

Yet this creates sustainable gaps between public perception and institutional reality. Successful branding can mask persistent governance problems, potentially complicating future reform efforts when customer satisfaction remains high despite ongoing structural issues.

In other words, the public and those who have to make these decisions may shrug off the need for any reform by asking: Why change something that works? Even if it doesn’t.

The pendulum problem

Ukraine faces an urgent choice because reconstruction funding is available. The country can continue this hybrid approach—excellent customer service masking structural dysfunction—or tackle the harder institutional reforms that would solve capacity problems.

Western partners evaluating billions in infrastructure investments must know which path Ukraine will choose.

Surface modernization creates good headlines and satisfied international observers.

Still, it won’t solve the underlying problems that make passengers hunt for tickets on existing trains, but it can’t expand capacity to meet demand.

It’s whether Ukraine’s institutions can evolve beyond Soviet-era constraints while maintaining their wartime operational success. So far, they’ve proven adept at one but not the other.

According to a new report by Tech Force in UA and the Better Regulation Delivery Office, 88% of Ukraine’s defense tech companies sell directly to military units, compared to 64% that fulfill traditional government contracts.

The shift demonstrates a development cycle unfamiliar to most Western defense establishments: direct battlefield feedback driving rapid product iteration, often outpacing traditional procurement processes.

From garage startups to professional operations

The numbers, contained in the new and first-ever report on Ukrainian defence tech producers titled aptly “War-driven: The rise of Ukrainian defence tech and the private industry behind it,” released on Thursday at the “Joint Ventures, Joint Defence” forum in Lviv, paint a picture of an industry that shouldn’t exist according to traditional defense doctrine.

Nearly three-quarters of the Ukrainian defence tech companies were founded or pivoted to military technology after Russia’s 2022 invasion, creating an entirely new ecosystem from scratch.

“The war itself decides which weapons are best,” says Vadym Yunyk, president of Tech Force in UA, representing nearly 80 defense companies producing everything from attack drones to electronic warfare systems.

The data shows these aren’t the garage tinkerer stereotype Western officials might expect. According to the fresh report, 73% of companies have undergone independent financial audits—making them professionally managed companies in all the thinkable ways.

Three-quarters collect soldier feedback daily through messengers, QR codes, and online forms, enabling product updates measured in weeks rather than decades-long development cycles. Some companies have made over 100 revisions to flagship products in the past year alone.

Speed and resilience by design

The operational model is equally revolutionary. Companies maintain multiple production sites across different regions to mitigate missile strike risks, with 42% operating five or more facilities.

The median time to establish a new production site is just three months.

Most employ flexible workforce models, common in Ukraine’s IT sector, mixing traditional employees with gig specialists and individual contractors.

Building supply chains Europe lacks

The industry could also solve problems that Europe can’t. Initially dependent on Chinese components for rapid scaling, companies systematically shift to EU and US suppliers as security demands have increased.

Now 28% source at least half their parts domestically—building exactly the resilient supply chains European policymakers keep promising to create. This localization has strengthened innovation and supply chain resilience, creating a virtuous domestic capability-building cycle.

The capacity paradox

There’s a strategic irony: Europe desperately wants these battle-tested technologies, yet Ukrainian export restrictions and EU bureaucratic barriers prevent the apparent solution.

The disconnect extends beyond capacity to capability. Ukrainian producers have mastered asymmetric warfare technologies that NATO militaries struggle to understand, let alone procure.

Traditional defense contractors are still delivering incremental improvements on Cold War platforms, while Ukrainian startups iterate monthly through generations of drone and electronic warfare systems.

Investment appetite meets political barriers

The financial appetite is clearly there. With €4 billion in projected revenue for 2025, these companies are attracting investment interest, though they’re selective about funding sources. Smaller firms seek R&D financing through convertible instruments, while larger companies focus on scaling production through debt or joint ventures.

Company size significantly influences financing preferences, reflecting growing sophistication in capital strategy.

Ukraine has accidentally built the defense industry of the future.

Whether Western governments will streamline procurement processes to access these battle-tested technologies remains uncertain. The strategic opportunity to partner with Ukraine’s defense innovation ecosystem may not persist indefinitely as global competition for these capabilities intensifies.

Ukrainian defense tech CEO Yaroslav Azhnyuk delivered a stark warning to Western allies at Thursday’s defense cooperation forum in Lviv: hearing wake-up calls about Russian threats isn’t the same as waking up.

Speaking at the “Joint Ventures, Joint Defence” forum in Lviv, Azhnyuk challenged fundamental Western assumptions about Ukrainian innovation and military preparedness that could leave NATO vulnerable to the same threats now devastating Ukrainian forces.

Western armies sleep through drone revolution

“We live in many lies that we take for granted,” Azhnyuk told the defense technology audience. One of the most dangerous delusions: Western armies planning for future readiness while, if not ignoring current battlefield realities, then at least not taking them as seriously as they should.

“How many units in Western armies have units that have been trained to use them?” Azhnyuk asked rhetorically. “None at all or such a tiny percentage that we need a microscope to see it?”

Azhnyuk said that instead of getting prepared now, Western armies set readiness targets for 2027, 2029, or even 2031 for technology that’s being used in the battlefields today and will be redundant in a couple of years.

Azhnyuk speaks from direct experience. His companies—thermal camera manufacturer Odd Systems and AI firm TheFourthLaw.ai—develop technologies Western militaries are still planning to adopt.

Odd Systems produces Kurbas cameras, currently the world’s best 256-pixel thermal imaging systems for mass-manufactured FPV drones—technology born from battlefield necessity, not laboratory planning.

Ukraine isn’t the testing ground—Russia should be

Azhnyuk challenged another Western assumption: Ukraine is a “test ground” for defense technology.

“Russia should be that test field!” he declared, arguing that authoritarian threats from Russia and China will continue expanding without fundamental changes in Western strategic thinking, which is very cautious and slow to adapt to new realities.

The CEO also dismissed claims that Ukrainian innovations represent “low-tech” solutions with a pointed analogy: “An FPV drone is like a burger—you can assemble it in your kitchen, just like you can make a hamburger in your kitchen. Still, your kitchen-made hamburger isn’t McDonald’s.”

But that doesn’t mean the homemade version lacks the same components, Azhnyuk explained. The difference lies merely in packaging and marketing, not technological sophistication.

The gap isn’t in innovation but in scale and battlefield validation.

Market reality vs production hype

The latter reveals harsh realities: while there are hundreds, if not hundreds, of FPV drone producers operating globally, when asked, the frontline drone operators consistently identify only 4-5 reliable producers despite the theoretically crowded market.

Azhnyuk noted that the fact that only a handful of producers make reliable equipment tells us yet again about the differences between theory and praxis, between the laid-back attitude of many Western companies and the we-needed-it-yesterday feverish attitude of the Ukrainian producers, who work in a tight feedback loop with the men and women on the front.

Beyond military: Strategic blindness everywhere

Azhnyuk’s critique extended beyond military preparedness to broader Western strategic thinking. He cited European data protection claims while companies rely on Google Cloud services that may not comply with European laws.

He warned of upcoming election cycles that would bring “Russian-influenced and financed radical parties” to power across the West while military capability gaps persist.

The uncomfortable truth

The “Joint Ventures, Joint Defence” forum, organized by Tech Force in UA, brought together governments, global defense companies, and technology innovators to explore scaling joint defense production partnerships with Ukraine. The event featured booths from seven partner countries seeking drone and high-tech cooperation opportunities.

But Azhnyuk’s message cut deeper than partnership mechanics. Europeans constantly speak of various crises as “wake-up calls,” he observed, but there’s a critical difference: “Hearing a wake-up call is not the same as waking up.”

Ukraine collected 178 million hryvnias ($4.3 million) in tourism taxes during the first seven months of 2025, a 35% increase over the same period last year. The taxes were mostly collected in the country’s western regions, which demonstrate remarkable economic resilience despite the ongoing war.

The growth concentrated in western regions hundreds of kilometers from active fighting reveals how Ukraine’s economy adapts to wartime conditions.

Meanwhile, according to the State Agency for Tourism Development, broader tourism industry business taxes exceeded pre-war levels by 27% in the first quarter of 2025 compared to 2021.

West dominates tourism revenue

As the State Tax Service reported, Lviv Oblast generated 33.2 million hryvnias ($0.8 million) in tourism taxes, while Ivano-Frankivsk Oblast contributed 26.1 million ($0.63 million) and Zakarpattia Oblast added 15.3 million hryvnias ($0.37 million).

Despite regular air raids, Kyiv continues leading overall collections at 42.5 million hryvnias ($1.03 million), demonstrating the capital’s enduring appeal for domestic tourists and the limited international visitors still traveling to Ukraine.

The tourism industry paid 799 million hryvnias ($19.3 million) in total taxes during the first quarter of 2025—30% more than in 2024, nearly double the amount from early 2023.

Domestic spending drives growth

Current wage growth supports domestic tourism, while government wage projections through 2028 suggest this spending power will continue expanding.

Due to inflation and higher operational costs, tourism services have increased 20-40% in price, contributing to revenue growth even as visitor numbers remain constrained. For example, the Carpathian mountain resorts became 10-25% more expensive during the 2024 summer.

Post-war potential

Ukraine’s pre-war peak tourism tax collection reached 244 million hryvnias ($5.9 million) annually in 2021, meaning current levels already approach three-quarters of that benchmark despite the continuing war.

Lviv, with its UNESCO World Heritage architecture, and the Carpathian Mountains, offering year-round outdoor activities, demonstrate tourism viability even under wartime constraints.

Economic resilience beyond the front

The tourism figures complement broader indicators showing Ukraine’s economic adaptation to wartime conditions. The European Bank for Reconstruction and Development projects 3.3% GDP growth in 2025, while inflation has moderated to 14.1%.

For international investors evaluating Ukraine’s post-war potential, the tourism sector’s performance in relatively secure regions suggests substantial economic activity continues beyond areas directly affected by fighting.

A consumer base earning higher wages and already spending on domestic travel could rapidly expand to accommodate international visitors once security conditions improve.

Ukraine’s government approved the privatization of the scandal-ridden Odesa Port Plant, setting a starting auction price of 4.5 billion hryvnias ($109 million) for the massive chemical facility, which had previously been paralyzed by corruption.

The sale tests whether Ukraine can revive a critical link in global food security as the country struggles with fertilizer shortages that threaten agricultural output. Ukrainian farmers can access only half the fertilizers they need, making the plant’s restoration vital for domestic food production and international grain exports.

Strategic fertilizer hub for global markets

Before the full-scale invasion, Ukraine produced over 5 million tons of fertilizer annually as a major grain exporter.

The facility’s two ammonia production units (1.08 million tons capacity) and two urea production units (900,000 tons capacity) previously exported to over 30 countries, contributing to worldwide agricultural productivity.

With global fertilizer prices still elevated since the war began and production disrupted across the region, the plant’s revival could help stabilize Ukrainian harvests and international food supplies.

From corruption symbol to auction block

Prime Minister Yulia Svyrydenko announced the privatization decision, noting the plant has operated only partially since 2022, providing oxygen and nitrogen for critical needs while serving as a port hub.

The facility became synonymous with state enterprise corruption after investigators revealed officials stole over 2 billion hryvnias ($48.4 million) through rigged tenders and kickback schemes. The scandal effectively paralyzed productive operations even before Russia’s full-scale invasion.

Wartime privatization wave accelerates

Success could demonstrate Ukraine’s ability to conduct transparent wartime privatizations while restoring a facility crucial for feeding Ukraine and the world.

After losing a key investor and facing production disruptions, AO Kronshtadt faces imminent bankruptcy. According to NV Biznes, 40 lawsuits totaling 626.3 million rubles ($7.76 million) have been filed against the company in just the past three months.

The financial collapse of the drone producer demonstrates how Western sanctions, combined with battlefield realities, are systematically undermining Moscow’s defense production capabilities.

Kronshtadt’s drones, including the Orion and Sirius systems sometimes compared to American Gray Eagles, provided crucial long-endurance surveillance and strike capabilities that Russia has deployed heavily in Ukraine since February 2022.

Creditor avalanche buries defense giant

Russian media reports suggest the situation could lead to bankruptcy, as subcontractors who provided services or supplied products but have not been paid are “massively filing lawsuits to be included in the creditor registry,“ according to NV Biznes.

Military and aviation outlet War Wings Daily reports that by May 2025, total claims had already reached one billion rubles, with some sources estimating up to 1.5 billion rubles ($18.75 million) in debts over six months.

Kronshtadt’s last published financial data from 2020 showed losses of 3.6 billion rubles ($45 million), indicating long-standing financial struggles.

Two years of mounting pressure

Kronshtadt has experienced financial difficulties for two years, with the crisis stemming from the 2022 withdrawal of AFK Sistema, the company’s strategic investor and main financing source. According to the NV Biznes report, this sharply worsened investment access and increased debt burden.

US and EU sanctions cut off access to critical foreign-made components while inflating costs and creating production delays. Simultaneously, massive government orders placed heavy production demands precisely when supply chains faced maximum stress.

Ukrainian forces added a third pressure point, striking Kronshtadt’s Dubna production facility on 28 May 2025. Ukrainian drones hit the plant’s roof eight times, severely damaging industrial capacity at the facility producing systems central to Russia’s unmanned warfare strategy.

Industry experts predict collapse

Nikolai Ryashin, general director of Rusdronport, suggested the company is headed toward collapse.

“The company will go the way of bankruptcy, so subcontractors are now rushing to file claims and get closer to the front of the line,” Ryashin said to Defence Blog, an independent defense and security news outlet.

Russia scrambles for alternatives

As Kronshtadt struggles, Russia has sought alternative production methods.

In Khabarovsk, state-funded company Aero-hit built a plant with Chinese partners and became a major drone supplier for Russian operations in partially occupied Kherson Oblast. The facility produces multifunctional Veles drones and plans to reach 10,000 units monthly this year while expanding to more advanced models.

However, this doesn’t solve Kronshtadt’s problems. On the contrary, it might worsen them, as the state is finding alternatives to the ailing company.

Strategic implications multiply

The company’s collapse reveals a fundamental contradiction in Russia’s war economy: the state places massive orders but leaves manufacturers to struggle under sanctions pressure.

Whether Kronshtadt can be restructured or absorbed into another defense conglomerate remains uncertain. Still, the mounting lawsuits and expert assessments suggest Russia’s leading drone manufacturer is facing an inevitable path toward bankruptcy.

This development could significantly impact Moscow’s ability to maintain its drone-intensive warfare strategy in Ukraine.

This marks a dramatic shift in priorities as the country’s borrowing burden approaches 100% of GDP.

According to Finance Ministry data analyzed by Economic Pravda, the government will spend 475.84 billion hryvnias ($11.5 billion) on debt interest payments alone in 2025, while allocating just 421.43 ($10.16) billion hryvnias to pensions and social programs combined.

This represents a fundamental reversal from before Russia’s full-scale invasion, when social spending dominated government expenditures.

Still, the mounting debt burden threatens the sustainability of the country’s war effort and post-conflict recovery.

The national debt has nearly doubled from $95.4 billion in February 2022 to $184.8 billion by July 2025, pushing the debt-to-GDP ratio to 97%—dangerously close to the psychologically critical 100% threshold.

War financing reshapes government priorities

The shift in budget priorities reveals how three and a half years of conflict have fundamentally restructured Ukraine’s finances. Defense spending now consumes half of all government expenditures—equivalent to the country’s entire tax revenue—while debt servicing has displaced social welfare as the second-largest budget category.

Total debt servicing and repayment will cost approximately 1.1 trillion hryvnias ($26.6 billion) in 2025, representing 42% of all domestic budget revenues from Ukraine’s economy.

“Further accumulation of even concessional debt over an extended period could increase the debt burden to levels that hinder economic development. But in an existential war, it’s better to have high debt than face a funding shortage,” Dragon Capital analyst Olena Bilan told Economic Pravda.

The International Monetary Fund projects Ukraine’s debt will reach 110% of GDP by the end of 2025, putting it in the range of heavily indebted developed nations like Italy (144% debt-to-GDP) or Portugal (116%).

While such levels are not unprecedented—Japan operates with debt exceeding 260% of GDP—Ukraine faces the additional burden of being an active war zone requiring massive defense expenditures while keeping the country functioning and rebuilding damaged infrastructure.

All at the same time.

European Union is the largest creditor

The European Union is Ukraine’s dominant creditor, holding $61.16 billion of the country’s debt—roughly one-third of the total burden. This includes financing backed by frozen Russian assets through the G7 loans program called Extraordinary Revenue Acceleration for Ukraine, or ERA, where repayment will come from income generated by those confiscated funds rather than Ukrainian taxpayers.

At the same time, the war has fundamentally altered Ukraine’s creditor structure.

If the hryvnia weakens to 43.5 per dollar, the debt burden could reach 102% of GDP by year’s end, according to Bilan, quoted in the Economic Pravda analysis. If the National Bank manages to keep the hryvnia at 41.5 per dollar, the debt burden will stay at the current level—98% of GDP.

In 2024, Ukraine successfully restructured its private commercial debt, writing off $9 billion owed to Eurobond holders. However, most of its current debt consists of government-to-government loans that cannot be restructured through conventional means.

Economic stability masks underlying pressure

Despite the mounting debt burden, Ukraine’s economy shows surprising resilience. The National Bank reported that GDP grew approximately 1% each quarter in the first half of 2025, while inflation declined from slightly higher levels earlier in the year to 14.1% in July.

The government expects to receive a record $54 billion in external assistance during 2025, creating what officials describe as a “safety cushion” for the following year.

However, structural challenges persist. According to UN data cited in the National Bank report, approximately 5.6 million Ukrainians remain abroad as of July 2025, creating labor shortages that constrain production capacity and economic growth potential.

Limited options for debt reduction

According to the Economic Pravda analysis, Ukraine has three potential paths to managing its growing debt burden.

Firstly, economic growth could gradually reduce the debt-to-GDP ratio, as occurred between 2016 and 2021, when Ukraine lowered its debt burden from 81% to 45.2% of GDP. However, the war has destroyed key industrial assets and energy infrastructure that previously generated much of the country’s economic output.

Debt restructuring offers another option, but the predominance of official creditor loans limits this approach.

European integration represents the third pathway, potentially improving Ukraine’s creditworthiness and borrowing terms as the country moves toward EU membership. However, this process requires years of institutional reforms while Ukraine simultaneously fights for survival.

The mounting debt burden increasingly constrains Ukraine’s fiscal flexibility, leaving less budget space for reconstruction programs and economic development initiatives that could help the country transition to a sustainable post-war economy.

Ukraine’s State Employment Service reported 265,000 new job openings in the first seven months of 2025, yet could only fill 136,000. This paradox captures the country’s economic transformation: resilient enough to create work, too demographically hollowed out to do it.

The 15-day average time to fill positions might sound reasonable anywhere else. But in a country losing workers to mobilization, migration, and missiles, every unfilled vacancy represents capacity Ukraine can’t afford to waste. Half the jobs posted remain empty—not from lack of demand, but from lack of people.

From economic collapse to hiring boom

The trajectory shows Ukraine’s remarkable economic recovery. According to the National Institute for Strategic Studies, Ukraine’s first half of 2024 saw just 110,000 vacancies by June. The 2025 total of 265,000 in seven months represents more than double the pace—a hiring boom that coincided with unemployment dropping from chaotic 13-20% swings in 2024 to a stable 12.1% in April 2025, the lowest since Russia’s invasion began.

But the boom has peaked.

New vacancy postings have practically stopped growing and remain at just 85-90% of 2021 levels. Job search activity reaches only 80% of pre-war averages, even as people search more actively than in 2024.

Where the workers went

The numbers reveal the scale of Ukraine’s demographic crisis. The workforce aged 15-70 shrank by over a quarter compared to pre-war 2021 levels. Almost half that decline came from external migrants who don’t work remotely, while mobilization and displacement account for the rest. The Ministry of Economy estimated the overall labor shortage nearly 30% a year ago.

Ukraine now has only 26 million people aged 15 and older, from a population of just 31 million. “Even if the war ends next year, by 2032 Ukraine will have only about 30 million people,” warns Hlib Vyshlinsky, director of the Centre for Economic Strategy.

That means just 13 million economically active citizens and 10 million inactive, mostly pensioners.

The mismatched millions

The unemployment paradox reveals structural dysfunction beneath the statistics. With 12.1% unemployment alongside desperate labor shortages, the problem isn’t lack of workers — it’s workers in the wrong places with the wrong skills.

Despite the desperate need for workers, only 800,000 internal refugees had official employment as of April 2024. According to the National Institute for Strategic Studies, barriers include psychological trauma, qualification mismatches with local labor markets, difficult access to childcare services, and bureaucratic obstacles that job applicants encounter.

Regional patterns tell the same story of disconnection. Lviv Oblast generated the most openings — 13.4% of all vacancies, nearly 36,000 positions — as businesses and people fled westward from the fighting.

What this means for business

The employment data show both opportunities and constraints for companies considering Ukrainian operations. Ukraine generates strong demand for workers—sales consultants and managers top hiring lists, followed by medical workers, teachers, and industrial positions. The country is building and buying, not just surviving.

However, labor availability varies significantly by region. Western regions, like Lviv Oblast, offer larger candidate pools but face intense employer competition. Eastern regions show faster hiring but operate under security constraints. Skilled positions consistently take longer to fill than basic roles.

The economy shows resilience, but the population numbers show limits no amount of resilience can overcome.

When Putin launched his full-scale invasion in February 2022, 46% of Ukrainians spoke Russian at home while 53% used Ukrainian. By August 2025, those numbers had flipped dramatically: 68% now speak Ukrainian daily, compared to just 30% using Russian, according to new survey data from Gradus Research.

The cultural revolution Putin didn’t plan

The speed of this shift, documented in the new Gradus Research survey, reveals how quickly societies can remake themselves under existential pressure. Putin justified his invasion partly as protecting Russian speakers from supposed persecution. Instead, his war has accelerated the voluntary abandonment of the Russian language across Ukraine faster than any government policy ever could.

Three years of bombardment have accomplished what decades of independence couldn’t: the near-elimination of Russian as Ukraine’s second major language. Every missile strike, every destroyed home or hospital, and every forced evacuation has severed another cultural thread linking Ukrainian families to Moscow.

What optimism looks like under fire

Despite constant military pressure, Ukrainian confidence in their personal future has slightly increased, rising from 61% last year to 64% this year. The change is modest, but its meaning is significant—it suggests a society that hasn’t broken under the weight of prolonged conflict.

23% say they don’t believe in a better future, while 12% remain uncertain. But the trend points away from despair, even as the war grinds through its fourth year.

Unity forged by a common enemy

The survey also reveals how external threats reshape internal bonds. When asked what unites them most, 67% of Ukrainians point to their “common enemy”—a stark reminder that national solidarity now depends heavily on opposition to Russian aggression.

This suggests Ukrainian unity is more situational than organic, held together primarily by the external threat rather than shared cultural foundations.

Yet this wartime solidarity has proven durable. Three years of conflict have tested Ukrainian society’s cohesion without breaking it, even as internal divisions over leadership decisions (50%), political views (47%), and social inequality (47%) persist beneath the surface.

Preparing for the peace to come

Ukrainian expectations for post-war reconstruction reveal a society already thinking beyond survival mode. When asked about opportunities after victory, 45% prioritize continued defense strengthening—though this represents a decline from 52% in previous years, suggesting growing confidence in Ukraine’s military capabilities.

Other leading hopes include:

• Modernizing infrastructure (40%)
• Gaining global economic support (39%)
• Fostering business and entrepreneurship (36%)

But the list of challenges tells a more complex story, as people prioritize the following:

• Economic recovery (57%)
• Rebuilding cities and infrastructure (54%)
• Veteran reintegration (51%)
• Security in occupied territories (51%)
• Healthcare system reconstruction (42%)

The society Putin is actually facing

The Gradus survey, conducted among 1,000 Ukrainians aged 18-60 in cities with over 50,000 residents, captures a nation in the middle of profound transformation.

The 2025 Independence Day survey documents how Ukraine has used wartime pressures to accelerate the national consolidation Moscow sought to prevent. The dramatic shift in daily language use represents one of modern European history’s most rapid cultural transformations.

Moscow’s stated goal of protecting Russian speakers has instead coincided with the steepest decline in Russian language use since Ukraine’s independence.

The strike on Flex Ltd.’s Mukachevo facility came just hours after Moscow rejected President Trump’s latest peace overtures, sending a clear message about Russia’s willingness to target American business interests during diplomatic negotiations.

Russia targets American business

Just hours before the missiles hit, Russian Foreign Minister Sergey Lavrov had dismissed European peacekeeping proposals as “foreign intervention.”

Moscow’s choice to strike a big US-owned facility during active peace discussions sends an unmistakable message: Russia believes it can attack American assets without derailing Trump’s negotiation efforts.

Company safety protocols brought employees to safety when air raid sirens sounded, preventing what could have been a catastrophic loss of life. Twelve people were injured, though, with two in serious condition.

The strike hit a facility producing electronics components for global brands including Nike, Google, Microsoft, and Lenovo, disrupting supply chains that extend far beyond Ukraine’s borders.

“This was not only an attack on Ukraine. It was an attack on American business,” said Andy Hunder, president of the American Chamber of Commerce in Ukraine, who traveled to the strike site Thursday morning.

Calculated message to Washington

With this attack, itself part of a massive nighttime air raid against Ukrainian cities, Moscow appears to be testing Trump’s resolve while negotiations were still forming.

“Russia is not seeking peace; it is attacking American interests and values,” Hunder wrote on Facebook, calling on Trump to “stand with American business in Ukraine.”

Ukrainian business leaders were even more direct. “I hope Trump, when he wakes up, will already be aware of this morning’s greeting from his Alaskan buddy,” wrote Oleksandr Sokolovskyi, head of the Ukrainian Association of Light Industry Enterprises, referencing the American President’s meeting with Putin in Alaska less than a week before the devastating strike.

“Russia is destroying and humiliating US businesses in Ukraine, targeting companies that invest and trade on the US stock markets,” Hunder noted, framing the strike as broader economic warfare against American interests.

Putin tests Trump’s resolve

The strike puts Trump’s negotiation approach under pressure. The president has suggested he could end the war through direct talks with Putin. Moscow’s willingness to hit US-owned assets during peace discussions reveals Russia’s actual negotiating position.

This attack represents a challenge to American credibility: will Washington tolerate attacks on US business while pursuing diplomatic solutions?

The attack also demonstrates why stronger air defense systems matter, as better missile shields don’t just save Ukrainian lives—they also protect American investments and send a message that targeting Western assets carries real costs.

Key facts about the attack:

• Russia targeted the world’s third-largest contract electronics manufacturer’s Ukrainian plant
• The facility employs over 2,600 people and serves major US brands
• Flex produces components for Nike, Google, Microsoft, and Lenovo
• Attack occurred during active Trump-led peace negotiations
• Russia used Kalibr missiles launched from strategic bombers
• 12 people were injured, two seriously, but adherence to safety protocols prevented deaths

Ukraine’s Financial Stability Council cleared the government to sell its stakes in Sense Bank and Ukrgasbank in August, ending hesitation about opening up the state-dominated banking sector.

The breakthrough decision proves Ukraine wants to build a Western-style free-market economy, even when it means giving up hundreds of millions in wartime funding.

The Financial Stability Council—which includes the National Bank of Ukraine, the Finance Ministry, and banking regulators—concluded that selling the state’s stakes would not harm the banking system if done through proper legal procedures. “The sale of shares must be balanced and aimed at increasing the value of banks’ stakes,” the Council said in its statement.

Both banks fell under state control through crisis management rather than strategic planning. Ukrgasbank gradually moved under state dominance after a 2009 bailout that left the government holding nearly all shares. Sense Bank became state-owned in 2023 when Ukraine sanctioned its Russian owners (including Ukrainian-born oligarch Mikhail Fridman) during the war.

The privatization has fulfilled Western allies’ demands for years—proof that Ukraine genuinely wants a free-market transformation, not just security guarantees. The decision marks a groundbreaking first step toward dismantling the state-dominated banking model.

The choice between free markets and state profits has never been starker. While Sense Bank and Ukrgasbank are smaller institutions—ranking 7th and 10th by profit—they still generate hundreds of millions annually for the war effort.

For now, the state-owned banks control more than half of Ukraine’s financial system assets and deposits, and they’ve become reliable wartime revenue generators. In 2024, the banking sector posted record profits of UAH 104 billion ($2.52 billion), with state institutions contributing the majority. State banks transferred over UAH 67 billion ($1.64 billion) to the budget through taxes and dividends—money that directly funds the war effort.

However, there is still a long road ahead, as the National Bank indicated that privatizations are unlikely to be completed in 2025, emphasizing gradual implementation based on market conditions. That suggests Ukraine recognizes the fiscal reality of giving up billions in annual revenue during wartime.

For international partners, the Council’s decision signals a serious commitment to reform pledges even under extreme conditions. It also potentially means the loss of crucial wartime funding streams for Ukrainian finances.

The privatization path is now clear. Whether Ukraine will walk it—and how quickly—depends on balancing immediate war needs against long-term integration goals.

Ukraine’s hryvnia will remain stable around 43.5 per dollar through 2025, Dragon Capital chief economist Olena Bilan said on the “What’s Up with Economy?” podcast this week.

The forecast from Ukraine’s largest investment firm comes as the National Bank actively defends the currency despite ongoing war pressures and mounting labor shortages.

“The National Bank has more room to maneuver and more opportunities to keep the exchange rate more or less stable,” Bilan said. “So it is possible that we will not see any significant shifts by the end of the year.”

According to the Ukrainian Institute for the Future, the central bank sold $3.4 billion in July to support the hryvnia while international reserves fell from $45.1 billion to $43.0 billion. Recent policy moves include expanding the types of government bonds banks can use for reserves and encouraging domestic financing without money printing.

“The main goal of all NBU actions is to bring inflation back to target and keep it there.”

However, Ukraine faces a growing challenge due to its shrinking workforce. “Since 2023, there has been a significant shortage of personnel on the labor market, especially skilled workers, which is pushing wages up,” Bilan warned. Continued mobilization keeps draining workers from the economy, creating wage pressures that threaten price stability.

Economic data shows this tension. Inflation was 14.1% in July with consumer prices falling 0.2% month-on-month, but the NBU raised its 2025 inflation forecast from 8.7% to 9.7% while cutting GDP growth projections from 3.1% to 2.1%.

Dragon Capital’s 43.5 forecast strengthened from earlier projections of 44, reflecting confidence in monetary policy management.

The bigger question is whether Ukraine can maintain this balance between mobilization needs and economic stability as the war continues. Bilan’s cautious optimism suggests 2025 will test both the central bank’s tools and the economy’s resilience.

Commemorating the 1 June raid that destroyed or damaged 41 Russian strategic bombers now signals Ukraine’s growing confidence in deep-strike capabilities that fundamentally shift the strategic balance.

By turning military success into cultural artifacts, Ukraine demonstrates that Russia’s most threatening weapons — aircraft designed to deliver nuclear-capable missiles — are no longer untouchable.

The operation showcased Ukraine’s ability to coordinate precision strikes across vast distances using relatively cheap technology. Using 117 AI-trained FPV drones hidden in truck-mounted containers, Ukraine’s Security Service struck four airbases spanning three time zones: Olenya near the Arctic Circle, Ivanovo northeast of Moscow, Dyagilevo southeast of the capital, and Belaya in Siberia.

The destroyed Tu-95 and Tu-160 bombers, along with A-50 early warning planes, represented roughly one-third of Russia’s strategic bomber fleet — the very aircraft Moscow uses to threaten Ukrainian cities and NATO territory with cruise missiles. Russia invested decades and enormous resources building these strategic assets, only to watch them burn on their airbases.

Since 2022, Ukrainian postal issues have evolved from cultural resistance symbols to strategic communication tools. The famous “Russian warship” stamp and Kerch Bridge commemoratives told stories of defiance. The Spiderweb stamps tell a different story: Ukraine’s growing ability to strike deep into Russian territory.

The stamp set, priced at 150 UAH ($3.62) with first-day covers at 15 UAH ($0.36), will travel worldwide — carrying the message that Ukraine can reach targets Moscow thought safe. Each envelope becomes a reminder that Russia’s threat projection capabilities are shrinking.

The operation demonstrates that Ukraine has developed indigenous capabilities — truck-based mobile launch platforms, AI-guided swarm coordination, and continental-range strike abilities — that complement Western-supplied weapons. For Russia, the raid exposed that geography provides less protection than Moscow assumed.

The postal commemoration ensures this tactical victory becomes part of Ukraine’s strategic narrative — proof that innovation and determination can neutralize even the most expensive instruments of intimidation.

Ukrainian Security Service drones obliterated two Russian ammunition depots in occupied Bilokurakyne on 19 August, triggering massive fires visible from space and severing a critical supply artery feeding Moscow’s Pokrovsk offensive.

The nighttime strike landed seven direct hits on the rail and road hub, 60 kilometers behind Russian lines in Luhansk Oblast. NASA satellite data confirmed multiple thermal anomalies, marking another successful penetration of Russia’s supposedly secure rear areas.

The targeted settlement is a crucial logistics node where railways and roads converge to supply Russian forces grinding toward Pokrovsk in Donetsk Oblast.

This attack represents Ukraine’s evolved battlefield strategy — rather than matching Russia shell for shell, Kyiv systematically dismantles the infrastructure sustaining Russian operations. Each depot eliminated means fewer artillery rounds reaching Ukrainian positions.

“The SBU continues to launch systematic strikes against the enemy’s rear in order to reduce the offensive capabilities of the Russian army on the front line,” the agency stated.

The Bilokurakyne strike coincided with a third fire recently at Lukoil’s Volgograd refinery, illustrating how Ukraine’s campaign now spans from ammunition depots to energy infrastructure. This coordination suggests sophisticated operational planning designed to strain Russia’s war economy simultaneously on multiple fronts.

These operations demonstrate how precision technology allows smaller militaries to offset numerical disadvantages.

Ukraine’s success in penetrating Russian-controlled territory with relatively inexpensive drones offers lessons for defense planners worldwide facing similar asymmetric challenges.

The burning depots in Bilokurakyne represent more than tactical success – they show how sustained pressure on supply networks can degrade even a larger military’s operational capacity.

Ukraine’s government projects average monthly salaries will climb to nearly UAH 40,000 ($970) by 2028, almost doubling from current levels as the country signals economic resilience.

The forecast, released in Kyiv’s official socio-economic outlook for 2026-2028, shows wages rising from UAH 25,000 ($606) this year to UAH 39,800 ($964) by 2028 — a key metric for donors and investors evaluating Ukraine’s post-war recovery potential.

A consumer base earning nearly $1,000 monthly represents a compelling investment target for Western companies eyeing Ukraine’s eventual reconstruction.

“Given the high uncertainty, the Government’s forecast estimates are close to the forecasts of the European Commission and the IMF, which indicates a shared view of the key development trends,” the government stated in its forecast.

Ukraine’s wage progression timeline shows steady growth if stability holds:

• 2025: UAH 25,000 ($606) average monthly salary
• 2026: UAH 30,200 ($733)
• 2027: UAH 35,200 ($855)
• 2028: UAH 39,800 ($964)

The government projects inflation will ease from 8.6% in 2026 to 5.3% in 2028, meaning real purchasing power should grow alongside nominal wages.

The forecast presents two scenarios based on when hostilities end. Early stabilization in 2026 versus prolonged conflict until 2027 creates significant wage differentials — potentially thousands of hryvnia difference in workers’ pockets.

The wage projections target international audiences who are considering Ukraine’s economic future. A market of 35 million educated, digitally connected consumers earning close to $1,000 monthly represents a substantial opportunity for consumer goods, housing, and services companies.

European Commission and IMF alignment on these projections strengthens Ukraine’s case for continued financial support and private investment, showing Western institutions view the country’s economic fundamentals as sound despite wartime pressures.

Higher wages matter for Ukraine’s broader recovery strategy. Increased domestic consumption drives tax revenue, supports local businesses, and demonstrates the economy’s capacity to sustain long-term growth — key factors in maintaining international confidence.

The forecast, which depends on wage growth, reflects Ukraine’s broader argument: this economy remains viable for investment and support, with a population still earning, spending, and building for the future despite the war.

Whether these projections materialize depends heavily on military developments and sustained international backing. But the government’s confidence in publishing them sends its signal — Ukraine is planning for economic success, not just survival.

Energy Minister Svitlana Hrynchuk announced that Ukraine will make nuclear power the cornerstone of its energy strategy. The country aims to transform from energy victim to Europe’s next major electricity supplier.

“Personally, I believe that we must develop nuclear power generation. Because it ensures the stability of our energy sector; it is the type of generation that has allowed us to survive,” Minister Hrynchuk said.

The announcement signals Ukraine’s most ambitious wartime gamble: building enough nuclear capacity to replace Russian energy exports across Central and Eastern Europe while still under missile attack.

Dozens of coal and thermal plants lie destroyed or occupied, including the massive Zaporizhzhia thermal facility. The Zaporizhzhia Nuclear Power Plant — Europe’s largest — remains under Russian control, with all six reactors shut down and about six gigawatts of Ukraine’s generating capacity unusable.

But Ukraine’s four remaining nuclear plants generated 26.8 billion kilowatt hours in the first half of 2025 — more than half the country’s electricity. According to Energoatom, the operator, they ran at over 75% capacity, proving nuclear facilities can operate effectively during wartime.

Since March 2022, Ukraine’s grid synchronization with European networks has allowed power exports when surpluses exist. More nuclear capacity would enable Ukraine to capture significant market share from Russian energy exports that previously earned Moscow roughly €100 billion annually.

Ukraine will complete two Soviet-era reactors at Khmelnytskyi Nuclear Power Plant that have been unfinished since the 1980s. Bulgaria agreed this year to sell Ukraine two VVER-1000 reactors to finish units 3 and 4, which are 75% and 28% complete, respectively.

Additionally, Ukraine plans two entirely new reactors at Khmelnytskyi using American Westinghouse AP1000 technology, permanently breaking from Russian nuclear designs. The expansion would quadruple generating capacity at the facility.

Officials say new reactors will feature reinforced containment structures and integrated air defense systems. Plants like Khmelnytskyi sit far from current front lines, offering some protection.

Energoatom, reorganized this summer as a joint-stock company, received renewed licenses following regulatory inspections. Officials say the corporate overhaul meets European standards and opens doors to international financing for the expansion projects.

Ukraine’s nuclear expansion for Europe offers clean, reliable power that could replace Russian energy imports. The timeline creates pressure — nuclear construction typically takes a decade, while Ukraine must defend facilities throughout a protracted conflict. Success would prove countries can break free from Moscow’s energy dependence while under active attack.

Ukraine has secured access to Europe’s defense strategy table. This spring, the EU granted Ukraine “associated country” status in its €1 ($1.17) billion Defence Fund. Now, for the first time, Ukrainian companies can compete for contracts and co-develop military systems that will protect Europe.

Ukrainian defense firms can now bid for EU contracts, partner with European companies, and help design tomorrow’s battlefield technologies.

According to Delo.ua, up to €1 billion could flow to Ukraine through these partnerships from the 2025 budget — if companies prove competitive.

This is not some favor Brussels is doing for Ukraine, but a two-way cooperation in which European financing is helping partners in the EU get access to technological innovations Ukrainian engineers have been forced to solve ahead of anyone else in the world.

European Defense Commissioner Andrius Kubilius acknowledged this on 30 April when announcing the €910 million ($1 billion) 2025 program covering 33 projects. The timing reflects Europe’s broader strategic shift — on 27 May, EU ministers approved a separate €150 ($175) billion arms fund.

The European Defense Fund operates through competitive consortia where companies from different EU countries collaborate. Ukraine can join these teams on equal terms with German, French, or Polish firms.

Key competition areas:

• Drone technology: Ukraine has demonstrated superiority over European alternatives
• Electronic warfare countermeasures: Battle-tested against Russian jamming
• Battlefield medicine: Innovations developed under combat conditions
• Cyber defense: Systems proven against sustained Russian attacks

The €1 billion figure represents Ukraine’s potential share across multiple projects. Since the total program is worth €1.065 ($1.24) billion, success depends on how competitive Ukrainian solutions prove.

Ukraine’s entry ensures European military systems will be designed with actual combat experience, not theoretical peacetime scenarios. For decades, EU defense companies designed weapons for high-precision small-unit warfare, pinpointing mostly terrorist targets.

The partnership also reduces Ukraine’s dependence on emergency aid. Instead of relying on countries to donate weapons from old stockpiles, Ukraine can help develop next-generation defense systems while securing long-term industrial partnerships.

This signals Europe’s recognition that Ukraine isn’t a temporary security problem but a permanent strategic partner. Whether Ukraine wins major contracts or smaller shares, the access fundamentally changes the relationship from charity recipient to competitive partner.

Euromaidan Press spoke with Anton Shekhovtsov, a political scientist specializing in Russian extremism and editor of “Russia Against Ukraine: Russian Political Mythology and the War on Ukrainian Identity.” The book brings together thirteen authors — almost half of them Russian — analyzing anti-Ukrainian narratives in Russian society, revealing the ideological foundations behind Russia’s war.

This interview has been edited for length and clarity.

EUROMAIDAN PRESS: Several chapters in your book deal with genocide rhetoric. What are the most dangerous narratives, and how do they translate into real-life actions?

SHEKHOVTSOV: All authors in this collection who suggest that what Russia is doing is genocide or attempted genocide of the Ukrainian nation — me included — refer to the international definition of genocide adopted by international institutions.

They feel that they cannot be punished, not only for what they’re doing but also for what they’re saying. This creates the atmosphere where Russian soldiers, if not directly instructed to kill civilians and engage in acts of genocide, still feel that whatever they do to Ukrainians is fine, that it is normal. You can kill civilians, you can bomb civilians, you can kill children.

But I feel that it is not just some individual officers and soldiers going crazy and killing everybody they see. I think it is a strategy. When Putin says essentially that Ukraine does not exist, the Ukrainian nation does not exist — what he means is that they should not exist. And the only way for them not to exist is to kill them or to drive them from their territories.

He’s fine with Ukrainians becoming an ethnic minority in a particular EU country. But Ukrainians should not have their own Ukrainian nation-state.

Today’s assault is unprecedented in Ukrainian history, as it targets Ukrainian statehood itself — the very idea that Ukrainians can exist as a sovereign people.

EUROMAIDAN PRESS: You have a whole chapter dedicated to Nikolai Patrushev and the siloviki. What drives their worldview, and why are they the harshest Ukrainophobes?

SHEKHOVTSOV: The siloviki are representatives of the power ministries, power agencies, or intelligence agencies—the entire security apparatus, defense, and police. Those people who have power are the harshest Ukrainophobes because they share a worldview that they already formed in the Soviet Union.

These people were born in the Soviet Union and, more importantly, socialized in the Soviet Union, some even during the Cold War. They have a very security-focused view on geopolitics, specifically on how dangerous it is for Ukraine to be an independent state.

There is a combination of this mythological view — I wouldn’t even call it ideology; it’s a mythological worldview — where everything is divided between evil and good. If everything about Russia is good, and if something they consider to be undermining Russian interests is bad, this is evil. They have a black-and-white picture of the entire world.

So they are demonizing Ukraine. And this is one of the major explanations why it’s not simply an occupation that Russia is striving for, but an actual genocide, an actual destruction of the Ukrainian nation. Not just the occupation, but the destruction.

EUROMAIDAN PRESS: Where do these deep roots of Ukrainophobia come from, and how are they connected to the Kremlin’s politics today?

SHEKHOVTSOV: The roots of anti-Ukrainian sentiment go back to at least the 19th century in the Russian Empire. The authors were writing about the distinction between the two types of Ukrainians.

One type is those Ukrainians who have ethnic roots in the Ukrainian cultural group but were very well integrated into the Russian Empire. They were ethnically Ukrainian, but at the same time, they were really part of the Russian Empire. They were Russified, belonging to the empire and not to their own Ukrainian ethno-cultural community.

At the same time, there was another type of Ukrainian. Those were mostly people living in Ukrainian villages. They would speak Ukrainian, and they were considered by the Russian imperial elites as poor, very poorly educated people who should be ruled. They obviously could not have their own state because it was ridiculous. This distinction actually survived the Russian Empire.

One type is the Soviet Ukrainian, like a Ukrainian communist. This is a good Ukrainian integrated into the Soviet empire. And there was another, the bad Ukrainian — a Ukrainian who wanted to have an independent Ukrainian state, an independent Ukrainian nation. And they were all demonized as Banderites.

EUROMAIDAN PRESS: So the enemy is not the alien one but the one who is very similar but doesn’t want to be us?

SHEKHOVTSOV: Exactly. The Ukrainophobia also stems from the worldview that Ukrainians are not really different from Russians. This is just one branch of the larger Russian tree. There are Greater Russians, Little Russians, and then White Russians. And those who do not agree to that are the enemies. These are bad Ukrainians.

For Putin, he saw these types of Ukrainians. Ukrainians were in the KGB. They were his colleagues. They were not that different from him. Maybe some accents or Ukrainian family names would demonstrate that they were coming from the Ukrainian ethnic cultural group. But the bad Ukrainians, those who said, “No, we are different. We have our own culture, we deserve to have our own nation-state.” Putin’s reaction, not only Putin’s but that of Russian ultra-nationalists, is that you are destroying our Russian nation. You are the separatists.

The Kremlin genuinely believed that most Ukrainians were still “good Ukrainians” who would reject their democratically elected government. Instead, they encountered a nation that had definitively moved beyond imperial categories.

EUROMAIDAN PRESS: How does this compare to what ordinary Russians think, as opposed to the elites?

SHEKHOVTSOV: What’s interesting is that there is a difference between the annexation of Crimea and the full-scale invasion of Ukraine. Crimea has existed in Russian mythology since the 1990s. The romantic vision that Crimea was somehow lost by the Russians and should return to Russia was there. However, there was no romantic vision among Russians that Belarus should be part of Russia.

Russian people — I’m not talking about the elite — there was no request from their side to Putin to start the full-scale invasion of Ukraine. There was no demand for genocide.

There were, of course, these crazy Russian fascists and Russian ultra-nationalists who hated Ukrainians and Ukraine. But for ordinary Russians, while they were really happy with returning Crimea to Russia, the full-scale invasion was still something completely different. It was driven by the elites, driven by a significant part of the Russian elites, but not the ordinary people.

In that sense, the war serves the psychological needs of Russia’s security apparatus more than any popular mandate, making it both more dangerous and potentially more fragile than grassroots nationalism.

EUROMAIDAN PRESS: Is this a modern way of thinking, or has Putin gone back to very old patterns?

SHEKHOVTSOV: I think it’s a radicalization of the old patterns, but this radicalization itself is very modern. I don’t really remember such a genocidal drive of the Russians towards Ukrainians. Of course, there was the Holodomor in the 1930s. However, the Holodomor targeted only one part of the Ukrainian nation — people mostly living in villages and smaller towns.

Even if we look at the short history of the Ukrainian People’s Republic in the 1920s, which the Red Army occupied in collaboration with Ukrainian communists, it still remained Ukraine. It was Soviet Ukraine, but Ukraine.

But this attack, this aggression against the Ukrainian national identity, is pretty much unique in history. So it is a radicalization of older patterns.

EUROMAIDAN PRESS: Can you end on a more positive note? What can we take away from this research?

SHEKHOVTSOV: I think the positive aspect of what is happening today is that there is very little chance that Russia indeed succeeds in the destruction of the Ukrainian state and the Ukrainian nation. If we look at the history of the Ukrainian nation, Ukrainians were either unable to defend themselves or were always outnumbered, outsmarted by the Russians, and also by Russian military technology.

Ukraine has never experienced anything like this, and never has such solidarity been present with Ukraine as it is today. Unfortunately, solidarity has eroded somewhat in countries close to Ukraine, like Hungary, Slovakia, and even Poland. Still, the degree of support for Ukraine is the largest in its history.

The book’s findings suggest that understanding Russian Ukrainophobia is crucial for Western policy. These aren’t temporary political grievances that can be negotiated away, but deep-seated imperial reflexes that view Ukrainian independence as an existential threat to Russian identity. Recognizing this helps explain why compromise often fails and why supporting Ukrainian victory serves broader democratic security.

The National Anti-Corruption Bureau (NABU) and Specialized Anti-Corruption Prosecutor’s Office (SAPO) delivered record results in the first half of 2025: 370 new investigations, 115 suspects charged, and 62 convictions — wartime performance that exceeded even their substantial late-2024 numbers. This week, they announced charges against a senior Defense Ministry official accused of soliciting $1.3 million in bribes to rig military housing contracts.

Yet simultaneously, a parliamentary commission has begun examining their work, a timing that raises questions about the government’s true intentions.

The question isn’t whether NABU and SAPO can function — they clearly can — but whether they can work undisturbed when the same political forces that tried to subordinate them in July remain in power, wielding the same administrative tools that could disrupt sensitive investigations.

July’s warning shot

The agencies formally regained their independence on 31 July after mass protests forced parliament to reverse controversial Law 12414. But the nine-day subordination to the Prosecutor General wasn’t an isolated misstep — it was the culmination of pressure that had been building since NABU charged former Deputy Prime Minister Oleksiy Chernyshov, a member of President Volodymyr Zelenskyy’s inner circle.

What made July different wasn’t just the attempt to strip institutional independence. It was how quickly UAH 120 million ($2.9 million) appeared for Chernyshov’s bail, and how rapidly 70 raids materialized against NABU officials when the agencies refused to back down.

The speed of that bailout also raised uncomfortable questions in Brussels, where officials watching Ukraine’s EU accession bid wondered how deep corruption networks run.

Since then, nothing fundamental has changed.

The same officials who designed Law 12414 remain in office. The same networks that mobilized Chernyshov’s bail remain intact. And crucially, parliament left three dangerous provisions that weaken the broader prosecutorial system.

The tools that remain

While NABU and SAPO regained their statutory independence, the government retained legal mechanisms that could still disrupt their work:

• No competitive selection for prosecutors during martial law: Anyone with basic legal credentials can be appointed to senior positions without open competition, potentially placing loyalists in overlapping jurisdictions.
  
• Dismissal through “reorganization”: Prosecutors can be fired by dissolving or restructuring their units, bypassing routine disciplinary procedures.
  
• Sweeping case control for the Prosecutor General: The Prosecutor General can requisition any case, halt proceedings, and give direct instructions to investigators.

The government can’t longer directly control NABU and SAPO, but it can create pressure points. Many high-profile corruption cases involve multiple jurisdictions. The Prosecutor General can, for example, influence sensitive investigations without formally touching the agencies’ autonomy by controlling appointments, reassigning personnel, or pulling case materials.

As the Agency for Legislative Initiative warned, the ability to appoint prosecutors without competition “undermines selection standards, contradicts the principle of prosecutorial independence, and creates risks for the legitimacy of personnel decisions.”

Why Western allies are watching

Western media buzz with speculation about potential Trump-Putin meetings in Alaska. Moscow sees another bargaining chip. But in Kyiv, military planners work from a different timeline — one measured not in months of negotiations, but years of grinding conflict that Russia still believes it can win through sheer persistence.

Russia doubles down on military solution

On 30 July, as President Trump threatened new tariffs against Moscow, Kremlin spokesperson Dmitry Peskov delivered a telling response: Russia has developed “certain immunity” to sanctions and no longer fears additional economic restrictions.

However, the real indicator of Russian intentions sits buried in draft legislation submitted to the State Duma. The proposal would replace traditional spring and autumn conscription cycles with year-round conscription — a move opposition Russian media trace directly to a confidential order from Vladimir Putin. This gives the proposal a strong chance of passing as early as this autumn.

The timing exposes Moscow’s calculation.

With Russian battlefield losses surpassing one million soldiers killed, wounded, and missing, the Kremlin needs constant replenishment without formally declaring mobilization.

The apparent goal of the draft law is to increase pressure on conscription-age citizens and push them toward signing contracts with the Russian Armed Forces. Human rights advocates and activists warn that such year-round conscription would allow the state to keep men under constant mobilization surveillance, enabling rapid replenishment of army ranks without formally declaring mobilization.

The numbers behind Russia’s war machine

Ukraine’s Commander-in-Chief Oleksandr Syrskyi reported that, as of late June, approximately 695,000 Russian troops, including operational reserves, were engaged in the war against Ukraine. Over the past year alone, over 440,000 contract soldiers have joined Russia’s ranks.

Despite recent Ukrainian advances in the Sumy Oblast— where several settlements were successfully liberated from Russians — the situation in Donetsk Oblast remains critical, mainly due to the overwhelming concentration of Russian forces there.

This systematic expansion suggests Moscow views the conflict as a war of attrition that it can win through numerical superiority.

Ukraine’s strategic calculation for long-term conflict

Therefore, people in Ukraine do not believe in the prospects of lasting peace with Russia soon. On the contrary, Ukrainian authorities indicate that Russia’s main goal for 2025 is to fully capture the remaining parts of Donetsk and Luhansk oblasts, and by 2026, build on the success east of the Dnipro River, including an attempted occupation of Odesa and Mykolaiv, thereby cutting Ukraine off from the sea entirely.

This timeline explains why Kyiv does not believe in a lasting peace with Russia without security guarantees, nor in the effectiveness of any negotiations about Ukraine conducted without Ukraine.

On 9 August, President Volodymyr Zelenskyy emphasized that Ukraine is ready for real steps that could lead to peace, but no agreements “against Ukraine and without Ukraine” can be considered peaceful. At the same time, he stressed that Kyiv, together with international partners, is ready to seek ways to achieve a genuine and lasting peace “that will not collapse due to Moscow’s ambitions.”

Ukraine’s position, particularly regarding the inviolability of international borders, was supported in a joint statement by the leaders of Denmark, Iceland, Sweden, Norway, Finland, Latvia, Lithuania, and Estonia. The leaders of the Baltic and Northern European countries also stated that “negotiations can only take place in the context of a ceasefire.”

Ukraine’s asymmetric response strategy

In response, Ukraine’s military and political leadership is actively seeking ways to strengthen national defense. Given that Ukraine’s mobilization reserve is significantly smaller than Russia’s, Kyiv is focusing on military innovation and asymmetric responses to Russian aggression.

In particular, drones’ success on the battlefield led to the creation of the world’s first Unmanned Systems Forces, which use aerial, naval (both surface and underwater), and ground-based drones in combat operations.

This allows citizens to apply directly to specific units or branches of service and choose roles based on their skills and interests.

Despite calls from some international partners to lower Ukraine’s mobilization age from 25 to 18 to replenish the ranks with younger personnel, Kyiv has chosen a different approach. Young people aged 18 to 24 can voluntarily join the Defense Forces through a special contract program, gaining financial and social benefits in exchange for one year of military service, which includes mandatory combat deployment. At the same time, enlistment is only possible in specific units and for certain specialties.

As of 30 July, this “18-24” contract program has been expanded to include specialists in unmanned systems — not just aerial drone operators, but also technicians working with ground-based robotic platforms. This version of the contract entails 24 months of service, with at least 12 months of direct combat involvement.

Financial commitment to extended warfare

At the same time, Ukraine continues efforts to improve mobilization efforts and increase voluntary enlistment in the face of Russia’s ongoing summer offensive.

On 31 July, the Ukrainian government announced an additional ₴412.4 billion (about $10 billion USD) in defense and national security funding. Of this, ₴115 billion ($2.7 billion) is earmarked for military personnel salaries, while ₴216 billion ($5.1 billion) will fund the procurement and production of weapons, military equipment, drones, etc.

In fact, Ukraine has been running a program for the decentralized procurement of drones and other important battlefield equipment since last year, and thanks to its implementation, the effectiveness of striking the enemy has increased by 40%. In addition, a decision was made to increase vacation time for service members — an initiative personally proposed by President Zelenskyy, according to Deputy Head of the Presidential Office, Colonel Pavlo Palisa.

What this means for Western policy

The gap between Western diplomatic timelines and Ukrainian military planning creates a fundamental policy challenge. While international partners hope for a negotiated resolution, both Moscow and Kyiv prepare for an extended conflict.

Despite some hopes for diplomatic success, the daily missile and drone attacks on Ukraine, the deaths of civilians, and the situation on the front lines show that Moscow is not interested in peace and is betting on victory by force.

The only effective response to Russian aggression remains strengthening defense capabilities through enhancing the capacities of the Armed Forces of Ukraine, developing modern technologies, and the determination and unity of the international community, understanding that Russia responds only to the language of force.

Key takeaways for international partners:

• Peace talks must be based on respect for international law and Ukraine’s territorial integrity
• Russian “immunity” to sanctions requires more creative economic pressure
• Ukraine’s long-term defense investment needs sustained Western support
• Quick negotiated solutions remain unlikely while Russia believes in military victory

Oksana Kuzan

Oksana Kuzan heads the Analytical Department at the Ukrainian Security and Cooperation Centre.

Editor’s note. The opinions expressed in our Opinion section belong to their authors. Euromaidan Press’ editorial team may or may not share them.

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