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Russia’s ‘greyzone’ aggression is already harming Ukraine

The writer is a fellow at the American Enterprise Institute, a think-tank

Russia has moved around 100,000 soldiers to its border with Ukraine, worrying both Ukrainians and Nato members a great deal. The risk of an invasion is clearly the primary concern, but Russia doesn’t have to send troops in to harm its south-western neighbour. The presence of soldiers is already spooking foreign investors — and has become in itself an excellent tool of aggression that Kyiv can do nothing to prevent.

In March 2014, when Russia had just annexed Crimea, the international community was anxious that Moscow would move on to target other nearby countries. Investors, too, were concerned, and stock markets slumped. Now, financial markets are similarly on edge. Since Russia’s military build-up was detected last month, the Ukrainian hryvnia has lost value, Ukraine’s sovereign dollar bonds have nosedived, and the cost of protection against a Ukrainian default has increased.

Financially speaking, Ukraine is already something of an acquired taste: given its history of corruption and oligarchic power, it appeals mostly to speciality investors with an elevated risk appetite. Last year, foreign direct investment in Ukraine was negative, while neighbouring Poland received a net FDI inflow of more than €10bn.

For an economy as fragile as Ukraine’s, the spectre of war is a massive blow. Yes, Russian stocks are also sliding over war fears — but the Russian economy is ten times the size and can sustain far more turbulence. And while President Volodymyr Zelensky’s government can try to tackle corruption and the over-reach of oligarchs, it can do nothing to dislodge the Russian soldiers at the border. Neither has Nato been able to help de-escalate, even though members of the alliance are firm in their support for Kyiv.

Deploying significant military formations at a neighbour’s border is a cunning strategy by Russia, because by frightening investors, Russia can also cause real harm to a country whose economy badly needs a stable currency and foreign investment. In fact, to hurt Ukraine, Russia need do little more than keep the soldiers where they are to prolong the uncertainty, and add the occasional snap military exercise near the border. Russia’s actions are a quintessential example of greyzone aggression — activities in the no man’s land between peaceful relations and formal armed conflict.

If Russia wanted to further weaken Ukraine there is more it could do in economic terms. How about asking a few Russian oligarchs to speculate against the hryvnia? Or channelling more money into the pockets of corrupt officials, thus foiling Zelensky’s efforts to convince the world that Ukraine is cleaning up its reputation? For short-term effect, it could spread false rumours that the invasion is about to begin. Greyzone aggressors are limited only by their imagination.

Moscow has a history of successful greyzone operations against Ukraine. In June 2017, Russia’s NotPetya cyber attack hit hospitals, power companies, two airports, some two dozen banks, card payment systems and the government. The resulting disruption caused public anxiety and a loss of faith among international investors.

Of course, financially savvy activists in Ukraine and beyond could always turn on Moscow, shorting Russian companies’ stocks or mass-betting against the rouble.

For the moment, however, Kyiv is vulnerable to investors and stock traders who have no geopolitical obligations. If they want to withhold their money from a country, or speculate against its currency, or assume it will default, they can. And the more Ukraine’s economy suffers, the more remote its chances of EU membership will become. Russia’s president Vladimir Putin could not hope for a better outcome. Who said those soldiers needed to cross the border?


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