The war in Ukraine was a “massive and historic energy shock” to the markets, according to a November 2022 report by the OECD. The “shock” of the war was one of the main factors that had slowed economic growth in 2022 to just 3.1 percent, and why the OECD projected it to slow to 2.2 percent in 2023. The war, the report found, has had the greatest impact on Europe's economy, where growth in 2023 is projected to be just 0.3 percent.
In September 2022, the World Bank estimated that the cost of rebuilding Ukraine would be about $349 billion, a number that is larger than Ukraine's pre-invasion GDP and three-times greater than all the military, humanitarian, and financial assistance commitments to Ukraine since the start of the war, and is certainly much higher now.
Ukraine demands reparations, which seem unlikely to occur; instead, Russia appears to be preparing for a longer and larger-scale conflict. As of June 2022, the allies had seized $30 billion in assets owned by the Russian elite and frozen $300 billion owned by the Russian central bank. (More recent reports put the amount in the tens of billions.) It may be possible to transfer some of this to Ukraine, but the law on doing so needs to be explored, and the amounts involved would remain short of what is or will be necessary. Whether Ukraine and its Western allies will ever be able to compel Russia to pay reparations will depend on the outcome of the war.
How postwar reconstruction proceeds will depend on the war as well. Specifically, how it ends. Until the fighting ceases, any measures will simply be stopgaps—repairs to restore power supplies or guarantee water, humanitarian aid to provide temporary housing or continue medical care. If the fighting stops, but a still-dangerous frozen war is the result, private investors will remain reluctant, unless provided guarantees of security, or compensation against losses.
The United States has so far given the most—$47.9 billion—to Ukraine, but nearly all of it has been given in military and humanitarian aid, while EU countries have provided the largest amount of financial assistance. As a percentage of a giving nation's GDP, between January and November 2022, the United States devoted 0.23 percent; Estonia and Latvia each devoted roughly one percent; Poland provided 0.5 percent.
Ukraine has already suffered levels of damage not seen in Europe since World War II, and it took 20 to 30 years for Germany and the United Kingdom to rebuild after the war.
In some ways, rebuilding Ukraine may be more financially difficult than conducting the war itself. The country has already suffered levels of damage not seen in Europe since World War II, and it took 20 to 30 years for Germany and the United Kingdom to rebuild after the war.
Europe's Reliance on Russian Energy Is Over
For decades, from the Soviet Union right up until the moment Russia invaded Ukraine, Russia and much of Europe were bound together in a hydrocarbon marriage of convenience. Russia needed stable energy markets for its oil and gas exports; Europe wanted energy supplies delivered directly by pipeline, which would reduce its dependence on supplies from the Middle East—a market that was not stable, with supplies that were carried by ship. The European market became Russia's biggest customer: in 2022, before the invasion, 60 percent of its oil exports went to Europe, and 74 percent of its dry natural gas, according to the International Energy Agency.
After the fall of the Soviet Union, Europeans believed that their energy purchases from Russia would assist Russia's development, while also giving Europe leverage—such a large, important customer could discourage Russia's worst impulses, was the thinking. In fact, the export of Russian energy—gas, in particular—enabled Russia to expand its influence. Countries like Germany, Finland, Latvia, Bulgaria, North Macedonia, Serbia, Bosnia and Herzegovina, Moldova, Hungary, Slovakia, Slovenia, the Czech Republic, Greece, and Austria all became dependent upon Russia for at least half of their gas supply.
Guest Editorial