BERKELEY – Two years into its full-scale war of aggression, Russia continues to attack Ukraine’s manufacturing and infrastructure, and Ukraine continues to demonstrate its resilience in the face of a massive military and economic toll. By the end of 2022, Ukraine’s GDP had shrunk by about 30%, and inflation had skyrocketed from 10% to 26.6%. More than ten million Ukrainians had been displaced, and the unemployment rate was as high as 24.5%. The National Bank of Ukraine had devalued its currency from 29 to 36.57 hryvnia to the US dollar.

But since this dark opening chapter, the Ukrainian economy has shown signs of resilience and recovery. In December 2023, the International Monetary Fund found that despite myriad challenges, Ukraine’s macroeconomic indicators were “stronger than expected.” The IMF revised up its 2023 GDP growth projection for Ukraine from 2% to 4.5%, and it expects inflation to fall to 5.5%. With inflation slowing, the National Bank of Ukraine has replaced its fixed exchange rate with a “managed flexible” one. Interest rates have fallen to around 15%, down from 25% at the beginning of 2023.

Meanwhile, Russia’s economy has been showing signs of strain. A report from the US Treasury Department finds that Russia’s economy is 5% smaller than it would have been if President Vladimir Putin had not invaded Ukraine. The same report notes that sanctions have indeed limited the growth of Russia’s economy, leading to high interest rates (16% in December 2023) and a weakening ruble. Between the beginning of 2023 and last October, the exchange rate increased from 69 rubles per dollar to 100 per dollar.

More recently, the exchange rate has decreased to the 88-93 range, owing to the Russian central bank’s efforts to strengthen the currency by imposing capital controls. Russian exporters across 43 industries are now required to exchange 90% of received foreign currency into rubles. Such drastic tactics – applied in a hurry – suggest that a cloud of uncertainty will continue to hover over Russia’s financial system, threatening further destabilization to the exchange rate.

The proximate causes of Ukraine and Russia’s respective economic challenges are vastly different, even though they all ultimately stem from Putin’s personal decision to launch a war.

For Ukraine, the central fact is that the fighting is almost exclusively on its territory, with Russia directly striking its production facilities, transportation routes, educational institutions, and civilian infrastructure. The damage from Russian airstrikes on Ukrainian energy infrastructure in the winter of 2022 extended far beyond just the assets that were destroyed. In addition to the $8.8 billion in direct damage was the harm to small businesses, many of which were forced to close or significantly alter their operations. These disruptions had far-reaching macroeconomic implications, putting the economy at risk of “losing more than $200 million” each day a blackout occurred, according to the chairman of the Ukrainian Parliament’s finance, tax, and customs policy committee.

At that time, Ukraine persevered. It has since repaired at least 62% of the destroyed thermal power plants, 68% of hydropower plants, and 80% of power lines. However, Russian airstrikes remain an acute threat in those parts of the country that lack adequate air defense.

Russian attacks have also disrupted Ukrainian export activities. Ukraine is one of the world’s major grain suppliers, and grain exports account for approximately 10% of Ukraine’s annual GDP, on average. After February 2022, the Russian navy prevented 20 million tons of grain from being shipped through the Black Sea, and destroyed “thousands of tons of grain” housed at Ukraine’s ports.

But after Russia pulled out of the United Nations-backed Black Sea deal in July 2023, Ukraine managed to establish a new shipping corridor the following month. Bridget A. Brink, the US ambassador to Ukraine, reports that as of mid-January, 16.5 million tons of grain have already been shipped along this route, whereas the defunct UN-brokered deal resulted in only 33 million tons shipped over an entire year. Ukraine’s economic outlook remains bright despite Russia’s efforts to cloud it.

On Russia’s side, most of the economic losses are the result of its own mismanagement and Western sanctions. Analysts note that, due to military casualties and the exodus of individuals fleeing conscription, Russia faces a “demographic crisis.” In addition, its economy has been weakened by declining oil and gas revenues and pervasive, crippling shortages of Western-produced parts and tools. While economic sanctions have not managed to stop the war, they have succeeded in straining the Russian economy.

Russia, of course, brought all these problems on itself. It most certainly is not winning the war, either militarily or on the economic front. Ukraine is recovering from the initial shock, and if robust foreign assistance continues, it will have an upper hand in the war of attrition.

But make no mistake: Ukraine urgently needs stronger military capabilities to protect its citizens and economy from Russian airstrikes. Air defenses provided by the United States, Norway, Germany, and others played a vital role in neutralizing Russian attacks on Ukrainian energy infrastructure this past winter. Moreover, Ukraine needs greater capabilities to strike at Russia’s own military-industrial complex to reduce the intensity of Russian airstrikes.

For its part, the West must continue to provide Ukraine with financial and military aid, and it should continue to tighten the screws of economic sanctions to deny Russia the resources it needs to wage its war of aggression. Secondary sanctions can play a central role in enforcing existing constraints on Russian trade and finance. All these elements are not only feasible but urgently necessary to help Ukraine defend itself.

Sophia Yi-Dan Lao, a research fellow with Economists for Ukraine, contributed to this commentary.

WASHINGTON, DC – Following Russia’s brutal assault on Ukraine 24 months ago, Western governments – including the United States – froze around $300 billion of Russian central-bank assets, or roughly half of the country’s total foreign currency and gold reserves at the time. The aim was to prevent the Kremlin from using those funds as part of its war chest or to blunt the impact of US and European economic sanctions.

The freeze on Russian assets was an aggressive component of the Western response. But some officials and commentators want to go further, by seizing the assets and using them for Ukraine’s reconstruction. This month, Nikki Haley, who is challenging Donald Trump in the Republican primary contest, announced her support for such a move. Russian President Vladimir Putin “is a war criminal and thug who invaded a free country,” she told Bloomberg News. He therefore must “pay the price for his actions.”

To that end, Haley is supporting the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act, an unprecedented piece of legislation approved by the Senate Foreign Relations Committee last month by a 20-to-one vote. If REPO becomes law, it would be the first time the US has seized the central-bank assets of a country with which it is not at war.

The common-sense case for seizing Russian assets is straightforward. Russia launched an unprovoked, brutal invasion of a neighboring country, murdering civilians and inflicting enormous damage. In 2019, before the war and the pandemic, Ukraine’s GDP was around $154 billion. Now, the World Bank estimates that reconstruction and recovery will cost $411 billion over the next ten years. Obviously, Russia should be first in line to foot the bill – ahead of Ukraine, the US, and European countries.

But there are good reasons to be cautious. Some critics of the seizure are concerned that Russia’s assets may be protected under the doctrine of sovereign immunity. If they are seized, other countries might be reluctant to hold dollars or euros in the future; the hegemony of the dollar might be threatened; international trade and finance could be disrupted; and the door could be opened for other bad actors to pursue asset seizures of their own.

These concerns are legitimate, but ultimately unpersuasive. The case that asset seizure is permissible under international law as a countermeasure to Russia’s aggression and destruction is compelling. There is even precedent. In 1992, the US and EU member states used Iraqi state assets to compensate Saddam Hussein’s victims from Kuwait and other states without his regime’s consent.

Moreover, there is no alternative to the dollar as the global reserve currency, and Western financial institutions remain the safest in the world for investors. Considering that Russia’s central-bank assets have been frozen for two years with no noticeable effect on reserves and no disruption in international flows, an asset seizure would likely be a relative non-event. Deterring other bad actors from aggression requires that Ukraine’s needs be put before Russia’s. Far from encouraging future acts of aggression, a harsher punishment for Russia would compel other bad actors to think twice before going down the same path.

By endorsing the asset-seizure legislation, Haley is standing with Ukraine at a time when many Republican senators and House members are abandoning it. The juxtaposition between her and isolationist Republicans shows why the GOP, the country, and the world would be better off with her as president. She stands in stark contrast to Donald Trump, whose commitment to the post-World War II liberal international order was already in doubt before he said he would “encourage” Russia to attack US allies who don’t meet their financial obligations to NATO.

As Haley put it in her statement to Bloomberg: “Just in the past few days, Trump sided with Putin over NATO, and his willingness to abandon Ukraine and our allies puts every American in danger. Our focus must always be about preventing war and keeping our troops out of harm’s way. … We need a president who has the moral clarity to do that.”

Rather than prolonging the debate about seizing Russia’s assets, America and its allies should be focusing on the complex questions that would come next: how to transfer the funds, and how to ensure that they are put to the best possible use in Ukraine’s reconstruction and recovery.

America’s retreat from global leadership has weakened its alliances and emboldened despots, thugs, and authoritarians around the globe. But this mistake is still reversible. The liberal international order has been a bedrock of prosperity since the end of World War II. It has constrained oppressive regimes and aggressor states, and furnished the peace and stability required for commerce to flourish. Seizing Russia’s assets would breathe new life into the increasingly frail postwar order.

The fact that the asset seizure would be unprecedented is another reason why it should be done. Sustaining support for Ukraine in its hour of need would fortify the resolve of Ukrainian soldiers and lift the hearts of Ukrainian citizens.

Is seizure risky? Of course. But it is a risk worth taking.

NLK: As troubled as many Russians are by Navalny’s death, it has so far not galvanized any notable popular response. While it could yet trigger some unrest – such events can be difficult to predict, especially in Russia – there is little reason to believe that the upcoming “elections” (if you can even call them that at this point) will be disrupted. If the threat of harsh punishment in Putin’s Stalinesque state is not enough to deter any agitation, the security forces – which will be deployed in huge numbers around voting time – will swiftly quell it. Whatever the details of the journey, the destination is the same: more President Putin.

As for sanctions, the West’s focus on them has always been misguided. They were not going to deter him when he launched the full-scale invasion of Ukraine two years ago, and they will not deter him now. Sanctions might even strengthen Putin’s position at home: because sanctions do far more harm to ordinary Russians than to those in the Kremlin, they can be used to reinforce Putin’s narrative that the West is at war against Russia and will go to extreme lengths to destroy it.

NLK: Leverage is not the point. International rules and norms are.

Two years into the war, Russia’s central-bank assets have not been seized, because the West recognizes that doing so would not be fully legal and would contradict the norms to which it claims to adhere. The West’s international reputation could thus suffer considerably.

This is something the West can ill afford. Russia’s success in weathering harsh sanctions, including the freezing of its central-bank assets, has already amounted to something of a humiliation for the US and its partners. But it is Western hypocrisy that may have done the most harm to these countries’ reputation, particularly in the Global South.

Western companies have complained about being mistreated in Russia, even as their governments freeze Russian assets and heap sanctions onto the country. And Western leaders have criticized Russia for acting exactly as they have: for example, European Commission President Ursula von der Leyen last year condemned Putin’s use of energy “as a weapon,” though the EU had already done just that. “She uses Russia’s entire economy as a weapon,” noted one Indian journalist in response to her comments. That same journalist then asked me: “How can the West possibly expect Russia to follow rules when the West has freely broken them in its quest to punish Russia?”

If the West seizes Russian assets, it is effectively declaring that it does not consider Russia to be a place that warrants adherence to international law and business norms. In the long run, that will undermine the West more than it will undermine Putin.

NLK: The cracks are everywhere. We saw them when anti-Ukraine war politician Boris Nadezhdin gathered more than 200,000 signatures in support of his presidential candidacy (he has since been barred from running). We saw them when thousands of people laid flowers at memorials for victims of political repression after Navalny’s death, even though hundreds were detained. We saw them at Navalny’s funeral – at both the church service and the cemetery – which was attended by tens of thousands of people chanting not only his name, but also “Putin is a murderer” and “no to war.” This resulted in some detentions, though the authorities refrained from a harsh crackdown.

Despite the risks, it seems that Russians can still occasionally get away with speaking out, at least for now. After Diana Arbenina and her rock band, the Night Snipers, had their concerts canceled in some cities over their criticism of the war, Arbenina spoke out, telling an audience in Chelyabinsk that, though she had been warned to stay silent about the “lawless” bans, she would not obey – and her fans should not obey, either. The crowd cheered, and the show continued; the police did not dare intervene.

None of this is to say that a revolution is imminent (though it might be). But the longer the war drags on, the more difficult it will become to keep an increasingly restive people in check. Even if the economy holds, the sheer scale of repression has turned Russia into a kind of pressure cooker. The risk of an explosion is growing.

A recent Proekt media investigation calculated that since 2018, when Putin’s current term began, almost 6,000 criminal cases against Russian citizens qualify as political repression. For comparison, in 1956-85 – from the post-Stalin years to the beginning of Mikhail Gorbachev’s glasnost and perestroika – there were about 8,000 in total. The harder the Kremlin tries to stave off rebellion, the more likely rebellion becomes.

BY THE WAY . . .

NLK: Navalnaya seems to be an admirable person. Perhaps she will succeed. But she is not in Russia. This is understandable: Moscow is not safe for Navalnaya. It was not safe for her late husband, either, but he returned there anyway in 2021, after recovering from an attempted assassination by poisoning with the nerve agent Novichok. He knew that opposition from outside Russia can have very limited results; a politician must be in the country of his politics.

While Navalnaya speaks about Navalny’s death at events abroad, his mother Lyudmila in Siberia tried to get his body released for burial. Though many Russians understand Navalnaya’s choice to stay away, the contrast between Navalny’s formidable mother – “she must be where her son got his grit,” they say – and his limelight-seeking widow has not gone unnoticed.

Spending time talking to foreign leaders about Russia’s problems has little impact inside the country, as Gary Kasparov and Mikhail Khodorkovsky have shown. Unless Navalnaya returns to Russia, I don’t see how politically effective she could be.

NLK: I find this rhetoric utterly irresponsible. NATO countries are understandably upset that Ukraine’s summer 2023 counteroffensive failed to meet their (unrealistically high) expectations. They now worry that they cannot sustain the massive flows of funding and aid that they have been delivering for the last two years. Domestic political resistance is intensifying. So, leaders are attempting to scare people into action by warning that, if Putin achieves a victory in Ukraine, NATO will be next.

This rhetorical escalation could make military escalation more likely. Putin has not shown any desire to wage war on NATO. But, by stoking fear that he would, NATO leaders risk creating a kind of self-fulfilling prophecy. Even I – a consistent critic of Putin – find this thoroughly provocative and foolish.

WASHINGTON, DC – For about 1,500 years, high-value goods were moved from China (and perhaps other parts of Asia) to Europe and the Middle East via the Silk Road. The precise route varied over time, but it always ran through and involved local traders in parts of what we now call Central Asia.

Today, trade through Central Asia is bustling again, with the Caucasus also getting in on the act. But now the boom is in goods moving from the United States, Japan, Western Europe, and China to Russia, via countries such as Armenia, Georgia, and Kyrgyzstan.

The G7 democracies are well aware that this trade bolsters Russian President Vladimir Putin’s regime and makes it easier for him to sustain his brutal war of aggression in Ukraine. But their governments are doing little to stop it for fear of upsetting domestic industrial interests. As a result, the world’s leading democracies – aided and abetted by intermediary countries – are effectively supporting Russia’s ability to kill Ukrainians. The G7 and the European Union need to strengthen their export controls and ensure meaningful enforcement.

On the surface, export controls have worked well. US exports of goods to Russia fell to $0.6 billion in 2023, down from a pre-COVID equilibrium of $5.8 billion in 2019 (all data we cite are from national sources downloaded via Haver Analytics). That’s a 90% drop, which signifies that direct trade between the US and Russia has all but ceased. It’s the same for other important economies in the West. Japan’s exports to Russia fell 60% over the same period, while Germany recorded a 70% drop.

But something doesn’t add up, because Russia’s imports of goods rose 20% over the same period, from $254 billion in 2019 to $304 billion in 2023, according to data from Russia’s central bank.

There are two reasons for this. First, China has substantially increased its exports to Russia. China’s exports to Russia rose to $110 billion in 2023, up from $50 billion in 2019. That’s an increase of 125% – and by itself more than offsets the drop in goods from the West. Second, to put it politely, Western export controls are “leaky,” with goods going to Russia via third countries.

This is reflected in US exports to Central Asia and the Caucasus, which increased from $2.6 billion in 2019 to $4.1 billion in 2023. That 60% rise occurred in the immediate aftermath of Russia’s invasion, a telltale sign that these goods were circumventing sanctions. Exports from Japan to Central Asia and the Caucasus were up 67% over the same period, while exports from Germany were up 72%. This is happening across all countries in the West, and all countries in Central Asia and the Caucasus are involved.

When you add it all up, the numbers are highly significant. For example, direct exports from the EU to Russia fell around $4 billion per month (from $8 billion to $4 billion) right after the invasion. But EU exports to Central Asia and the Caucasus rose from $1.5 billion to $2.5 billion per month, implying that “leakage” is around 25% ($1 billion divided by $4 billion). A similar leakage rate – around 30% – appears to be true for German exports of cars and car parts.

It is entirely possible that this leakage involves the goods that Russia needs most desperately – dual-use goods like autos and vehicle parts that may be finding their way onto the battlefield in Ukraine. Even if that is not the case, Western goods enable the reorientation of Russia’s economy to war production, which is almost as bad.

In the West, the main contributors to this leakage are in the EU. Germany, Italy, Poland, the Czech Republic, and the Baltics stand out. In Central Asia and the Caucasus, re-export of Western goods is especially rampant in Armenia, Georgia, and Kyrgyzstan. But Kazakhstan is an interesting outlier in the region. Like everyone else, it saw this kind of trade explode right after the invasion. But by the middle of 2023, exports from Kazakhstan to Russia had fallen back to previous levels. Clearly, a decision was taken in Astana to get out of the transshipment racket.

Nothing about any of this is inevitable. Governments in the region obviously know what is going on. But Kazakhstan is the exception. In most cases, this trade continues, with the blessing of local leaders.

Meanwhile, the war in Ukraine is taking a terrible toll in terms of lives lost or shattered by trauma. The overriding imperative for the West must be to make this war as costly as possible for Russia. Western export controls are needed to deprive Russia of critical technology and make life harder for its people, and are an essential complement to Western financial sanctions and the G7 oil price cap. The West can and must close Putin’s silk road. That will require extending Western sanctions to prevent re-export from Central Asia and the Caucasus to Russia.

NEW YORK – On January 17, 2021, when Russian opposition leader Alexei Navalny boarded a plane to Moscow from Berlin, where he had been treated after being poisoned in Russia with the nerve agent Novichok, he said he was pleased to be going home. But he knew the risks involved: a long prison sentence, torture, even death.

Navalny, who died on February 16 in an Arctic penal colony, faced a dilemma that all political dissidents must grapple with: live in exile and fade into obscurity, or confront an oppressive regime and risk ending up a martyr. Either way, the chances of overthrowing the governments they oppose are virtually zero.

Even those who do not actively defy oppressive regimes, particularly those with the means to flee, face a similar choice: build a new life abroad, where they might not be warmly received, or stay in their home countries and live under the corrupting influence of dictatorship. Corruption is often made sweet by regimes that richly reward conformity – and crush the few people who refuse to conform.

This dilemma is especially bitter, because it creates a rift between dissenters who stay and those who leave – a rift that benefits oppressive regimes. People can decide to stay for all kinds of reasons, but the mere fact of them staying will get them quickly condemned by exiles as immoral stooges of the dictatorship. The leavers, meanwhile, are accused of betraying their country in exchange for the luxury of living abroad.

This was the case in Nazi Germany in the 1930s. Thomas Mann, who was famous enough to remain an important voice in exile, denounced German writers who continued to live in the Third Reich; their work, he later declared, was so tainted that it became worthless. Some of these writers – also opponents of the Nazi regime – reproached Mann for preferring to live comfortably in California rather than bear witness to what was happening at home.

A similar dynamic has been a constant feature of modern China: people who oppose the Communist dictatorship at home sneer at Chinese dissidents abroad for being irrelevant and out of touch. And it is apparent in Russia today. For example, the immensely courageous journalist, Dmitry Muratov, who won a Nobel Peace Prize in 2021 for his defense of intellectual freedom, has been criticized by some Russian exiles for deciding to stay in Russia, despite his courageous opposition to the war in Ukraine.

There is no right answer to the dissident’s dilemma. There are equally good reasons to leave as there are to stay, and they often depend on personal circumstances. So, what was the point of Navalny’s decision to risk his life for a cause he could never realize, at least not in the short term? Neither his probable murder, nor the alternative of staying in Western Europe, would have brought Russian President Vladimir Putin’s rule to an end.

But there was a point. Open defiance chips away at a dictatorship’s façade of total control. A dictatorship cannot rely on military might or fear of the secret police alone; the people must be convinced that their subjugation to a tyrant is normal, and that resistance is abnormal, even a form of madness. That is why Soviet dissidents were often locked up in psychiatric facilities rather than prisons.

Navalny’s return to Russia, however futile it may have seemed, showed that standing up for freedom of thought and expression is a rational response to tyranny. His defiance signaled to others who felt the same way but lacked Navalny’s extraordinary courage that they were not alone.

There is another point, too. By rewarding conformity, by making people repeat lies and propaganda, by forcing friends and relatives to betray one another, dictatorships bring out the worst in people. They create a culture of fear, mistrust, and betrayal. There is nothing peculiarly Russian, German, or Chinese about this. Many nations, at different times, have been warped by oppressive rulers, but not necessarily forever. Regimes are defeated. Tyrants die.

It is then that the example set by political martyrs plays a vital role. Societies warped by dictatorship have to find a moral basis for building something better. The morale of a people used to slavishness and persecution must be restored. That some brave people stood up for freedom, even when it appeared to be fruitless, helps in this process, by providing a model.

Jean Moulin, the civil servant who led the French resistance and was tortured to death by the Gestapo in 1943, never saw the end of the Nazi occupation he fought. The Nazis executed the Lutheran pastor Dietrich Bonhoeffer in April 1945, three weeks before Adolf Hitler killed himself. Chinese writer Liu Xiaobo, who returned to China during the Tiananmen Square uprising of 1989, spent the rest of his life in and out of jail and died in custody in 2017, having failed to dismantle his country’s one-party regime. Navalny had no chance of toppling Putin’s neo-czarist rule.

But the only hope of building societies that can protect freedoms and bring out the best in people lies in the examples of what they have done.