From Stores to Steel Mills.. Russia Strikes at the Heart of the Ukrainian Economy

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The smoke clouds rising above the capital Kyiv, the sounds of anti-aircraft defenses, and the shortage of some goods in stores have become familiar sights for millions of residents as the Russian air campaign targeting Ukraine's economic infrastructure escalates.

In recent weeks, Moscow has intensified its strikes with missiles and jet drones against shopping centers, warehouses, and distribution centers, disrupting the operations of major companies in the retail, publishing, pharmaceuticals, and logistics sectors. Kyiv claims this is aimed at exhausting the Ukrainian economy and breaking its ability to continue resisting in the war.

The recent Russian strikes have led to the first signs of shortages of goods in stores in the Ukrainian capital since the early stages of the Russian military operation in 2022. In some branches of the "Novus" supermarket chain, empty shelves were marked with signs that read: "Russia destroyed this product," according to the Financial Times.

This comes at a time when Ukraine is also launching long-range attacks using drones against Russian refineries, warehouses, and cargo ships, aiming to reduce Moscow's revenues and push Russian President Vladimir Putin back to the negotiating table, according to Ukrainian officials.

According to Ukrainian businessman Ruslan Shustak, about 2.1 million square meters out of 5 million square meters of modern warehouses in the country have been destroyed, while about 900,000 square meters of them were destroyed in the last few months alone.

Ukrainian officials believe that targeting storage and distribution centers is a direct blow to internal supply chains and raises the costs of transporting and storing goods.

At the beginning of September, ballistic missile attacks disrupted the last three major steel mills in the industrial regions of eastern and southeastern Ukraine, resulting in the death of 17 workers and threatening a sector that has been a cornerstone of the Ukrainian economy for decades.

The steel plant in Zaporizhia was also attacked again last Thursday, marking its fourth targeting in less than a month.

For his part, Oleksandr Vodoviz, an official at the Metinvest mining and steel company, stated that Ukraine "no longer practically has a steel industry," adding that "the attackers were fully aware of the technical structure of the plants and specifically targeted the blast furnaces."

He also clarified that the "Metinvest" factories and the "ArcelorMittal" facility in the city of Kryvyi Rih, which together represented about 90% of the steel production in the country, have completely stopped working.

He added that the extent of the damage makes it difficult to determine when production will resume, warning of wide-ranging implications for jobs and tax revenues.

The Russian attacks were not limited to industrial facilities, as drones also targeted railway infrastructure in western Ukraine last week, including a train line that was bombed just minutes after prominent foreign figures crossed the Polish border.

The strikes also hit fuel stations, in a pattern that has become more frequent even in areas far from the front lines.

Ukrainian Prime Minister Serhiy Korotytsky stated that the government could lose about $1.5 billion in tax revenues as a result of the Russian attacks, at a time when Kyiv is facing a new funding gap estimated at around $27 billion for this year.

Russia continues to impose restrictions on navigation in the Black Sea, which costs the Ukrainian economy losses equivalent to about 1.5% of the gross domestic product, according to government estimates.

Meanwhile, Agriculture Minister Taras Vysotsky confirmed that alternative export routes allow Ukraine to export only about 40% of its usual agricultural products.

Anton Jimerdiev, the commercial director of the agricultural company "TAS Agro," stated that export bottlenecks have forced the company to store wheat in large bags distributed in open fields.

Jimerdiev added, "We now feel as if the country is closed off from all sides. The ports are out of service, and the Danube River route is almost halted due to strikes and a lack of labor."

For her part, Olena Bilan, chief economist at Dragon Capital investment bank in Kyiv, believes that the Ukrainian economy will not achieve growth this year, noting that companies affected by the targeting of warehouses will have to pass some of the additional costs onto consumers. Bilan stated that the war is no longer limited to the military front, but has also turned into an "economic war of attrition," where Russia seeks to inflict as much damage as possible on the Ukrainian economy, while Kyiv, in turn, tries to impact the Russian economy through its long-range attacks.

It is worth mentioning that since the outbreak of the Russian-Ukrainian war in February 2022, Ukrainian infrastructure has been subjected to a series of extensive attacks targeting power stations, transport networks, and industrial facilities.

In contrast, Ukraine has intensified its use of drones over the past two years to strike targets within Russian territory, in an effort to weaken Moscow's economic and military capabilities, which has led to an expansion of the confrontation to include the economic front alongside direct military operations.