Why trade is vital to understanding how Ukraine needs western capital to stay afloat and how Russia can pay for its war effort without new debt

Four graphs [on original]that tell a bigger story

Ian Proud, The Peacemonger, Oct 20, 2026

I have wanted to write an article for sometime about the differing fates of Russia and Ukraine since the onset of the conflict in 2014. The headline is that Ukraine has never made up the difference in increased trade with Europe having cut its trade with Russia to the bone since 2014. This has inadvertently meant that Europe has had to inject significant sums of capital into Ukraine just to prevent its currency from collapsing as the war has gone on. Russia has diversified its trade away from Europe such that its export model is as strong today as it was in 2014, giving it the liquidity it needs to underwrite the war effort.

Key finding:

Ukraine exported 24% less and imported 46% more in 2025 than in 2014. The war has driven up imports while exports never recovered from the signing of the DCFTA and have been hampered by the war effort.
The yawning trade deficit Ukraine has built since the war started has placed greater strain on European sponsors to provide the capital Ukraine needs to prevent its currency collapsing, in addition to providing funding to meet its fiscal requirements.
This funding challenge for Europe will persist after the war ends until Ukraine can become self-sufficient in boosting exports and/or attracting sufficient foreign investment to offset its trade deficits.
Russia’s export strength and consistent surpluses have been unaffected by war. After the Ukraine crisis started, Russia started to diversify its major energy exports away from Europe, allowing it to weather the progressive reduction of exports to Europe. Indeed, Russia gained a huge windfall in 2022 from surging energy prices. There is no evidence that sanctions have impacted Russia’s export model in a significant way.
Russia has already started to reaccumulate FX reserves after the oil price collapse of late 2014, until before the war started. Following the immobilisation of $300bn in Russian FX reserves, Russia started to accumulate reserves in monetary gold, to sanction-proof future earnings. Russia now has liquid reserves of over $420bn meaning the immobilisation of its foreign currency reserves is no longer an economically limiting factor.

Detailed analysis

Russia’s export model in which it runs consistently large trade surpluses has ensured it can generate the reserves of foreign currency and gold which have undoubtedly helped to bankroll the war in Ukraine. Ukraine’s trade deficit has yawned since the war started, requiring continual injections of European capital to prevent its currency from collapsing.

This helps to explain by Russia can sustain the war for longer; it doesn’t need to take on significant new debt, its debt remaining low at 20%. Ukraine can only fund the war and keep its national accounts in balance with European money that cannot be guaranteed long-term and which, in any case, has increased Ukrainian debt by an average of 20% of GDP each year since the war started. This is not sustainable.

The Deep and Comprehensive Free Trade Agreement of 2014 has disadvantaged Ukraine because it forced a choice away from trading with Russia.………………………………………………………………………………………………………………………………………………………………………………….

by encouraging Ukraine to trade with Europe and not with Russia, Europe has imposed a deadweight economic loss on Ukraine which took a sovereign decision to forgo a previously profitable trade relationship, to pursue a political goal of EU integration……………………………………………………………………………..

Dragged into a persistent and growth trade deficit by war, Ukraine needs continued injections of foreign funds to prevent its currency collapsing.…………………………………………………………………………………………………..

………………………………………………… While Russia would undoubtedly like to see the return of its immobilised assets after the war ends (big question mark) it has nevertheless built up a significant financial buffer to the tune of over $420bn in reserve assets in addition to those assets that remain frozen.

This deep well of reserves undoubtedly helps to underwrite Russia’s war effort without the need for significant borrowing. Russia’s debt today sits at around 20% of GDP.

In 2021 Ukraine’s debt sat at around 49% of GDP. Today it sits at around 110% of GDP……………………………………………… https://thepeacemonger.substack.com/p/why-trade-is-vital-to-understanding?utm_source=post-email-title&publication_id=3221990&post_id=221204744&utm_campaign=email-post-title&isFreemail=true&r=1ise1&triedRedirect=true&utm_medium=email