Zelenskiy’s economic guru: ‘Germany can survive without Russian oil: I wouldn’t want my country facing the shame’

Before Russia’s tanks, daubed with their infamous Z, rolled into Ukraine, Oleg Ustenko’s advice to president Volodymyr Zelenskiy had focused on pension reform, privatisation and coaxing economic migrants to return.

Nearly 60 days later, the pair are instead striving to hold together an economy that, even if Vladimir Putin’s brutal bombardment were to end tomorrow, would be left in tatters.

“Everything that seemed incredible in the first week has got worse,” Ustenko told the Observer by telephone from battle-scarred Kyiv, where he learned his trade as an economist. “Can you imagine the feeling of an economist after hearing that assets destroyed in the first week of the war were worth $100bn, half of our annual GDP?”

The most terrible price paid by Ukrainians is, of course, the daily loss of life. But Ustenko, who was educated at Harvard and Kyiv’s National Economic University, has to wrestle with the economic impact, which he estimates at $1tn so far.

With half of the nation’s businesses either shuttered or operating only partially, the economy is set to have shrunk by a quarter by next month. All state expenditure has been frozen, barring defence, social support and emergency funds to provide food, water and shelter for displaced people. The budget deficit has ballooned from an expected $7bn for the year to the same amount every month.

Yet Ustenko believes in the power of economics to tackle the human cost of Russia’s invasion – the death, destruction and atrocities emerging in Bucha and elsewhere. Key to this is convincing the west – and Europe in particular – to forsake Russian oil and gas and ramp up punitive sanctions on the Kremlin. The other mammoth task is to start planning for the reconstruction effort that will follow a Ukrainian victory, of which he is certain.

Oleg Ustenko
Oleg Ustenko: ‘We’re not going to trade with Russia for decades, so the only corridor for us is Europe’

Ustenko is scathing about Europe’s response to Kyiv’s challenge on oil and gas. By his estimate, Moscow banks about $1.4bn a day from oil and gas sales, with most of it coming from Europe.

“Imagine how many missiles and bombs you can buy for that kind of money,” he says. “Some people in Europe still have extremely narrow thinking. They believe they can help us, that they’re our great friends and indeed they are. But they do not understand that by supplying this money to Putin, they are funding his military machine. If Russians are committing war crimes, even genocide, whoever is supplying Russia with this bloody money is guilty of the same war crime.”

Much of his frustration is directed at Germany, Europe’s largest economy and among the most dependent on Russian oil and, in particular, gas.

Foreign minister Annalena Baerbock promised last week that Berlin would end imports of Russian oil by the end of the year, phasing gas out later. Ustenko calls this schedule “unacceptable”.

But if, rather than Zelenskiy, he were advising German chancellor Olaf Scholz, would he really advocate cutting off the country’s major source of domestic heating?

He insists he would, adding that Scholz’s predecessor, Angela Merkel, “did everything possible to give this weapon to Putin”. “He has weaponised his energy resources. Now it’s time to show you’re completely different. I wouldn’t want my country to be facing national shame because we’re not doing the right thing. Germany can survive without Russian oil.”

An immediate oil embargo would, he says, mean short-term fuel price inflation, followed by a market correction as supplies from other nations kicked in. For gas, he admits the transition would be harder.

In the meantime, he adds, payments to Russian gas suppliers should be held in escrow, to be unlocked when the war is over. This would choke off the Kremlin’s revenue stream and provide a financial incentive to end the aggression.

It troubles him that Europe’s calculations are based on money and the prospect of thermostats turned down a few notches.

“Our guys are hiding underground in temperatures of 3C and you’re talking about a few degrees colder in your house. In Ukraine we’re talking about human life. You’re setting human life against the temperature in your home, or the money.”

He also has harsh words for those in the London business community who grease the wheels of international money flows for the Kremlin and the oligarchs who help prop up Putin. While grateful for Britain’s military assistance, he thinks the government should, for instance, ban British insurers from covering Russian oil and gas consignments. “Tankers lifting Russian oil have insurance from London. How many Ukrainians must be killed before that stops?”

He invites London lawyers and bankers serving Kremlin-allied masters to imagine Russian soldiers coming to their houses and visiting atrocities on their families. “Are you going to accept that? If yes, then do nothing for us. If you think it’s immoral, act immediately.”

He offers a similarly caustic assessment of the global commodities houses that continue to barter boatloads of Russian oil and gas. He has written to them all, begging them to stop. They, and the insurers, will face legal action in the future, he says.

“They know we’re watching them and collecting this information. These companies should be judged. Maybe in a year, maybe in 10 years, but we are going to find these people.”

Right now, Zelenskiy’s adviser wants tougher economic sanctions. They could include shutting Russia out of all international payments, not just Swift, and measures to stop European boats collecting oil and gas from Russian ports to bring back home or transport to India or China.

As well as helping Ukraine, such steps would be in European powers’ own interests, he says. It would cut the costs of coping with floods of refugees and help them avoid becoming Putin’s next target. “You can’t stop a monster. As soon as they’re done with us they’re coming to you. You have to be prepared.”

Ustenko is scathing about former German chancellor Angela Merkel’s relationship with Putin’s regime.
Ustenko is scathing about former German chancellor Angela Merkel’s relationship with Putin’s regime. Photograph: John MacDougall/AFP/Getty Images

While much of Ustenko’s time is spent nursing the remnants of Ukraine’s devastated economy, he says Zelenskiy asked him early on in the war to start planning ahead.

The future is much in his thoughts: as well as an economist he is a family man, who used to enjoy walking in the woods around Kyiv and knows he will not do so for many years, because they are so heavily mined.

“The task the president has given us is to find all possible ways to rebuild the economy,” he says. “We are going to win and we have to rebuild our country. We are talking about a huge amount of money.”

Ukraine’s defence and eventual reconstruction should, he says, be paid for with frozen Russian central bank funds and assets seized from sanctioned oligarchs.

“I’m talking about football clubs, I’m talking about nice apartments, houses and I’m talking about other properties in the UK. We have to implement big work in trying to identify more assets of Russian nomenklatura [a Soviet-era term for those elevated to positions of power]. MI6 is one of the best services in the world. Your financial service is one of the best in the world. They can do this.”

Armed with funds, Ustenko would forge a new economic path for Ukraine, one that can lead only westwards. “We’re not going to trade with Russia probably for decades, so the only corridor for us now is Europe.”

He is talking about logistical routes but also political ones – including European Union membership, via an expedited process. “For us, the prospect of being an EU member is a huge motivation. It’s like an extra star that appears in the dark sky. Under these circumstances everyone will win: Ukraine, Europe and our people.”

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