Financially, time may be on Ukraine's side.
With its economy coming to a standstill – loss of territory, a million citizens fleeing the country over the past week, investor fears – Ukraine may, surprisingly, have the war finance advantage if this conflict endures and the West continues to provide support. Taxation and domestic debt, two traditional ways to raise revenue to fund a conflict, are going to be impossible with large swaths of the country under attack. For the war to continue it will be up to the West to supply and fund Ukraine's war effort. The past week has seen an unprecedented material transfer of war inputs from 17 different states as well as promises of loans and aid from various other states around the world. The volume and speed of material going to Ukraine from a large number of Western states is unprecedented for being one week into a conflict. It took President Franklin Roosevelt a year to sell Lend-Lease to Congress. Perhaps what is most surprising is the European Union as a war finance actor. For the first time, the European Union will finance the purchase and delivery of weapons and equipment to a country under attack. A €450 million support package and €50 million more for the non-lethal supplies financed by the European Peace Facility. These funds are part of the EU budget with authority residing in the EU (member voting to use them is not required). Ukraine also has the globe at its financial fingertips should citizens abroad what to send money directly. The National Bank of Ukraine set up an account that allows any person in the world to send funds instantly.
In contrast the Russian economy and its supposed war chest is a in near free fall. Its financial reserves are really a strategic buffer for the economy to be used to prop up the value of the rouble. Given various Western economic sanctions, the Russian Central Bank is unable to sell its foreign currency reserves. Thus, these funds are basically frozen. Unless this war ends for Russia soon its war finance options will narrow. New taxes on an unpopular war will only draw the ire of more citizens, domestic debt will be costly as the Russian Central Bank doubled interest rates to 20%, foreign debt, if at all possible, will be extraordinarily expensive as Russia is now in junk bond status. Chinese economic assistance is possible but the Asian Infrastructure Investment Bank just suspected all activities related to Russia and Belarus, a foreboding sign. If Ukraine can force a long conflict, war finance may be on their side.