Why Things Are Suddenly Looking Up for Ukraine

(KYIV, UKRAINE) – Only last year it looked like Ukraine was in real trouble. Russia was making steady progress on the battlefield. The Ukrainian state was headed for bankruptcy and President Zelenskyy himself looked vulnerable, especially after the corruption scandal in November. Today, however, the tide looks to have turned. Russia is stalling. Ukraine’s public finances look remarkably stable. And in the aftermath of the war in Iran, the whole world is suddenly very interested in its cutting edge military tech.

There are at least three reasons to think that things are looking up for Ukraine at the moment. The first and most obvious is that thanks to Viktor Orban’s disastrous performance at the Hungarian election earlier this month, Ukraine will now receive a long awaited 90 billion euro loan from the EU.

For context, since the withdrawal of US aid last year, Ukraine’s finances have been looking pretty dicey, and Kyiv was due to essentially run out of cash sometime this year. The EU’s original plan to plug the gap was to use the roughly 200 billion euros of frozen Russian assets sitting in European depositories, either by just giving it to Ukraine or using it as collateral for a new loan. But this plan fell apart after member states were unable to agree on a burden sharing mechanism in the event of legal action from Moscow.

This meant the EU had to move to plan B, which was to finance another 90 billion in aid via joint debt. In other words, borrowing the money at the EU level instead of at the national level and then giving that money on to Ukraine. Unfortunately for Ukraine, this loan was essentially vetoed by Hungary under its outgoing prime minister, Viktor Orban, despite the fact that Hungary had already secured an exemption, meaning it would not be involved in paying back any of the joint debt.

However, Orban suffered a resounding defeat at the Hungarian election earlier this month, and his successor, Peter Majar, has since confirmed he will withdraw Hungary’s veto. This will provide immediate relief and stave off an acute crisis. If this means joint debt becomes the European default for financing further aid, it will provide Ukraine with a reliable source of long term funding, given the EU has a lot more fiscal space and can borrow far more money than any member state.

The second reason to be optimistic is that advances in Ukrainian drone technology seem to have given Ukraine the upper hand on the battlefield. There have been three developments on this front. The first is the emergence of semi autonomous drones, which can perform at least some functions without human operators. These drones possess two main advantages. They are less susceptible to electronic jamming, which disrupts the communication link between pilot and drone, and they do not need a human operator, which is especially convenient for Ukraine given their manpower constraints.

Ukraine first deployed semi autonomous drones last year, but they have gradually become more autonomous since, and production has really ramped up in the past couple of months, which is one of the big reasons the Russians are struggling to make progress on the front lines.

The second development is Ukraine’s improved long range strike capabilities. This has allowed Ukraine to put pressure on Russian logistics and hit Russian energy facilities, including export hubs and refineries. According to Reuters, by the end of March, Ukraine had taken out about 40 percent of Russia’s crude oil export capacity. In April, Russia was apparently forced to cut production by about 300,000 to 400,000 barrels per day, the sharpest monthly decline to Russian output in the six years since the pandemic.

This is yet more bad news for the Kremlin’s finances, which looked genuinely disastrous at the start of this year. In just January and February, Russia’s GDP apparently shrank by 1.8 percent and the budget deficit came in at 4.1 trillion rubles, not far off the 3.8 trillion ruble gap originally projected for the entire year. The Russian dictator will probably be bailed out if the Strait of Hormuz remains closed and oil and gas prices remain elevated.

The third drone related development is the emergence of cost effective interceptors. Faced with a shortage of western air defence systems, Ukraine has developed a number of interceptor drones that are now remarkably effective and impressively cheap. They currently account for roughly 70 percent of all drone interceptors around Ukrainian cities and cost as little as $2,000 per unit.

A lot of this has to do with the war in Iran, which has made nations realise that Western and specifically American military tech is good, but not at all cost effective. Interceptors for the US made Patriot system, which is very popular with America’s traditional allies, cost about $4 million each, and the US only makes a few hundred each year. This is not a bad deal when defending against a ballistic missile, but it is a terrible deal when defending against a Shahed drone, which at the latest estimate costs Iran just $7,000 per unit.

Ukraine is basically the only country that currently mass produces battle tested and cost effective alternatives. This is why Gulf nations have been queueing up and President Zelenskyy has recently signed security partnerships with Saudi Arabia, Qatar, and the United Arab Emirates, which will presumably involve cooperation on drone manufacturing and provide a welcome cash injection for Ukraine’s defence industry.

A flurry of similar deals has been seen with European countries. In February, four Ukrainian firms launched joint ventures with firms from Denmark, Finland, and Latvia. Earlier this month, Germany and Ukraine announced a massive new defence package which involved cooperation on drone manufacturing, with Italy discussing a similar deal at the moment. This suggests Europe no longer sees Ukraine as a supplicant but as a valuable and equal security partner, which is probably a more sustainable dynamic.

The fact that Ukraine is in a stronger position bodes well for future negotiations, both because it gives Ukraine more leverage and because it might finally convince the Russian dictator to take negotiations seriously, especially if Trump loses interest.

Video analysis originally provided by TLDR News EU.