Ukraine breaks through

Ukrainian soldiers raise the flag over Balakliya. Image from Ukraine's Ministry of Defence.

Ukrainian forces broke a months-long stalemate and seized thousands of square kilometres of territory in the northeastern part of the country over the weekend.

Why it matters: The rapid advance is the first significant progress made by either side in recent months and represents a major setback for Russia.

  • On Saturday Ukraine re-captured Izium, a strategic rail hub, and by Sunday Russian forces had retreated from much of the Kharkiv region.
  • Several of the captured towns “are vital to supply and logistics for Russian forces based in the eastern Donbas region,” Politico reports.

President Volodymyr Zelensky said he believes the successful offensive proves this winter will be a “turning point” in the war and “lead to the rapid de-occupation of Ukraine.”

Yes, but: Ukraine’s economic position is getting bleaker by the day, a problem that will make it difficult to sustain momentum on the battlefield.

  • The government expects the economy to shrink more than 35% this year and one-third of the country’s population has been displaced by the fighting.
  • Meanwhile, the government’s ability to collect taxes has fallen dramatically, even as it ramps up military spending.
  • To make up for this gap, the central bank has been buying government bonds to fund the war effort—that’s driven inflation to 23% in August even while interest rates sit at 25%.

Not only will this make it challenging for Ukraine to fund its war effort, but it could also create political turmoil by plunging much of the country into poverty.

Bottom line: Realistically, only significant outside help in the form of more financial aid will relieve the immense economic pressure that threatens to undermine Ukraine’s recent military success.