The economic cost of the Ukrainian attack on the Kursk

Ten days since the surprise invasion of the Russian region of Kursk in Ukraine Controls over 1,100 square kilometers of Russian territory.

The attack has caused consternation in the Kremlin and changed the rhythm of hostilities from a sluggish trench warfare to a new round of emotionally charged confrontations that could have implications beyond the military situation.

The much-discussed consequences of the Ukrainian offensive include the economic impact.

Although Kursk is only mediocre in terms of gross regional product (GDP) – it is only five times smaller than that of Moscow – the region is nevertheless disproportionately important to the Russian economy in many respects, including its role as a transit point for gas to Europe via Ukraine.

Most importantly, the Ukrainian armed forces gained control over the town of Sudzha and its surroundings, including the gas measuring station (GMS). only 300 meters from the border, through which the fuel enters Ukrainian territory and then to European consumers, including Austria, Hungary and Slovakia.

The station is one of five GMS in the region, but the largest and best equipped.

Despite initial panic, gas continues to flow through Sudzha and neither Ukraine nor Russia have announced any intention to interrupt supplies.

Since Thursday, the volume of Russian gas has been Transit through Ukraine was estimated at about 42.4 million cubic meters per day, compared to the August average of 41 million cubic meters. Gazprom said.

The revenue from the transit business is modest, about 800 million dollarshelp Ukraine maintain its transportation system while keeping European gas prices low. Accordingly Analyst Sergei Kaufman and the independent Meduza websiteThe transit ban would lead to an increase in spot prices for gas by about 20 percent.

On the Russian side, the benefits of continued transit are also quite clear. In 2023, Ukrainian transit will Route made about Half of the little gas that Russia still supplied to Europe, 7-8 billion dollars in sales.

For Gazprom: transit deliveries from Ukraine Account for about 15% of his profit, which he wants to avoid.

Another important facility near the fighting – the Kursk nuclear power plant – also appears to be out of danger.

Finally, the Kursk region lies in the heart of the fertile agricultural area known as the “Black Belt”.

Overall, according to official data for 2023, Kursk will contribute 2.7% to the country’s agricultural production. The city accounts for about 14% of the oilseed cultivation area and 11% of the grain cultivation area in the Central Federal District, which includes the traditional agricultural regions of Voronezh and Belgorod.

But most of the region’s major facilities – such as the Kursk meat processing plant, the Artel agricultural company and the Agroproduct grain processing company – are beyond the reach of the fighting.

Natalya Goncharova, acting Minister of Agriculture of Kursk, said on Wednesday that the grain and oilseed harvest will continue in the region.

The actual direct impact on the harvest in the Kursk region is minimal, said Andrei Sizov, head of the agricultural consulting company Sovecon, at his Telegram channel.

Ukraine controls only a few percent of the total area of ​​the Kursk region – about 700 to 1,000 square kilometers of the total 30,000 square kilometers – and the harvest of a significant part of the crop is almost complete, Sizov explained.

For example, wheat is grown on more than 90 percent of the country’s land area, he added.

As a result, the attack on Kursk turns out to be of little significance in terms of its direct military and economic impact, but its political outcome opens up new opportunities for an escalation of the conflict.

On the one hand, the Kursk incident could trigger a “new round of escalation” and possibly drive up wheat prices, Sizov said.

This scenario could occur if trade in the Black Sea, an important shipping route for agricultural products, is disrupted again.

For example, prices for Chicago wheat rose on Thursday after a Russian attack overnight on the Ukrainian grain export port of Odessa on the Black Sea. Reuters reported on Thursday.

Although the disruption of gas transit through Ukraine seems to be a lose-lose situation, there is no guarantee that it will not happen.

The losses can manageable for both sides However, in the medium term, this would lead to a disruption of the remaining economic relations between Russia and Europe, increasing the potential risk of a full-scale confrontation, including increased attacks on each other’s energy infrastructure.