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“The Russian economy is on track to be cut in half,” Joe Biden said in March last year, as he heralded sanctions brought against Russia after its full-scale invasion of Ukraine.

Annalena Baerbock, the German foreign minister, vowed that sanctions were “hitting the Putin system … at its core of power”. Liz Truss, her counterpart in the UK at the time, forecast that Vladimir Putin’s oligarchs would have nowhere to hide. EU sanctions, the European Commission president, Ursula von der Leyen, said, “are working to cripple Putin’s ability to finance his war machine”.

The language before the invasion had been no less assertive. At a briefing in January 2022, US state department officials said Washington was prepared to implement sanctions “with massive consequences that were not considered in 2014 [when Russia annexed Crimea]. That means the gradualism of the past is out, and this time we’ll start at the top of the escalation ladder and stay there.”

The Institute for International Finance (IIF) predicted a 15% fall in Russian GDP in 2022. JP Morgan envisaged a 12% contraction. Russia’s own technocrats privately warned Putin of a possible 30% fall.

The reality was somewhat different, reflecting what analysts say was a hubristic over-confidence in the west about the speed with which sanctions that were agreed with unprecedented coordination by the G7 could damage Russia.

The Russian economy contracted by only 2.2% last year. Unemployment, according to admittedly dubious official figures, now stands at 3.7 %. The construction sector has been able to grow significantly even if the car and electronics industries have suffered. A bumper harvest has driven growth in the agricultural sector.

Russia is now forecast by the International Monetary Fund to grow faster in 2023 and 2024 than the UK. It is hardly financial apocalypse now.

As the war approaches its one-year anniversary on 24 February, the debate about whether sanctions are effective has intensified.

Defenders of sanctions say the ruble and headline gross domestic product are dreadful indicators, partly because Russian statistics are either classified or manipulated as part of the war effort. “Please do not ask me about GDP figures. They do not matter,” said Elina Ribakova, the deputy chief economist at the Institute of International Finance, a global industry body.

Vladimir Milov, a former Russian deputy energy minister and author of a Martens Centre report on sanctions, said it may be more instructive to track a dozen or so “soft indicators” such as alcohol sales, divorce rates, shoplifting, spending on food, opinion polls, bank customer sentiment or tax revenues.

“Don’t look at the watch every five minutes to see if sanctions are working. Exercise strategic patience,” said Milov, who is also an ally of the jailed Russian opposition leader Alexei Navalny

Agathe Demarais, the author of Backfire, a study of US sanctions, said: “This is a marathon rather than a sprint, but financing the war is getting more difficult.”

Economists at the Kyiv School of Economics go further, arguing that a decisive turning point may already have been reached as a growing Russian fiscal deficit – spurred by extra defence spending and collapsing hydrocarbon revenues – forces Russia’s central bank to eat up its reserves.

“It is understandable that the west got carried away at the beginning, leading to false expectations of a palace coup,” said Charles Lichfield, a deputy director of the Atlantic Council, a US thinktank.

After all, Russians started to rush for the cash machines, fearing a run on the banks. The rouble tanked, falling from from about 70-75 against the dollar to nearly 140.

The gates to the oligarchs’ European playgrounds were padlocked, their ostentatious toys put into dry dock. The loss of mobility and respectability was a heavy blow, particularly in London where the Conservative government suddenly turned on the Russian rich after decades of laxity and reputation laundering. Within about four months, Russian assets worth about €13.8bn (£12.3bn) had been frozen.

Even the smallest transactions were at risk of getting stuck in correspondent bank accounts for weeks if not months, as international banks became wary of facilitating transfers by Russian clients. In total the EU put sanctions on 1,386 individuals and 171 entities.

Hundreds of the larger western firms from McDonalds to BP to IT multinationals “self-sanctioned” themselves by suspending or winding down their Russian operations, even if some did not actually leave. The German chemical firm BASF suffered a $7.9bn (£6.5bn) writedown in the process, even if it hopes to pass it on to the taxpayer.

But in the key opening exchange of the sanctions battle, the Russian central bank, ironically largely staffed by liberal pragmatists opposed to the invasion of Ukraine, got the better of the west. On 28 February, the west tried to ambush Russia by simply freezing what was reported by the country’s central bank to be roughly $300bn or (40%) of its total foreign exchange reserves held overseas. The remainder was not held in western currencies. “The aim was to make it harder to defend the currency, increase the cost of financing the war and fuel inflation,” said Demarais.

But the Russian central bank’s governor, Elvira Nabiullina, responded decisively, raising the key interest rate to 20% on 28 February, effectively shutting down mortgages and corporate lending but making deposits extremely attractive. It deterred citizens from panicking and withdrawing all their money from their accounts. On 7 March, for the first time in the modern Russian history, the central bank completely banned the sale and withdrawal of dollars and euros deposited before 24 February. Russia also negotiated for some its banks – notably Gazprombank – to remain in the global financial messaging system Swift because they handled payments related to oil and gas exports on which the EU were heavily reliant. After a short period of stress in March 2022, structural liquidity returned more or less to pre-sanctions levels. By June the rouble had stabilised.

Once its initial financial blitzkrieg – prepared in secret in the US Treasury in the months before war – had been repelled, the west had to revise its strategy, accepting implicitly it had not quite started at the top of the sanctions ladder and there were further rungs to climb. The second phase was going to be more a war of attrition, constant adjustment and consensus-building across the EU.

The European Commission went on to a sanctions war footing, according to a study by the Danish Institute for International Studies. “Formal processes that would traditionally take several weeks were concluded within a day,” it found.

But flaws in the process appeared. Since EU sanction packages require unanimity, ideological outliers like Hungary held massive leverage. Viktor Orbán’s personal connection with specific Russian oligarchs became apparent. For instance, in September last year the Hungarian prime minister asked, probably in return for favours by Putin, for three Russian oligarchs to be removed from the EU sanctions list. Before the 15 March renewal deadline, Orbán has lobbied to remove the same trio plus an other six. At successive European Council meetings, his ministers have threatened use of the veto, delaying key sanctions decisions. Most recently, Orbán breezily insulted Ukraine as “a no man’s land akin to Afghanistan”.

Some EU states found they did not have the laws, compliance departments or procedures to implement the sanctions agreed in Brussels. Only now is the European Commission working with member states for instance to establish a single contact point for enforcement and implementation issues with cross-border dimensions.

Differences in the vigour with which sanctions were enforced became striking. EU figures show Greece had frozen only €222,000 in Russian assets and Malta only €200,000. The same two countries in April had tried to block a ban on Russian flagged ships entering EU ports. Austrian companies have hardly rushed to leave Russia. One estimate says 43 Austrian firms have stayed and only two left completely. Belgium has lobbied to keep the 500-year-old diamond industry in Antwerp open to Russia’s Alrosa mining company.

Among Nato members, Turkey’s refusal to join the sanctions coalition has become a major problem.

By the third quarter of 2022, Russian imports from Turkey had surged to over $1bn a month, roughly double the figure for the same period the previous year.

Turkey became a route for Russia to import vital western-produced goods such as manufacturing parts. Some economists for instance have noticed a mini boomlet in trade between Italy and Turkey, suggesting enterprising Italian traders regard Istanbul as a useful access point into forbidden Russian markets.

US Treasury sources say they have now elevated Turkey’s approach to trade with Russia to an issue of prime importance in the bilateral relationship.

The US is also looking askance at another ally, the United Arab Emirates. Research by a team of Berlin-based data analysts examining more than 500,000 bank transactions after the war started found that, in terms of value, 66% of withdrawals by non-resident customers of Russian banks went to beneficiaries located in the UAE. This represents a 40% rise on the previous year.

The surprising resilience of the Russian economy is not primarily due to the technical professionalism of central bank officials or murky sanctions busting, but instead a blindingly obvious structural flaw in the sanctions: Europe’s reliance on Russian oil and gas exports, the source of 40% of Russian budget revenue.

“Not imposing a Russian export embargo early on led to record high trade and fiscal surpluses that gave Putin’s regime a huge financial cushion, enough to sustain many months of the war,” said Oleg Itskhoki, a Russian-American economist. “Only Putin’s imports were boycotted, while his exports continued. As a result the Russian car and electrical industry collapsed, but not the export of oil and gas.”

Various groups of western economists, including Rüdiger Bachmann, Moritz Schularick, Ben Moll and Christian Bayer, tried through March and April to persuade German politicians that cutting off the supply of Russian energy would not lead the German economy to crash.

Moll recalled: “Soon after the war started, statements were being made by German politicians that an energy embargo would have dramatic economic consequences. For instance, the economics minister said there would be mass unemployment and poverty.

“We just thought it was important to look at the data and think this through systematically so we put together a team of energy economists as well as micro- and macroeconomists and concluded it might lead to a recession between 0.5 and 3 % but not economic Armageddon. Not all of us agreed with an energy embargo. But the unions and industry lobby denounced our analysis and the chancellor called us ‘irresponsible’ on national TV, a reflection of the large influence of corporate Germany.”

Moll believes in retrospect his analysis of the system’s flexibility and adaptability has been proven right.

But the EU could decouple itself from Russian energy only at the speed Germany, the major economy most vulnerable to Putin’s energy blackmail, was prepared to tolerate.

It took until June, after private lobbying by the US and evidence of war crimes in Ukraine, for the EU in its sixth sanctions package to agree to an EU-wide ban on Russian oil exports. But the ban was only to come into force in two delayed phases. The ban on the purchase, import or transfer of Russian seaborne crude oil was not to apply until 5 December and the ban on other refined oil products such as diesel came in on 5 February.

The price of Europe’s caution is well known. With the exception of 2020 and 2018, oil and gas had provided 60% of Russian goods exports in every year since 2002. But the early summer of 2022 was a total bonanza for the Russian treasury, as it benefited from the record surge in energy prices. In March, Russia was making €1bn a day from energy exports. Oil and gas increased to 60% of Russian fiscal revenues, up from 40%. Germany alone has bought €24bn of Russian fossil fuels since the invasion.

Europe funded the Russian war machine that it denounced. The surplus on Russia’s current account for the year was $227.4bn – a 86% increase on the previous year and more than double the previous record. That helped strengthen the rouble, making imports cheaper. This in turn helped to gradually bring down inflation, taking some pressure off the real incomes of the ordinary Russian population.

By the summer Russian treasury coffers were so bloated that Putin felt confident enough to launch a counterattack by slowing gas supplies to Europe. With 40 % of Europe’s gas coming from Russia, he demanded in April that any country refusing to pay for its gas in roubles would be cut off. Europe huffed but complied. By June he started tampering with the gas flow through the Nord Stream 1 pipeline from Russia into Germany. He first cut deliveries through the pipeline by 75%, from 170m cubic metres a day to roughly 40m. In July, the pipeline was shut for 10 days, citing the need for essential maintenance work. On reopening, the flow was reduced to 20m cubic metres a day.

Then on 26 September an as yet unidentified intelligence service blew up the pipeline and the neighbouring Nord Stream 2 pipeline – which had yet to go into service - leaving a mangled wreck and an unsolved crime scene at the bottom of the Baltic.

“Putin shot himself in the foot because by turning off the gas tap, he completely changed the calculus in the European Union and gave the impetus to Europe to diversify away from Russian gas,” Demarais said. “He made the decision for Europe a lot easier.”

Through a mixture of planning and good fortune, Europe has, in the space of six months, largely weaned itself off Russian gas. Renewables have been boosted, the lives of nuclear power stations extended and liquid natural gas terminals built at lightening speed. The European Commission sent out search parties for alternative sources of energy ranging from Morocco, Qatar, Angola, Venezuela, Norway and Nigeria. It was a form of Putin-inspired “shock therapy”.

In another blow to Putin, “General Winter”, once assumed to be Russia’s greatest ally, failed to report for duty. Temperatures averaged well above the norm with record highs for winter broken in the Netherlands, Liechtenstein, Lithuania, Latvia, Czech Republic, Poland, Denmark and Belarus. That lowered demand for energy, as did the self-restraint of European consumers rocked by record bills. Gas storage levels in Germany in January were at 90%, the highest level ever for the month.

Russian gas exports to Europe tumbled by more than 75% compared with the prewar period. The daily price of natural gas on the stock exchange Amsterdam Euronext which had peaked at more than €300 a megawatt hour after the invasion, has now fallen well below 100 again, to under €60, still high by the standards of 2020 . Inflation is slowly descending across Europe, and Germany looks to have avoided the widely predicted recession.

Putin had played his best economic warfare card – cutting gas exports to Europe – and it was a dud, and will remain so next winter if the EU controls demand. In the space of a year, Putin destroyed Russia’s gas bridge to Europe, the centrepiece of Russian postwar economy.

The question now is how quickly he can construct a different bridge to the east, and so keep the Russian finances afloat.

Russia exports natural gas from eastern fields to China through the 2,500-mile Power of Siberia 1 pipeline, but the western fields, which had served the European markets, are not connected to this export route and cannot be easily redirected to China. Eventually a Power of Siberia 2 pipeline will connect the two fields, but the estimated completion date is 2030. China is also not such a profitable market. Russia was estimated to be charging $3 a metric million British thermal unit (MMBtu) for deliveries to China via the Power of Siberia pipeline, while the estimated charge for deliveries to Europe had been sold at $10-$25/MMBtu.

Putin is also in danger of being screwed to the floor over oil, his crown jewel. After persistent US Treasury lobbying, the west supplemented the EU ban on Russian crude oil exports by introducing an unprecedented market intervention that seeks to set a world wide price cap of $60 a barrel for Russian seaborne oil. From 5 December, the same date as the EU import ban, any firm providing payments, insurance, financial services, or brokering, bunkering, piloting services to a ship carrying Russian oil could not receive insurance cover if the oil was being purchased for more than $60 a barrel. If the US or EU catches any company misrepresenting the price or submitting a fraudulent attestation, the G7 can impose sanctions on that company. The UK proposes fines of $1.2m.

Putin blustered, saying he would not supply oil to any country for five months that complied with this price regime from 1 February. But this may be a bluff. For China and India do not need to endorse the cap explicitly, but they can take advantage of its existence and their purchasing power to negotiate heavy price discounts in comparison with Brent crude.

The price cap is in its infancy, and since the price of seaborne Urals crude averaged $49.48 in January, below the $60 cap, EU tankers – mainly Greek – can legitimately carry on transporting oil to China and India. Reports suggest crude oil loading from Russian ports have reached a multi-month high. At best the cap has had the effect of institutionalising price discounts. At worst it is proving toothless. Ukraine and its expert team advisers on sanctions led by the former US envoy Michael McFaul say the cap needs to be halved especially if its purpose is to blow a hole in Russia’s budget.

But the US Treasury, in setting the cap, was balancing different objectives: reducing Russia’s income and keeping enough supplies on the seas to avoid another spike in oil prices. That requires a perilous assessment of the price at which Putin decides it is not profitable to extract or export oil. The US is trying to postpone a review of the cap level until March to allow more evidence to be collated.

The Kyiv School of Economics insists the numbers on the Russian dashboard are flashing red. Russia’s monthly fiscal deficit reached a record 3.9tn roubles (£43.3bn) in December and its total budget deficit for 2022 was 3.3tn roubles – or 2.3% of GDP – set against a projected an annual surplus of 1.3tn. Overall spending in 2022 was 7.3tn roubles higher than forecast, presumably due to vast defence spending.

Putin plans to spend 6.3 % of GDP on defence and national security in the 2023 federal budget alone, doubling defence spending to more than 10tn roubles. The question then becomes how long this level of spending can be sustained if energy revenues are falling so fast.

Demarais said the first signs of serious strain would be unplanned debt issuance and the sale of some of its 310bn yuan (£37.5bn), the only currency in Russia’s reserves that can be used for interventions in the foreign exchange market.

Various estimates exist, but some say Russia’s planned spending is probably sustainable on an assumed Urals crude oil pice of $70 a barrel. Russia won’t burn through its stock of yuan assets this year unless the Urals price halves and averages $25 a barrel, according to Bloomberg Economics.

The US bank Citigroup estimates it would only take an average price of $35 to deplete the available yuan resources already in 2023.

But as the past year has shown, Russia is not sitting idle in the face of a price cap. Learning from its growing ally, Iran, it has assembled an ageing dark fleet of smaller, older ships carrying crude oil mainly to China and India. Evasion will be attempted through multiple means: flags of convenience; the blending of crude; Russian insurance schemes; or the simple manipulation of documents. New crude oil transfer hubs are already emerging. It will depend on whether this covert market grows into a viable alternative to the G7 cap, and the price at which the oil is bought by China.

In the end an international sanctions war is a game of cat and mouse in which both sides look for clues amid the disinformation to try to pre-empt the other’s moves.

Ultimately it is not as decisive as the battlefield, but if the west can stay the course, Putin may yet find his options narrowing. If he survives it will be a huge blow to the power of the dollar, and one that will not go unnoticed in Beijing.

When President Joe Biden was asked recently whether the U.S. would provide F-16 fighter jets to Ukraine, his response couldn’t have been clearer.

“No,” he said.

Given the issue, some skepticism is understandable. After all, for months U.S. officials demurred on sending M1 Abrams battle tanks to Ukraine — citing the difficulties involved in maintaining, fueling and training troops to operate them — before reversing course as part of a deal that will also allow European countries to send their German-made Leopard tanks. Before that, these officials repeatedly made the case that Patriot missile interceptors — another weapons system that was high on the Ukrainians’ wish list — were inappropriate for Ukraine’s needs. Until suddenly they weren’t.

So it’s little surprise that Ukrainian officials, who began lobbying allies for fighter jets almost as soon as the tanks decision was made, are confident that it’s “only a matter of time” before they receive the F-16s. The Washington Post has reported that officials within the Pentagon haven’t taken Biden’s “no” very seriously and suspect that the decision will be “M1-ed” — a new term meaning the White House will eventually overcome its reluctance. The Ukrainians are still waiting for that: There were no announcements about planes at a high-level meeting of Western defense ministers in Brussels on Tuesday.

A decision to send F-16s started to look more likely last week during Ukrainian President Volodymyr Zelenskyy’s visit to the United Kingdom, when the British government announced it would begin training Ukrainian fighter pilots on NATO jets and would “investigate what jets we might be able to give.” The U.K. was similarly out in front on the tanks decision, agreeing to send Ukraine some of its Challenger 2s several days before the U.S. and Germany decided to send their own tanks.

Even if a decision to send F-16s does come soon, Ukraine is unlikely to stop pressing for other high-end weaponry. Other systems on Kyiv’s wish list include ATACMS — a long-range missile that can be fired from the already provided HIMARS launchers — and advanced offensive drones.

For Ukrainians, this dynamic — in which each individual weapons system is subject to months of political debate in Western capitals and ultimately cleared for delivery — is deeply frustrating. As Ukrainian Foreign Minister Dmytro Kuleba put it last month, referring to Germany, “It’s always a similar pattern: First they say no, then they fiercely defend their decision, only to say yes in the end.”

Ukrainians are now asking for an end to this pattern, arguing that the only way to bring the war to a close is to give the Ukrainian military everything it needs to win. They see the arguments against more ambitious military aid as excuses, if not something more nefarious.

“The pattern of stop-start arms transfers is because we are fighting enemy disinformation,” Hanna Hopko, a former member of the Ukrainian Parliament who now runs the International Center for Ukrainian Victory, told Grid in an email. “The need now is to think in terms of great power and great responsibility. We have to focus on the victory of Ukraine (defeating Russia faster), not on inflation, energy security, and poll numbers in western nations.”

Ukraine’s staunchest supporters in the West are starting to lose patience as well. In a recent piece in Foreign Affairs, former U.S. ambassador to Russia Michael McFaul made the argument that “at this stage, incrementally expanding military and economic assistance is likely to only prolong the war indefinitely” and that “rather than providing ATACMs in March, Reapers [drones] in June, and jets in September, NATO should go for a Big Bang.”

The idea of a massive military aid package that would allow Ukraine’s armed forces to quickly go on the offensive and overwhelm Russian resistance certainly sounds more appealing than the slow-moving and bloody trench warfare that now seems to be the most likely scenario for the next few months of this war. But the “Big Bang” approach has drawbacks as well.

The Biden administration’s argument when it comes to Ukraine aid is that with each new system, it makes a cost-benefit analysis to determine whether the Ukrainians need the specific weapons, and whether the U.S. and its allies can afford to provide them.

In a recent press briefing, State Department spokesperson Ned Price told Grid, “These are discussions that we have with our Ukrainian partners to determine, in the first instance, what it is that they need. We then have these conversations between and among partners and allies to determine what it is that any given partner has and what would be appropriate for us to do.”

Ukraine’s needs have changed, U.S. officials say, because the war itself has changed. During a recent event sponsored by the Defense Writers Group, Sen. Jack Reed (D-R.I.), chairman of the Senate Armed Services Committee, told Grid, “It was a different fight a year ago, as small, decentralized teams of Ukrainians attacked Russian supply lines that are bogged down on a single road because of poor logistics, poor planning. Now we’re looking at much larger forces dug in and making all-out assault against Ukrainian forces.”

Back then, shoulder-mounted anti-tank weapons like the Javelin and Stinger were critical. Now, heavier armor is needed — not only due to the nature of the fighting but also because Ukraine has lost so much heavy equipment during the war. At the beginning of the conflict, tanks were less of a priority because Ukraine already had around 800 Soviet-model T-64s and T-72s. It may now have lost as many as half of those.

Still, it would strain credulity to think such decisions are made solely with battlefield needs in mind. Both Secretary of Defense Lloyd Austin and Chairman of the Joint Chiefs of Staff Gen. Mark Milley reportedly advised Biden against sending M1 Abrams tanks to Ukraine, citing how difficult they are to maintain and how long it takes to train personnel on them. (Given all the shortcomings of the M1 cited by U.S. officials over the past few months, one might reasonably ask why the American military is still using them.) As late as Jan. 20, following a meeting with allied defense chiefs in Ramstein, Germany, Austin batted away questions about the tanks, saying, “What we’re really focused on is making sure that Ukraine has the capability that it needs to be successful right now.” Five days later, Biden announced that the U.S. would provide 31 M1s to Ukraine.

It’s doubtful that Ukraine’s battlefield needs had changed dramatically in less than a week; more likely, the political incentives — namely, giving German Chancellor Olaf Scholz the political cover he needed to provide the Leopard tanks — had become overwhelming.

On the first day of the war, Russian President Vladimir Putin threatened any countries that might “hinder us, and … create threats for our country” with “such consequences that you have never experienced in your history.” By “consequences,” it was fairly clear he was referring to Russia’s nuclear arsenal — the world’s largest. But it was less clear how he defined “hinder” or “create threats.”

From the beginning, the U.S. and other NATO countries have sought to balance the goals of helping Ukraine fight back with concerns about sparking a wider — and potentially nuclear — conflict.

It’s debatable which of these goals takes precedence. According to the Washington Post, Milley carried a notecard in his briefcase for several months listing U.S. strategic goals in Ukraine. The first was “Don’t have a kinetic conflict between the U.S. military and NATO with Russia,” while “Empower Ukraine and give them the means to fight” was fourth.

In a December joint press conference with Zelenskyy, during the Ukrainian president’s visit to Washington, Biden was asked by a Ukrainian reporter, “Can we make a long story short and give Ukraine all capabilities it needs and liberate all territories rather sooner than later?” The U.S. president stressed the importance of maintaining the support of all NATO allies and said, “They’re not looking to go to war with Russia. They’re not looking for a third World War.”

This “third World War” argument is why the U.S. quickly ruled out sending troops to Ukraine or setting up a no-fly zone that could lead to direct fire between U.S. and Russian aircraft.

But it’s also true that Washington’s comfort level with sending heavy weaponry has increased dramatically since the early days of the war.

So the gradual amping up of support, one weapons system at a time, can be viewed as a form of “salami tactics”; as in, a slice of something (Javelin anti-tank weapons) in one month; another weapon system a couple of months later and so forth. The thinking being, a major deployment of tanks and aircraft shipped to Ukraine all at once might provoke a catastrophic Russian response; each gradual increase in support does not.

Putin or other senior Russian officials have typically threatened some response to each of the Western weapons shipments, but the retaliation has never materialized. As nuclear analyst Joe Cirincione has written, by gradually ratcheting up aid, “Joe Biden has carefully threaded the nuclear needle.”

Mark Cancian, a senior adviser with the Center for Strategic and International Studies, told Grid, “The Russians have laid down two red lines: One is no NATO troops in Ukraine, and the other one is no invasion of Russian territory. And the U.S. and NATO have respected those red lines. Tanks and Patriots and HIMARS and everything else don’t contravene those two red lines.”

Arguably, fighter jets would be in a different category, as they would give Ukraine greater capability to strike within Russian territory. But Ukraine already has some Soviet-era aircraft in its arsenal and has already used drones to strike within Russia. It seems unlikely that F-16s would push Putin to start World War III when previous weapons upgrades did not. But given the stakes, NATO governments are treading very carefully.

Another limiting factor in the pace of weapons deliveries to Ukraine may be the ability of the Ukrainians to absorb them.

To be fair, Ukraine’s armed forces have shown repeatedly that they are able to speed up the normal training timetables for NATO weapons systems. Lt. Gen. Ben Hodges, former commander of the U.S. Army in Europe, recently told Grid that “the Ukrainians have demonstrated time and time again that they can learn how to use anything in about one-third the time the rest of us can.” With the Polish military’s assistance, they are currently working to reduce the training time on the Leopard tanks from 10 weeks to five, and Ukrainian officials say their pilots could learn to fly the F-16 in about six months, rather than the typical nine.

Still, six months is a long time in a war as fast-changing as this one. U.S. officials clearly worry that Ukrainian troops won’t be ready to use these systems in time for them to make a difference. The counterargument is that if Western countries had agreed to send jets and train Ukrainian pilots six months ago, they’d be ready for action now. This seems to be what motivated Britain’s decision last week to begin training Ukrainian pilots on their Typhoon jets before actually agreeing to send them.

In the specific case of the F-16, there are concerns that the significant infrastructure and support systems these jets require to operate effectively, particularly given Russia’s extensive network of air defenses and surface-to-air missiles, would divert scarce resources from other Ukrainian goals.

There’s also the challenge of getting all the various vehicles, artillery and air defense systems from various countries to work together as one cohesive system, and how to make sure there are trained personnel to maintain each system and keep them all running. The Ukrainians have sometimes referred to their multinational arsenal as a “petting zoo.” A slow but steady flow of new systems — rather than everything, all at once — gives Ukrainian logistics specialists time to integrate all the new hardware.

Before the war, Western countries avoided giving so-called offensive weapons to Ukraine out of fear of provoking a Russian invasion. Besides, many experts argued that Western weaponry would make no difference in the face of Russia’s clearly superior military. Even after Russia’s initial attempt to take Kyiv failed and it became clear that this would be a fairer fight than many anticipated, it seemed plausible that it would end quickly either in Ukrainian defeat, Russian military collapse or a negotiated settlement. Sending some of the world’s most advanced and expensive military systems to Ukraine, where they could be destroyed or captured, was not a no-brainer until the Ukrainians demonstrated they could effectively use them.

Now, it’s clear that both sides are dug in for a long war absent some unexpected development.

Over time, Western nations have gradually provided more and more advanced weapons systems in hopes of breaking the stalemate. And, politically, each successive weapons system debate has become a sort of litmus test for the West’s willingness to support Ukraine.

In the end, however, it is unlikely that any individual system will be a silver bullet that breaks the stalemate. Rather than who is fielding the most advanced military technology, victory in this conflict is more likely to come down to which side can continue to supply simple things like artillery shells to the battlefield for longer. That will be less a matter of risk calculation than of how much Western countries are willing to mobilize their arms industries to keep the flow going. NATO Secretary-General Jens Stoltenberg warned on Tuesday that “the current rate of Ukraine’s ammunition expenditure is many times higher than our current rate of production.”

Meanwhile, the gradual ratcheting-up dynamic may soon come to an end simply because — beyond fighter jets and long-range missiles — there aren’t many more weapons systems the West is holding back. After that, the question will not be what weapons the West is giving to Ukraine, but how many of them and for how long.

1. Biden shows up in Kyiv.

2. Saudi Arabia's crude oil exports rebounded from a 5-month low in December.

3. Market expectations lean toward the Fed.

4. Russia's GDP declines 2.1% in 2022.

5. Recent US economic robustness cannot save the economy from recession risk.

U.S. President Joe Biden made a sudden visit to Ukraine on Monday, appearing in the center of Kyiv and promising to stand by Ukraine all the time. In response, Zelenskiy said that the visit of the US president to Ukraine, the first in 15 years, is the most important visit in the entire history of U.S.-Ukrainian relations."

While Biden was in Kyiv, the U.S. State Department announced it would provide Ukraine with a further $460 million in assistance, including $450 million worth of artillery ammunition, anti-armor systems and anti-aircraft radar, as well as $10 million for energy infrastructure. Specific details will be announced within the day.

Saudi Arabia's crude oil exports rebounded in December after falling to a five-month low the previous month, according to data released Monday by the Joint Oil Database JODI. they rose about 2.2 percent to 7.44 million BPD from 7.28 million BPD in November. Earlier this month, Saudi Arabia raised the price of its flagship crude for Asian buyers for the first time in six months, as the market expects oil demand to recover. Although OPEC previously raised its forecast for global oil demand growth in 2023, its monthly report showed that crude production in Saudi Arabia, Iraq and Iran all fell as part of the organization's agreement.

After a series of far more expected U.S. economic data cloth, the market expects the upper end of the federal funds rate target range to increase by about 40 bps to 5.25%, and the arrival point is expected to change from June to July. The question at hand, however, is whether the ultimate rate will be higher. Initially the market simply pushed back the timing of the rate cut, but in the recent week, it can be seen that market pricing expectations are not simply postponing the timing of the rate cut, but more systematically retracting the expectation of a rate cut. In addition to the change in money market pricing, we also look at the rise in market implied inflation expectations and US interest rate volatility. The market is having to turn to the greater likelihood that the Fed will maintain "higher rates for longer".

Russia's gross domestic product fell by 2.1% in 2022, according to data released by the Russian Federal State Statistics Service (Rosstat) on February 20, local time. The data from the Russian Federal State Statistics Service are better than the expectations of the Russian Ministry of Economic Development and the Central Bank of Russia. Last September, the Russian Ministry of Economic Development forecast a 2.9% decline in the country's economy in 2022, and the Central Bank of Russia predicted a 2.5% decline.

The U.S. economy has started the year strongly, with better-than-expected data on employment, retail sales, industrial production, and even the housing market. This follows two months of weak data at the end of 2022 that prompted a general reassessment of the economic outlook and financial markets. However, year-end and early-year data tend to be very volatile, and seasonal factors and temporary idiosyncrasies seem to have played a key role in the economic situation in recent months. By the second quarter, U.S. economic activity will have slowed significantly, signaling a mild recession for the rest of the year.

After taking a battering in 2020, the Southeast Asian economy appears to be finding its feet. In its latest forecast, the International Monetary Fund (IMF) expects Southeast Asia to be the world's fastest growing region, with the five largest economies expanding at 4.3 per cent in 2023 and 4.7 per cent in 2024. The Asian Development Bank (ADB) is more optimistic. It places regional growth in 2023 at 4.7 per cent (Table 1).

The pertinent question here is whether there are risks that could derail the regional recovery. In 2022, the Southeast Asian economy gained momentum as growth reached 5.5 per cent. The growth came despite several external risks: the escalation in the trade and technology war between the United States and China; the Russian invasion of Ukraine and the resultant geopolitical risks and spike in agricultural and energy prices, and monetary tightening. At the height of the pandemic in 2020, Southeast Asia's economy had contracted by 3.2 per cent. In 2021, the region returned to growth of 3.3 per cent as lockdowns eased.

The prospects for Southeast Asia's recovery hinge crucially on what happens in China, as well as the global economy. China has experienced a massive decline in growth since the pandemic began and prolonged lockdowns due to its zero-Covid policy. After several downgrades, the IMF has recently revised upwards its projection for China's growth to 5.2 per cent in 2023 and 4.5 per cent in 2024. China's decision to finally reopen underlies this upgrade, although there are still a number of domestic uncertainties in the banking and property sectors that could impinge upon growth, including the possibility of a severe Covid-related health outcome.

Another key factor is how the U.S.-China trade war evolves. The trade war is escalating and now includes bans on technologies and controls on exports of advanced semiconductor chips to China by U.S. companies, for instance. The switch from tariffs to non-tariff barriers is concerning as the latter are opaque, and their impacts can be profound. The escalation could have a major impact on Southeast Asia since their regional supply chains remain China-centered. The conflict has already resulted in some labour-intensive industries and activities relocating from China to Vietnam, Thailand and Malaysia. Capital-intensive components of the key supply chain industries — electronics, electrical and other machinery, and automotive parts — have not been much affected as yet. That is not to say they will not be affected should the conflict continue to escalate.

Compounding matters, there is a kinetic war following the Russian invasion of Ukraine in February 2022. This has driven up energy costs and caused a spike in geopolitical risk and major agricultural and other commodity prices. The war increased the urgency for ASEAN countries to transition their energy policies while managing other risks and keeping an eye on inflation.

The U.S. Federal Reserve responded to inflationary concerns with aggressive monetary tightening following years of loosening in the form of quantitative easing. The aggressive response affected global interest rates and could induce a recession in the U.S. and Europe. But there are signs that the tightening may end soon. Reflecting this, the IMF's assessment in January 2023 is less pessimistic about a global recession, with global growth revised upwards to 2.9 per cent from 2.7 per cent in October 2022. This is also due to adverse risks moderating with a stronger boost emerging from pent-up demand and a faster fall in inflation expected. Nevertheless, the balance of risks remains tilted to the downside, so a global recession cannot be ruled out entirely.

The major concern for Southeast Asian countries from a possible recession in the West is the impact on exports and growth, and indirectly on debt levels, which are projected to rise. All Southeast Asian economies saw their fiscal positions worsen after massive government spending related to Covid-19. A rise in service costs of external debt through rising interest rates, as well as the valuation effects of a stronger U.S. dollar, will increase the debt burden and could induce debt distress in some countries, such as Laos.

Although prospects for the region will be heavily influenced by global developments, given its heavy reliance on international trade and investment, domestic factors should not be discounted. On the political front, Malaysia and the Philippines have newly elected administrations that are still finding their feet. Thailand and Cambodia will hold elections in May and July, respectively. Although Indonesia will only go to the polls in February 2024, the fate of the US$34 billion project involving the relocation of the capital could be affected. Until the new President is elected, some policy paralysis can be expected. The political and economic turmoil in Myanmar is a grave concern for its citizens and also ASEAN.

These uncertainties and the pandemic have contributed to an increase in anti-globalisation sentiment that could further threaten the recovery. For instance, there is increasing discussion of the need to improve the resilience of supply chains, emanating from the U.S. but spreading quickly to other countries. The calls for reshoring, friend-shoring, and nearshoring of supply chains, which is in one of the four pillars of the US-led Indo-Pacific Economic Framework for Prosperity (IPEF), is not just about limiting capital outflows, but reversing them. This is basically protectionism in new clothing. The shift toward so-called self-reliance comes at a time when the need for liberalisation is increasing but the appetite for it is waning. The disparity between need and appetite further weakens the ability to address the impacts of digital disruption, divergent demographic trends and the rise in all forms of inequality. Unless these protectionist tendencies are curbed, Southeast Asia's recovery as well as its long-term growth and prosperity will be at risk.

Malaysia's economy expectedly grew faster than the official 2022 growth forecast of 6.5% to 7% by more than a full percentage point — topping 8% for the first time in 22 years and putting growth among the highest in the world.

Even though at least nine experts had expected Malaysia's 2022 gross domestic product (GDP) growth to top 9% year on year, actual headline growth of 8.7% still came in ahead of consensus estimates: Median expectations among 35 houses polled were 8.5% and had averaged 8.3%, according to Bloomberg data at the time of writing.

Yet, given challenges ahead, last year's exceptional 8.7% headline GDP growth only accentuates the need for the country to step up overdue strategic reforms to finally attain the long-desired digitally driven, high-income developed nation status and remain one for the long haul.

While headline GDP may well be just another number to the man in the street, especially those struggling with the rise in cost of living, it is important that economic growth momentum is sustained. More on this later.

Those familiar with Malaysia would know the country was among the world's fastest-growing economies in modern history, with annual growth rates of 9% between 1967 and 1997 — more than double the current average of 4%.

In the decade between 1988 and 1997, ahead of the 1997/98 Asian financial crisis, Malaysia's GDP had grown an average of 9.3% a year, reaching as high as 10% in 1996 and still saw 7.3% growth in 1997, according to data from the Department of Statistics Malaysia.

Headline 2022 GDP growth would have beaten the 8.9% GDP growth in 2000 and been at a 26-year high if growth in the fourth quarter of 2022 had been above 7.5% instead of at 7%, back-of-the-envelope calculations show. This is still ahead of Bloomberg consensus of only 6.7% for 4Q2022.

Apart from still-robust private consumption, a rise in investments, higher net exports and a recovery in tourism-related activities, chief statistician Datuk Seri Mohd Uzir Mahidin also noted that inbound travel expenditure of RM27.9 billion in 2022 had improved from 2021 but was still only one-third of the pre-pandemic RM82.1 billion. Meanwhile, outbound travel expenditure had increased to RM29.6 billion in 2022, about half of RM51.3 billion recorded pre-pandemic.

Bank Negara Malaysia governor Tan Sri Nor Shamsiah Mohd Yunus, who announced the 2022 full-year GDP numbers, alongside Mohd Uzir last Friday (Feb 10), said an update to Malaysia's 2023 official GDP growth forecasts — which currently stand at 4% to 5% — will be given on Feb 24 when Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim re-tables Budget 2023.

Asked for guidance on the 2023 growth forecast, Nor Shamsiah said those reading the numbers should take into account a "higher base effect". She had earlier stressed at least three times at the media briefing last Friday that Malaysia would not see a recession in 2023. In her presentation, Nor Shamsiah said risks to growth "remain tilted to the downside" on external factors, listing "a faster-than-expected implementation of investment following reforms", larger improvements in tourism, stronger-than-expected domestic income and employment growth as well as a realisation of global pent-up demand as among factors that could help 2023 GDP growth come in faster than expected.

In a statement on Feb 10, Anwar had noted expectations of slowing global growth in 2023 but added that the upcoming Budget 2023 would underline the government's continued support for economic growth and bolster private sector confidence to maintain economic growth momentum for the well-being of the people.

Prior to the 4Q2022 GDP data release on Feb 10, Ndiamé Diop, World Bank Group country director for Brunei, Malaysia, the Philippines and Thailand, had spoken about the need for Malaysia to step up strategic reforms and investments to lift average annual growth to 6%, from 4% now.

"Malaysia can and should do more than 4% [long-term annual average growth rate]. It is really important for Malaysia to jack up that growth [rate] from 4% to 6%, as that would mean, in good times, you can get 7% and bad times 5% [and] we do see opportunities for Malaysia to get from 4% [annual average] to 6%. A big one is what is happening to global investments," Diop said at the launch of the World Bank's latest Malaysia Economic Monitor (MEM) on Feb 9.

"FDI [foreign direct investment] is being reallocated globally [on the back of geopolitical concerns]. Malaysia is well-placed to capture some of those flows," he says, also highlighting the benefits of harnessing digitalisation. "Greater digital inclusion can help Malaysia boost productivity growth and maybe reverse the slowdown in productivity growth.

"In absence of fiscal reforms, [higher GDP growth would] allow you to spend more and, hopefully, spend better."

Diop, who is also a trained economist, adds that Malaysia's debt-to-GDP levels would also improve with higher growth even as the country executes fiscal reforms.

"Digitalisation is a key driver of total factor productivity, which is of critical importance to Asian countries like Malaysia, where productivity growth had been lagging its aspirational peers even before the pandemic," World Bank researchers write in the MEM report.

Among other things, researchers had flagged evidence of demand for advanced digital skills in Malaysia "increasing more rapidly than supply", despite the shortage being known for at least six years.

Noting that Malaysia already has a Digital Government Competency and Capability Readiness framework from 2019, the World Bank researchers say in the MEM that "allocation of sufficient budget and monitoring of results indicators focused on digital skill building are needed". To enable more effective coordination and execution of socioeconomic development programmes, the interoperability of government portals as well as existing government administrative databases need to be improved, say the researchers.

Indeed, Malaysia knows what needs to be done. The MEM lists at least four of the country's key policy documents that stress the importance of digitalisation in achieving the country's development objectives.

These documents include Malaysia's Digital Economy Blueprint (MyDigital) — launched in 2021 as a roadmap for digital transformation through 2030 — which Minister of Economy Mohd Rafizi Ramli said was "one of the first things" he went through when appointed to office.

"These blueprints have been there for a while. It is a question of making sure that they are translated into policies [and execution]. With about eight years to [2030], we have to make sure we fully make use of the time to realise the many objectives of the blueprint [aimed at] enhancing digital economy, strengthening human capital and strategic capacity," Rafizi said at the MEM launch last Thursday.

Rafizi, who is overseeing the mid-term review of the 12th Malaysia Plan to be released later this year, also acknowledged the need to accelerate reforms and embrace digitalisation "to not just withstand challenges ahead but also realise a lot of unfulfilled potential in this country".

While it is impossible to plan everything in advance, Bank Negara deputy governor Datuk Shaik Abdul Rasheed Abdul Ghaffour, who also spoke at the launch of the MEM, rightly said Malaysia could "position [itself] as and when opportunities arise" by "getting it right on policies, platforms and people".

Given that digitalisation is fast-evolving, formidable and irreversible and that a truly digital society can only be built when there is buy-in from all levels of society, Abdul Rasheed said "[the people] must strive together as a nation to formulate solutions for a digital Malaysia" — not only to address the many challenges faced by society but also guard against potential threats.

Drawing wisdom from the past, Abdul Rasheed borrowed a quote from Abraham Lincoln: "The best way to predict the future is to create it."

To build the future, Malaysian society as a whole need to become creators and innovators of technology, instead of just users of it. That at least five million Malaysians made their first digital merchant payment after the Covid-19 pandemic began is encouraging, but far from where society and the country need to be.

The profit for making diesel in Asia has dropped to the lowest in almost a year, a sign that the market is adapting so far to the European ban on imports of the transport fuel from Russia.

The profit margin, or crack, on producing a barrel of gasoil, the building block for diesel, at a typical Singapore refinery slipped to $22.05 a barrel on Feb. 17, the lowest since March 16 last year.

The crack is down 43% from its peak so far this year of $38.89 on Jan. 25, and is also 69% below its record high of $71.69 from June last year, reached in the aftermath of Russia's Feb. 24 invasion of Ukraine.

Rather than being driven by concerns over the potential loss of Russian shipments of diesel, the market in Asia appears more reflective of ongoing strength in diesel exports from China and India.

China is expected to export about 2.4 million tonnes of diesel in February, equivalent to about 643,000 barrels per day (bpd), according to data compiled by Refinitiv Oil Research.

This would be up from January shipments of around 1.78 million tonnes and 2.32 million in December.

China's vast refining sector has been ramping up throughput in order to produce more gasoline as domestic demand rebounds in the wake of Beijing abandoning its strict zero-COVID policy, which had led to a slowing economy.

However, diesel demand is lagging the growth in gasoline consumption as it takes more time for construction projects to get going.

This means China's refiners are likely producing more diesel than domestic requirements, meaning they are likely to export the surplus.

While the profit margin on diesel is shrinking, it's still strong by historic standards, having rarely traded above $20 a barrel between 2014 and the end of 2021.

However, it's worth noting that gasoline in Asia is currently treading a different path to diesel, largely because China is exporting less.

China exports of gasoline have been declining in recent months as domestic demand recovers, and Refinitiv has tracked only about 300,000 tonnes so far in February, well below the 625,000 tonnes in January and December's 1.9 million tonnes.

The profit margin on producing a barrel of gasoline from Brent crude in Singapore ended at $11.94 a barrel on Feb. 17.

While this is below the peak so far in 2023 of $18.32 a barrel, the crack has been on an uptrend since its 2022 low of a loss of $4.66 a barrel on Oct. 26.

The profit for making diesel is also been hit by ongoing strength in exports from India, which is expected to ship about 2.0 million tonnes of diesel in February, similar to January's 2.01 million, although the daily rate is likely to be higher given February only has 28 days.

The impact of the European Union ban on imports of Russian oil products, which came into effect on Feb. 5, can be seen in India's exports, which are increasingly shifting to the West of Suez markets in Europe and Africa.

Almost 88% of India's February diesel exports are heading West of Suez as refiners on the country's west coast take advantage of the gap left by Russian diesel exiting Europe.

It also appears that Russia is still able to find buyers for its diesel, despite losing its biggest market as Europe used to buy about 500,000 bpd of Russian diesel prior to the war in Ukraine.

One new avenue of trade is Middle Eastern countries such as the United Arab Emirates and Saudi Arabia buying Russian diesel, most likely to use in their domestic markets, thus allowing them to export locally-produced fuel that is compliant with European and other Western sanctions.

Middle East imports of Russian diesel are expected to hit a record high of 338,000 tonnes in February, or almost eight times the pre-invasion average of around 43,500 tonnes a month, according to Refinitiv data.

Overall, the message from physical oil products markets is that they are able to adapt and cope with the disruptions caused by the re-alignment of Russian exports.

This is similar to what has already been seen in the crude oil market, where China and India effectively replaced Europe and other Western buyers, and were happy to take the discounts offered by Russia as Moscow sought to keep earning revenue from its energy exports.

The question is whether all the shuffling of the trade in oil products like diesel cut the flow of cash to Russia by enough to be deemed a success by Western governments, or whether the real beneficiaries are the traders and refiners who adapt best.