Beaten, they now threaten the central Ukrainian city from about 50 kilometers away, occasionally firing rockets from afar. The prize, Ukraine’s largest steel plant that ArcelorMittal has spent $5 billion to modernize, is within walking distance of its missiles, just half an hour’s drive from the city. Russia’s invasion of Ukraine is usually measured by lines on the map — territory lost, cities conquered, borders erased. But Putin’s war against his neighbor involved a deliberate attack on Ukraine’s industrial heartland, designed to choke its economy and cripple its ability to finance its military and defend itself. A Russian soldier guards an area near the Azovstal steel plant in Mariupol in June © Yuri Kadobnov/AFP/Getty Images In the east, the Russian army’s advance destroyed, then captured, Ukraine’s second largest steel plant, Metinvest-owned Azovstal, and its smaller cousin, Ilyich. Its soldiers are still fighting over a Metinvest coking plant in the mineral-rich Donetsk region. Russian missiles destroyed the Kremenchuk oil refinery, taking out almost half of Ukraine’s refining capacity, forcing it to import gasoline and diesel from Poland. Just north of Crimea, the peninsula annexed by Russia in 2014, the invading army seized Europe’s largest nuclear plant, with six reactors, and captured the city of Kherson, a major shipbuilding center at the mouth of the Dnipro River.

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Looming over all is Russia’s naval blockade of three Black Sea ports in Odessa, strangling the pipeline through which Ukraine’s most valuable exports — steel, grain and fertilizer — once reached world markets. “This is a carefully designed plan,” says Alexander Rodnyansky, economic adviser to Ukrainian President Volodymyr Zelenskyy. “Since its blitzkrieg failed, Russia has gone with the strategy of slow, painful death by economic means.”

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It seems to be working. Ukraine’s gross domestic product will halve this year. Its budget deficit is $5 billion a month and, by the end of 2022, foreign donors will have spent at least $27 billion paying the salaries of Ukrainian public sector workers and soldiers, keeping them warm this winter. The central bank has devalued the currency, the hryvnia, by 25 percent and is printing more to buy government debt, pushing inflation to over 20 percent. “People don’t understand how acute this is and that we are on the brink of a currency crisis,” says Rodnyansky. If this leads to hyperinflation, “it would be a disaster of unimaginable proportions and we would not be able to continue the war effort.”

Financial strangulation

Putin is betting that Western generosity is not infinite – especially as high gas prices hurt domestic economies in the West – and that the squeeze on Ukraine’s economy will further stretch the limits of how long the West will prop up Kyiv. ArcelorMittal’s steel plant in Kryviy Rih is emblematic of Ukraine’s futile efforts to escape Russia’s stranglehold on the economy that accompanied its invasion. After paying $4.8 billion to buy it in 2005, ArcelorMittal invested another $5 billion to upgrade the sprawling 7,000-hectare plant, built on one of the world’s richest iron ore deposits. It had planned to spend another $2.5 billion, says the plant’s CEO Mauro Longobardo. “We were seeing Ukraine moving towards Europe and it had to prepare the facility to become a European facility,” he says. Fueled by coal trucked in from Kazakhstan via Russia, its four blast furnaces — including one of Europe’s largest — churned out 4.7 million tons of steel a year. Miners extracted 11 million tons of iron ore from a rich seam that runs beneath the city. It had its own port facility in Mykolayiv, near the Black Sea, and with 26,000 employees, it became Ukraine’s second-largest industrial employer, sending $6 billion in taxes to state coffers since it was taken over in 2005. Today, the once bustling factory has an almost deserted look. Only one blast furnace was operating last week, producing just a few thousand tons of steel. In June, the company was forced to cut wages by a third. ArcelorMittal’s Kryviy Rih plant CEO Mauro Longobardo says he has done everything he can to keep the plant running © Ueslei Marcelino/Reuters Russia’s forcing of a completely intact steel plant on the brink of complete shutdown is a case study in economic warfare. Sitting in his office in Kyiv, Longobardo, the Italian CEO hired in Ukraine by Indo-British steel magnate Lakshmi Mittal, details the six-month transformation from a bustling and profitable business to a moribund company awaiting decisions out of control her to return to LIFE. The defense of Kryviy Rih, which means “crooked horn”, is already a legend in Ukraine. Despite being Zelenskyy’s hometown, it found itself without any military protection in the early days of the war and was run by mayor Oleksandr Vilkul, a former deputy prime minister who was once considered one of Ukraine’s most pro-Russian politicians. Oleksandr Vilkul said he grabbed explosives to blow up bridges and a tunnel to slow the Russian advance © Roman Olearchyk/FT Vilkul, who had worked in the mines as an explosives expert, says he knew the Russians would come for the strategically important city, centrally located to the steel plant and iron ore deposits. So he grabbed explosives from a nearby mine and blew up the bridges and a tunnel on the way to town. He then blocked a highway with the huge trucks used to transport the ore, cutting off a Russian convoy of 150 vehicles. “We defended ourselves with everything we could,” he says, pointing to a crank-operated detonator from the 1970s that he had pressed into action. “The lines on the map were moving fast and someone had to take responsibility.” At the factory, Longobardo ordered the blast furnaces to cool down (a process that takes days) and sent all non-essential personnel home. “The enemy was very near—a single . . . The bomb could have been devastating,” says Valeriy Sorukhan, a foreman. But the fate of the plant was already decided far away from Kryviy Rih. In the north, the Ukrainian military had blown up rail lines from Russia, which normally brought the coal that heats the furnaces to more than 1,500 C. In the south, Russian artillery formed an offshore blockade after the Ukrainians laid mines in the port of Odessa to to repel amphibious assaults. Airstrikes hit Ukraine’s main port of Odessa in April © Bulent Kilic/AFP/Getty Images Months later, Longobardo is still unable to revive the factory profitably. He was able to keep the iron ore mines open but, with his own blast furnaces closed, he had to try to sell the ore. “Same problem — even if you solve the logistics, it’s $100 a ton more expensive,” he says, frantic as he recounts the different ways he tried to make the business work by shipping steel and ore by rail to a port in Poland . instead of through the Black Sea. “With all these extra expenses I can’t sell a single ton of steel without a loss.” At one point it broke through the levels and then steel prices began to fall as the global economy cooled. His product was even less competitive – $120 more than the purchase price to produce and $130 a ton more to get to his customer. It took months, he says, to accept the inevitable. Without the port of Odessa, it made no difference that Kryviy Rih was safe, well fortified, and its steelworks remained intact with its workforce. “Without the port, there is no metal industry in Ukraine,” he says. “We did everything we could.” The factory in Kryviy Rih still has 26,000 employees on the payroll © Julia Kravchenko/Bloomberg It turned out that Russia didn’t need to take Kryviy Rih to nearly complete one of Ukraine’s biggest employers and the last remaining major steel plant. With the Mariupol steel mill under Russian control, “we are now one of the biggest taxpayers,” he says. “If we don’t produce, there’s no money in the government.” Now, Longobardo is keeping the single blast furnace running, mostly for local Ukrainian customers, and is waiting for either a recovery in global prices or the lifting of the Black Sea blockade. If nothing happens, it should close that too. As for the 26,000 employees still on the payroll, he says the company’s support “can’t be forever.”

A diplomatic crowbar

The blockade has given Russia not only economic leverage over Ukraine, but also diplomatic leverage with which to loosen some of the tight restrictions on its own exports. In August, it began letting ships carrying Ukrainian grain run its naval gauntlet to supply volatile global food markets. But it is highly unlikely that Russia will allow ships carrying steel or coal to follow — Russian steel itself is blocked from European markets, and the exit of Ukrainian steel would defeat the purpose of the blockade. Already, Moscow has complained that the West has not eased pressure on Russian exports (a quid pro quo expected to free up Ukrainian grain) and suggested it might not renew the food deal in November. “We need the sanctions lifted,” says Gennady Gatilov, Russia’s permanent representative to the UN in Geneva. “We need the ships to come to Russian ports…