Ukraine has opened a Pandora's box by attacking Russia's retail sector and should now expect the same treatment but worse, President Vladimir Putin said in an interview on August 22.

“The Kyiv regime set out to damage our economy. What did it do? It opened this Pandora's box itself. Well then, expect a response targeting your most sensitive economic sectors,” Putin said in comments to Russian state television over the weekend.

He was speaking at the end of a summer in which Ukraine escalated drone strikes on Russia’s oil refineries, sparking a fuel crisis that has recently surged into a second wave of shortages. And at the end of July, Kyiv launched Operation Wildberries, targeting Russia’s biggest online retailer, destroying half of its network warehouses that account for about 10% of Russia’s retail trade. Ozon, Russia’s second biggest retailer, was added to the hit list on August 21, when its first warehouse in Samara was hit, followed by a strike on another warehouse in Orenburg the next day.

The Kremlin has retaliated with a disproportional ferocity as a warehouse war gets underway, not only destroying warehouses and shopping centres, but attempting to systematically destroy Ukraine’s retail infrastructure. After only two weeks, supermarkets in Kyiv are starting to empty as stores are unable to find supplies, or if they do, get them to shops to restock the shelves, according to reports. At the same time both of the combatants have targeted Black Sea grain exports and brought that business to halt just as the harvest start to come in.

It’s a one-sided fight. Russia has a deep missile inventory and a large firepower advantage. Ukraine has few missiles and its supply of interceptor missiles, the only thing that can stop Russia’s devastating ballistic missiles, has run dry. The upshot, Putin said in his interview, is the cost to Ukraine is much higher than the cost he admitted Russia is paying.

Putin was explicit about the scale of the Armed Forces of Russia (AFR) reply, in a fuller version of the remarks circulated in Russian: “You wanted to cripple our economy - now factories and warehouses are burning from Lviv to Zaporizhzhia. You interfered with our logistics - the Black Sea is closed, and railway junctions and lines are being systematically destroyed.” He said Ukrainian President Volodymyr Zelenskiy had given Russian 40 days to announce a ceasefire, or “face the consequences” and nothing happened: “Of course, no turning point in the confrontation with Russia has occurred, and will not occur,” Putin said.

The grain offer

On food, Putin was making a sales pitch as much as a threat. Between them, Russia and Ukraine account for a third of the world’s tradable grain exports. Exports from both Russian and Ukrainian ports have been brought to a halt in the last weeks that is already starting to impact grain price futures. However, while Ukraine has effectively been made a landlocked country by the bombardment of Odesa, Russia has alternative export routes via rail, and the ports in the Baltics and Far East, Putin said.

Grain is the main foreign exchange earner for the Ukrainian budget and it has already lost an estimated $2bn in grain export revenues at a time when the Ministry of Finance (MinFin) says there is already a $20bn hole in this year’s budget. Ukraine's grain exports have fallen 70% since its corridor closed in late July. The Odesa port strikes alone could cost Ukraine 5.3% of GDP by 2027, according to exports. A new global food price inflation shock is already on the cards.

Putin countered criticisms that Russia’s strikes will cause global shortages, because Russia can step in to cover the shortfall, putting Russian exportable volumes at 60mn tonnes this year and offering to make up any Ukrainian deficit with Russian grain.

“We do face challenges regarding the shipment of our goods, but we will resolve these issues. Consequently, there will be no shortage on the global market,” he said. In the Russian version he was blunter: Ukrainian officials were “running around the UN podium, scaring the world with famine”, and “we are ready to share if someone is lacking Ukrainian grain”.

However, Russia’s export capacity has been severely restricted by Ukraine’s attacks. All three grain terminals at Novorossiysk stopped loading in mid-August after Ukrainian strikes, the Sea of Azov is shut to navigation and more than 90% of Azov-Black Sea export capacity is offline. Russia shipped about 1.4mn tonnes of grain in the first 20 days of August, two and a half times less than a year earlier and is heading for its worst August in a decade. The 60mn tonnes exists; the berths to load it do not.

What it is doing to Kyiv

The attack on Ukraine’s retail is also spreading to affect the population. The Kyiv residential property market has effectively stopped, with buyers deterred by strike risk and the state of the power grid, according to accounts circulating from the capital this week. Russian missiles have destroyed about three quarters of Ukraine generation capacity in the last three years and a brutal bombardment of the 12GW of capacity that is left is widely anticipated this winter as Putin attempts to freeze Ukraine into submission for a second time.

Kyivians are already making preparations for the coming attack. Demand has shifted to houses with generators, solar panels and wood-burning stoves, while flats near potential missile strike targets - warehouses, industrial zones and filling stations - have become hard to sell. Rents on underground parking spaces, increasingly treated as shelters, are up about 20% in a year, according to reports.

The city is already pricing in a winter without electricity - a return to the blackout campaign Russia ran through the last cold season, this time with the retail and food chain wrecked as well.

In a rare negative note, Putin admitted to the damage Ukraine was inflicting in Russia as the conflict shifts from a war of attrition to total war.

“We do have strikes, and we do have damage, and each casualty is not just a line in a report,” he said. “It is a tragedy for a specific family. And it is our shared grief.” He framed the admission as a work list - air defence, civil-military coordination, rebuilding - rather than complacency, and Moscow has committed state money to rebuilding what the marketplaces lost.

On peace talks, Putin repeated that Russia is open to them “but only on the basis of the realities that are taking shape on the ground”, dismissing proposals relayed through intermediaries as “exotic”. This is Russia’s standard position and analysts translate it into meaning that Putin will only consider “peace talks” that includes Kyiv giving up any claim to either the Crimea or the Donbas on the basis of the failed 2022 Istanbul peace deal.