Stop the excuses for why Russia’s frozen assets can’t help Ukraine

Excluding defense, Ukraine estimates it needs $15 billion for immediate reconstruction in 2024, with a staggering $486 billion required for full-fledged recovery. No nation can be expected to shoulder Ukraine’s victory and reconstruction alone. 

But the collective West has $300 billion in frozen Russian assets that could be very useful.  

The European Union had previously disagreed on using the frozen assets, citing risks to the euro and massive legal repercussions. Recently, EU envoys agreed to use only profits from frozen assets and to direct 90 percent of the proceeds into an EU-managed fund for military aid. 

However, even if the EU ministers ratify the legal framework for the fund’s implementation, it estimates windfall profits from the assets will total between $16.3 and $21.7 billion by 2027. That’s little help for the February agreement for $54 billion to support Ukraine’s recovery, reconstruction and modernization until 2027. But it’s still important, as it would be the first time that the EU uses billions of dollars in frozen Russian assets.  

Pushing EU partners, the U.S. proposed providing Ukraine with an initial $60 billion, repaid over time using the profits generated from Russian assets held in Europe. If the EU continues to disagree, the U.S. should be the first among others to demonstrate how to do this. 

The U.S. claims to possess a relatively small portion of Russian assets, approximately $4 to $5 billion. However, Euroclear reports that their U.S. dollar cash balance related to Russian sanctions is approximately $15 billion. Also, the newly adopted “21st Century Peace Through Strength Act” gives the Biden administration the right to go for the confiscation. 

Despite skepticism around the political will for asset seizure, Secretary of State Antony Blinken announced that the U.S. intends to use this right. This has the potential to spur the EU toward more decisive action, while also providing countries like the United Kingdom, Japan and Canada with a tangible precedent to expedite the shift from words to deeds. 

For now, the EU prioritizes the aggressor’s property rights over the victims’ human rights. When it comes to asset seizure, the discussion can be broken down into three main parts: the political question of whether or not to do it, the legal aspect of how to do it and the practical question of when to do it. If the first question is answered affirmatively, the legal and practical way will be found. Conversely, if there is no political drive, numerous legal concerns will be offered as an excuse. 

What holds the EU back?  

First, legal obstacles, related specifically to international customary law that safeguards state assets through the principle of “sovereign immunity.” Yet an international treaty and corresponding amendments to national legislation embodying the right to specific countermeasures could debunk this sentiment. 

Second, there are more grounded reasons, most significantly, the Eurozone’s stability. China, Saudi Arabia and Indonesia are urging the EU to persist in opposing the seizure of Russian state assets, threatening to withdraw their funds from the EU. But if the EU aligns with the U.S., the blackmail will not work. To abandon major world currencies, viable alternatives are needed. While the Chinese yuan is a contender, storing reserves in a country where the rule of law is not respected poses significant political risks. 

Third, there’s a risk of retaliation against EU companies in Russia. In fact, the seizure of Western companies for the benefit of Putin’s cronies companies is already ongoing. So it’s just a matter of time when they come after the rest. 

It is a cruel irony, that the desire to do business in the aggressor country not only finances the war (Foreign companies brought $40 billion in taxes to the Kremlin since the invasion of Ukraine) but also forces Ukraine and its allies to bear the burden of supporting the war-torn nation from their own treasuries. While Western companies may avoid discussing it, the reality is that financing aggressors and profiting from bloodshed is a grave issue. Introducing an additional tariff could be considered to fund the defense of those whose lives are tragically affected by missiles funded with Western company’s taxes.  

Over the years, Euroclear has retained Russian funds and earned substantial interest. In 2023 alone, interest payments totaled around $5 billion, on top of the initial $200 billion. However, Ukraine, now in its third year of full-scale war, has received little to none of these funds. Ukraine urgently requires dozens of billions to defend itself and swiftly rebuild its energy and social infrastructure. This is crucial to enable businesses to operate and to ensure people don’t leave the country by the end of the year. 

An important venue for a decision will be the G7 meeting in Stresa at the end of the month. The EU ministers will talk about how to use frozen Russian assets. Italy, which has the presidency this year, should push for a clear path to use frozen capitals. 

The problem is that Italy, like the rest of the EU, still has significant economic interests in Russia. The recent nationalization of an Italian company symbolizes the Russian retaliation that Italy fears could be repeated. This is why, until now, the EU sanctions have not worked completely, as European businesses keep investing in and trading with Russia. 

After more than two years since the beginning of the war, the EU is finally working to bar EU countries from re-exporting Russian liquefied natural gas (LNG), which is helping the Russian economy tremendously. Even if Hungary tries to block the sanctions (as usual) the momentum seems rising.  

The economic war with Russia is just beginning and the path seems long. But Ukraine’s resolve to win the war and at the same time start reconstruction is pushing the EU to wake up, especially on the issues of frozen assets. 

They say time equals money. Yet for Ukraine, every delay in action carries the weight of lives lost or saved. It is imperative that the US, the EU and G7 leaders prioritize the human cost of inaction.  

Tetiana Khutor is the founder and chair of the Kyiv-based NGO Institute of Legislative Ideas and a visiting professor of practice at George Mason University’s Schar School. 

Maurizio Geri is a European Union Marie Curie fellow and a postdoctoral researcher at the Schar School.