Subscribe
In the grand geopolitical chess game, the West has potentially found a new gambit: using Russia’s own frozen assets to rebuild the very nation it sought to dismantle. It’s a move that combines poetic justice with financial pragmatism, turning the tables on Moscow in a way that even the most seasoned Kremlin strategist might not have anticipated. But is such move possible?
The Frozen Billions
When Russia decided to step into Ukraine uninvited in 2022, the West responded with a sanctions regime that would make a Cold War-era economist blush. Among the most significant of these measures was the freezing of Russian central bank assets held abroad, a sum totaling approximately $300 billion.
These funds, now immobilized in Western financial institutions, represent about half of Russia’s total foreign currency and gold reserves. The European Union holds the lion’s share, with estimates ranging from €201 billion to €210 billion, while the United States and Japan hold smaller portions.
The Plan
In November, G7 nations have concocted a plan to use the interest generated from these frozen assets to fund loans for Ukraine’s reconstruction. The scheme involves providing Ukraine with $50 billion in loans, with the United States contributing $20 billion, the European Union another $20 billion, and the remaining $10 billion coming from Canada, Britain, and Japan.
These loans are to be serviced and repaid using the proceeds from the immobilized Russian assets, effectively ensuring that Russia’s own money is used to rebuild the country it sought to destroy. It’s a financial “karma” move that redirects the aggressor’s resources to mend the wounds it inflicted.
Mid-December, a Finnish court ordered the selling of 34 million euro in Russian assets in order for them to benefit Ukraine. But so far, Finland is the only one of the EU nations to permanently confiscate, through the court system, some of the frozen wealth.
Legal Acrobatics & Dilemmas
Of course, seizing and repurposing a sovereign nation’s assets isn’t as simple as finding loose change in the couch cushions. International law, with its myriad treaties and principles, doesn’t exactly smile upon the confiscation of another state’s property. Sovereign immunity and investment protection agreements present formidable legal hurdles.
To sidestep these obstacles, Western nations have opted for a more nuanced approach: utilizing the interest generated by the frozen assets rather than the principal amount. This method, while still legally complex, is seen as a more tenable workaround, allowing funds to flow to Ukraine without outright expropriation.
However, on the 20th of December, Valdis Dombrovkis, the European Commissioner for Trade, spear-headed a tone change on the issue inside the European Parliament. “We certainly must explore and work on all options,” Dombrovskis said in an interview. “There is an established principle under international law that the aggressor is liable for the damage which it’s creating, so we must find ways how to make Russia pay for the damage it is creating in Ukraine.”
The EU’s diplomatic service is conducting fresh assessments of the financial and economic risk of confiscating Russian assets and hand them over to Ukraine, Bloomberg previously reported. The discussion has new momentum as the bloc confronts the risk of a drawdown or cutoff of US aid to Kyiv once Donald Trump is inaugurated.
The decision to repurpose Russian assets hasn’t been met with universal applause. Moscow has predictably labeled the move as “complete lawlessness,” threatening retaliatory measures that could include confiscating Western assets in Russia. The state-run RIA news agency reported that Western firms hold assets worth at least $288 billion in Russia, making them potential targets for such measures. Some of the biggest assets can be found in the energy and automotive industry.
Within the European Union, the plan has sparked debate. Austrian Foreign Minister Alexander Schallenberg warned that without a “watertight” legal justification, the confiscation could be an “enormous setback, and basically a disgrace” for the EU. It’s a reminder that in international relations, the moral high ground can be a slippery slope.
How Much Will The War Cost For Ukraine?
The devastation wrought by Russia’s invasion has left Ukraine with a reconstruction bill estimated at $411 billion as of March 2023. Some projections suggest that the total cost could eventually exceed $1 trillion, depending on the war’s trajectory.
The aforementioned $50 billion loan package, while substantial, is just a down payment on the broader reconstruction effort. It’s like trying to patch a sinking ship with duct tape—helpful, but hardly a comprehensive solution. Nevertheless, it’s a start, and symbolically significant, as it channels Russian resources into Ukrainian recovery.
Ukraine’s railways, highways, and bridges have suffered severe damage, disrupting the lifeline that connects cities and towns. Railways, vital for moving goods and people, have been a particular target, with dozens of stations, tracks, and freight depots destroyed. Highways and bridges, essential for civilian evacuation and military logistics, have been bombed to hinder movement. Rebuilding these networks will demand billions of dollars, as restoring transportation infrastructure is not merely about repairing physical structures but also about ensuring safety and modernization to meet international standards.
Energy infrastructure has also been a prime target of Russian aggression, plunging millions of Ukrainians into darkness and cold during winters. Power plants, substations, and transmission lines have been repeatedly attacked. Ukraine’s reliance on its vast network of nuclear, thermal, and hydroelectric power stations means that damage to these facilities has wide-ranging effects on industries, healthcare, and daily life. Rebuilding energy systems is particularly costly due to the complexity of replacing advanced equipment and ensuring resilience against future attacks. The World Bank estimates that energy sector reconstruction alone could cost tens of billions of dollars.
Moreover, cities like Mariupol, Kharkiv, and Bakhmut have been reduced to rubble. Residential buildings, schools, and hospitals have been obliterated, displacing millions. Rebuilding urban centers involves not only physical reconstruction but also reviving local economies, reestablishing community services, and addressing environmental contamination from heavy bombardment. The scale of urban devastation makes this effort one of the most expensive in modern history.
Conclusions
While the plan to use frozen Russian assets to fund Ukraine’s reconstruction is innovative, it’s fraught with challenges. Legal battles loom on the horizon, and the geopolitical chessboard is ever-shifting. The upcoming U.S. administration, under President-elect Donald Trump, has signaled potential shifts in policy that could impact the plan’s execution. How will 47th President tip the scales is still unknown though. It is not to be forgotten that Donald Trump showed an unexpected cordiality towards Ukraine’s Zelensky, meeting him in both New York and Paris and having what his team described as “constructive” talks.
Moreover, the ethical implications of using one nation’s assets to rebuild another raise questions about precedent. If the West can repurpose Russian funds today, what prevents similar actions against other nations in the future? It’s a Pandora’s box that policymakers must open with caution.
If successful in the end, the West’s strategy to use Russia’s frozen assets to rebuild Ukraine could be a masterstroke of financial and diplomatic maneuvering. It forces Moscow to underwrite the recovery of a nation it sought to subjugate, turning aggression into an unwitting act of restitution.
However, the path forward is laden with legal complexities, ethical quandaries, and geopolitical risks. As the world watches this unprecedented saga unfold, one thing is clear: in the high-stakes game of international politics, today’s checkmate can quickly become tomorrow’s stalemate.