Russia Considers $300 Billion in Frozen Assets for Ukraine Reconstruction

MOSCOW, SATURDAY - In Russia, discussions have emerged about handing over 300 billion US dollars as part of peace negotiations. The funds, in the form of frozen assets, could be used for the reconstruction of Ukraine.

Three unnamed sources conveyed this to Reuters News Agency on Friday (21/2/2025). However, it is unclear whether this idea emerged during the first face-to-face meeting between Russia and the United States in Saudi Arabia on February 18, 2025.

But so far, the Kremlin, Ukraine's foreign ministry and the White House have declined to comment. The UK's Foreign Office has also declined to comment.

"There is nothing about Ukraine and the European Union that can be decided without Ukraine and the European Union," said Anitta Hipper, Spokesperson for the European Commission. She added that the EU is ready to assist Ukraine in strengthening its position ahead of any discussions, including new sanctions against Russia.

Since the war began in 2022, the US and its allies have prohibited transactions with the central bank and the Ministry of Finance of Russia. They have also frozen Russian state assets valued at 300 billion to 350 billion US dollars, most of which are in the form of European, US, and UK government bonds held by European securities institutions.

The idea of utilizing frozen assets has never been proposed before. Russia's frozen assets have been a subject of intense debate in the West. In 2023, the G7 group declared that Russia's sovereign funds would remain frozen until Moscow compensates for the damages in Ukraine. Others have suggested that these frozen assets be allocated to Ukraine through a "repatriation loan" system.

Russian Central Bank Governor Elvira Nabiullina said Thursday the bank was not part of talks on lifting sanctions or releasing Russian reserves. Russia has previously called the planned use of the funds in Ukraine a robbery.

Much of eastern Ukraine has been devastated by the war, with hundreds of thousands of soldiers killed or wounded on both sides. Meanwhile, millions of Ukrainians have fled to European countries or Russia. Last year, the World Bank estimated that Ukraine's reconstruction would cost $486 billion.

Renaissance Capital chief analyst Oleg Kouzmin said differences between the US and Europe would complicate the lifting of the asset freeze. Europe feels the US is not involving it and Ukraine in Russia-Ukraine peace talks.

“The European side should fully support the current US position aimed at dialogue with Russia,” said Kouzmin, calling such a scenario “very optimistic.”

Russia's main demands in the negotiations are the withdrawal of Kyiv's troops from Ukrainian territory claimed by Moscow and the end of Ukraine's ambitions to join the North Atlantic Treaty Organization (NATO). Ukraine, meanwhile, wants Russia to withdraw from its territory and wants security guarantees from the West.

According to one source, Russia could accept using two-thirds of the frozen assets for Ukraine’s recovery under a peace deal, provided there are guarantees of accountability. The rest could be used for Russian-held territory in eastern Ukraine that Russia now considers part of Russia.

Another source said Moscow would agree to use the assets to rebuild Ukraine. But it was too early to talk about how the funds would be shared. Two sources stressed that it was important to discuss which companies would get future contracts for reconstruction.

Another source, close to the Kremlin but not involved in the discussions, said Russia would still demand the asset freeze be lifted as part of a gradual easing of sanctions.

Kremlin officials have repeatedly warned that asset seizures by other countries run counter to free market principles, undermine banking security and erode confidence in reserve currencies.

In response, Russia has drafted legislation to seize funds from companies and investors from unfriendly and sanctioned countries. The bill has yet to be passed in Russia's lower house of parliament (the State Duma).

Like other central banks, the Central Bank of Russia (CBR) places part of its gold and foreign exchange reserves in liquid assets, such as currency, gold and government bonds. About half of these reserves are held in the West.

Russia has total gold and foreign exchange reserves of about $627 billion, including frozen funds. The value of Russia's frozen assets fluctuates with bond prices and currency movements.

In detail, CBR has around 207 billion US dollars in euro assets, 67 billion US dollars in US dollars, and 37 billion US dollars in pounds sterling. There are also 36 billion US dollars in yen, 19 billion US dollars in Canadian dollars, 6 billion US dollars in Australian dollars, 1.8 billion US dollars in Singapore dollars, and 1 billion US dollars in francs.

The CBR invests these assets in foreign securities, bank deposits and nostro accounts. The bank’s largest bond holdings are Chinese, German, French, British, Austrian and Canadian government bonds. Russia’s gold reserves are held in Russia. About €159 billion of these assets are managed by the Belgian clearing house Euroclear Bank.

While the freezing of funds has angered Russia, some supporters of Russia's war effort acknowledge that Moscow could eventually hand over the frozen assets as long as the occupied territories remain within Russia.

"I propose a solution. They pay this money for the purchase of those territories, those territories that want to be with us," said Margarita Simonyan, Head of RT State Broadcasting, in 2023.

Russian-controlled Ukraine accounts for about 1 percent of Russia’s gross domestic product. Some economists believe that contribution could grow rapidly if the regions remain with Russia when the war ends. They already provide about 5 percent of Russia’s grain harvest. (Reuters)