Could frozen Russian assets finance Ukraine's war effort?

We begin in Brussels, where EU leaders are debating whether to use frozen Russian assets to help Ukraine. The controversial plan would provide Kiev with a loan of 140 billion euros, technically without confiscating Russia's funds. Under international law, sovereign assets cannot be taken. The Kremlin has warned of what it called a painful response if the assets are seized. All the money is currently being held in Belgium, where the government has asked for guarantees Speaking at the meeting in Brussels, Ukrainian President Volodymyr Zelensky welcomed the plan. The main thing that today, I hope, God bless, that now there is, now, yes, they have meeting and the EU leaders and I hope that they will make political decision, positive decision, in one or another way to help Ukraine with funds, yes, basing on frozen assets. Our correspondent Jack Parrock is following the summit in Brussels. I asked him what EU leaders want to do with all this Russian money. The plan is to support Ukraine and continue the financial support to Ukraine. The reality is that the 27 leaders of the European Union are starting to struggle to find money to continue to support the war effort from their own domestic budgets and are under domestic political pressure. Now using this 140 billion euros that is stuck here in a financial institution in Belgium called Euroclear is very delicate and very complicated. I think it was really telling what Volodymyr Zelensky said there. He said, I hope, God bless, he knows that this is so delicate and that the leaders are going to have to really find a fine line through making this legal. The Belgian Prime Minister Bart de Wever, on his way in, this has sort of been the stipulations that his government has been concerned about. They want three things. They want to make sure that there's risk sharing among member states. So this isn't all on Belgium where the assets are held. They also want guarantees against repayment obligations. So say a ceasefire deal comes to pass and Russia then comes and starts asking for some of the money back, that some of the other countries may potentially burden share with them. And he also wants to make sure that there are other Russian financial assets that are frozen in other countries and that they are also included so it isn't just Belgium. Will the other leaders be able to find a sort of technical, political decision amongst them? That, we just don't know. We know that the discussions are going to be continuing. Perhaps the suggestion is that the EU can write a bit of a plan, they can sort of politically agree in theory to that plan, but then the plan can be deepened and moved forward. We don't quite know how far they're going to go at this summit. Zelensky hopes that they will get it signed off, but that might not be possible. OK. Another aspect of the EU trying to help Ukraine against Russia, they announced their 19th package of sanctions. What's in this latest set? Yeah, so this is a pretty big set of sanctions to be fair. It involves the banning of liquefied natural gas, it targets the shadow fleet, it restricts cryptocurrency. It does a lot of quite strong things with the Russian economy. The idea of the sanctions packages are trying to really turn the screw on the Russian economy, which we've heard from leaders and indeed Zelensky here saying that this is the way to pull Putin to a table to discuss some end to this war, some ceasefire. But it is important to say this is the 19th package of sanctions and so far the further 18, the earlier 18, they didn't manage to do that. Right. So, sanctions on Russian gas though, this was too much for a couple of member countries. Explain how their objections were overcome. Yeah, it was stressful, especially for Slovakia and Hungary to some extent, but the real veto lingering over it ahead of the decision that was made ahead of the summit was from Slovakia. They're worried about what their own domestic energy mix would amount to. It seems that there has been some sort of tweaking in the language that has allowed them to push this over the line. We don't know exactly all the differences. We don't always see the drafts as they go through in these sanctions packages. But the Slovaks removed their veto. Also just a sort of side note on this, also one of the not real headline discussions here at the European Council summit is about some of the EU's climate laws, climate regulations and the restrictions, for instance, on vehicles and an energy trading system that the Slovaks and the Hungarians are very opposed to. So they may have sort of softened their position on the sanctions package in order to play hardball here at the summit on that issue. Thanks, Jack. Jack Parrock in Brussels. President Putin says new US sanctions are serious but will not cripple the Russian economy. Donald Trump announced sanctions against Rosneft and Lukoil, Russia's biggest oil producers, hoping to pressure the Kremlin to negotiate a ceasefire in Ukraine. Russia says the plan will fail. President Putin has also accused Europe of clinging to what he called ineffective measures. He says he's shelved a planned meeting with, Donald Trump says he's shelved a planned meeting with President Putin in Budapest, a sign that his patience may be wearing thin three and a half years into this war. Let's get more on this from Olga Khokhova. She's deputy director for European Energy Security at the Atlantic Council's Global Energy Centre in Washington, DC. Welcome to The EW. The translated quote from the Russian president is that these latest sanctions will not significantly affect our economic well-being. What's your view? These Russian oil giants have been untouchable in the past because previous administration was too concerned with keeping oil volumes on the market. President Trump deserves a lot of credit for being decisive and moving quickly here for his first action on sanctions on Russia, being this massive impactful move to choke off millions and billions of potential income for Russia. No matter what Putin says, this is a huge revenue, this is a huge lifeline for Russian war machine and for Russia's broader economy. This will have an impact. It's just a matter of how long these sanctions will be in place and how well they will be enforced. Let's talk about enforcement because we've seen Russia circumvent sanctions previously. Have those loopholes now been closed? The one certain thing with sanctions is countries will always find a way to circumvent. However, it is expensive, it is lengthy, and it's a messy process, and it's risky. And businesses in other countries around the globe don't like dealing with sanctioned countries. Let's take Arctic 2 sanctions, for example. Even those sanctions, which eventually ended up being circumvented, delayed development of the Arctic 2 LNG project by at least a year. They made it more expensive. They made it more complex to secure Western components and alternative components. So this narrative that sanctions don't work is simply not true. We just have to assume that Russia and other malign players will find eventually a way to circumvent. We just have to get ahead of that next step, and there are ways to do that. Give us an overview, if you would. Compare the sanctions announced by the European Union and those by the US. Are they doing similar things in different areas, or do you see a difference in emphasis between the two? The timing is quite excellent because we are approaching and we're pressuring Russia from both sides. Their major revenue sources are gas, LNG, and oil. And being able to lay out a policy that's enforceable for Europe that has no place for Russian imports of pipe gas, of LNG, paired with a policy from the United States on making sure that Russia can't take its revenues and invest them into horrendous acts in Ukraine and across the world. This has an incredible layered multiplier impact, and this will put additional pressure on Russia because oil and gas are their key economic revenue development. Just a final word on what the EU is doing. This is their 19th round of sanctions against Russia. Why are they taking such an incremental approach? Wouldn't more earlier be more effective? Great question. Yes and no. In a way, this approach allowed the EU to move and keep progress and keep pressure on Russia and other malign players who are supporting Russia to reduce its income that it can then invest into war. It allowed Europe to bring all of the member states on board with every step of the way, so there wasn't going to be a huge pushback. If we were to do this package, this 19th package, I would say even two or three years ago, it could have potentially taken much longer to get the countries aligned because it was done gradually. Europe was able to ensure supply security, prepare its member states for the next steps, and ensure alignment and, frankly, ensure price competitiveness into the future. Thank you for guiding us through that so clearly. Olga Khokhova from the Atlantic Council. Thank you. Anastasia Fedyk is an assistant professor of finance at the Haas School of Business in Berkeley, California. She's also active in the NGO Economist for Ukraine. Welcome to DW. How much damage do you think the sanctions from the EU and from the United States are likely to do to the Russian economy? Yeah, so of course, they will not be good for the Russian economy, so the effect is going to be negative. The question is how much of an effect, how quick of an effect, and really how much impact it's going to have on Russia and its willingness to negotiate and to seize the conflict. For example, in the 19th package, the further restrictions on the Russian LNG, of course, it's an expedited timeline relative to what we had before, but it's still, for the long-term contrast, we're still talking about 2027, so it's not something that necessarily will immediately curb Russia's revenues. That said, some of the other sanctions, for example, really cutting down on the ability of the Russian sector to procure dual-use items, to procure technology from the Western partners, those can have some faster effects. Okay, so it's tightening the grip, but this is not a death blow as you would see it. And Russia has proven skillful at dodging restrictions in the past by using these shadow tankers and cryptocurrency and by selling oil and gas to countries that aren't part of the sanctions coalition. Do these new measures that we've seen announced, do they close these loopholes? They definitely tighten them. And now I would push back a little bit in terms of how skillful Russia is versus just from how hard we've tried really to close down some of those, they're not even loopholes, they're just basically openings, I think, for them to continue selling. And I think there's quite a bit of ambiguity still. So, for example, the announcements from the United States, it's not entirely clear exactly what kind of secondary sanctions might come for those that continue trading with those Russian companies. Looking at the market reaction, of course, the price of crude has risen quite a lot by 5% today. That means market participants do expect that this will actually have a significant effect. But I think at this point, it's tightening, so adding tankers to the list, potentially imposing sanctions on third parties that are continuing to enable that transfer of Russian energy through the world markets. But I think it all depends on ultimately the implementation and really the will, the desire to follow through on that strong implementation. Can you explain to us the thinking behind the EU's incremental imposition of sanctions? We're looking at their 19th package. Why not, many would say, hit Russia harder earlier? Yeah, and of course, many of us in the academic community, in the sanctions sort of groups have been advocating for stronger sanctions for a couple of years. Now, of course, the reality is that it's a diplomatic process. The EU bloc is not homogeneous. There is disagreement within the bloc. Coordination is important. You don't want to announce things that are then not going to be feasible, and then you're going to signal some breaks within the bloc. So it really ends up being the common denominator of sort of what are we willing as a coalition and the EU's part, or even the G7 part for some things like the price cap, what are we willing to impose where the objective, I think, of these kind of collections of countries has always been impose as much cost as possible on Russia while minimizing the cost of imposing countries. And of course, that's going to be limiting. And I think many in the sanctions community have been advocating for a faster effect, imposing more costs on Russia now means that we'll sort of get a quicker resolution. But on the flip side, some of the diplomatic processes have led to a slower, more gradual implementation. So short of President Putin turning around and saying, oh, all right, then I'll sit down with the Ukrainian fellow and we'll do a deal, right? Short of that, how do we tell whether sanctions are biting? What will you be looking out for? Yeah, and we've written actually on a couple of times and sort of the state of the Russian economy. And of course, there is a couple of layers there. So, for example, the Russian economy has now transitioned to a very kind of military economy, this war industrial process type of economy, which actually, in my view, masks a lot of the underlying issues. For example, the high interest rates in Russia, the high inflation, the low creation of new businesses outside of the military complex, all of that is sort of masked a little bit by just how much of the economy is now focused on the military production. Now, that does not necessarily actually make them more willing to negotiate, because in some sense, if they do step back from that military aggression, I think a lot of the fissures and a lot of the economic impacts from sanctions and from the last couple of years may actually become more evident in Russia and to the Russian society. So it's kind of a multi-layer problem there in terms of, yes, we're having an effect, but they're sort of almost keeping afloat by continuing the war. Yeah, I did want to ask you about the effect on Russian consumers. What will they notice? Are they already seeing, I don't know, empty shelves? What effects of Western sanctions are people in Russia seeing? Yeah, so, of course, many companies exited the Russian market. So instead of having the Starbucks and McDonald's, Russian consumers get sort of the lower versions, less nice domestic products instead. I think in terms of the innovation, new business creation, that has definitely suffered. The rates are high. Inflation is fairly high. But that said, I think for Russian consumers, that is not necessarily that tightly linked to the war. So I think the way that the war is covered, for example, in their media and so on, is just not something that they may kind of causally attribute, like, oh, hey, maybe this kind of has had a negative impact on us personally. And there's also a very strong kind of sense of winning, right? So if the Russian population feels like they're winning in the war, they're willing to take that economic hit because they feel like in the long term, they're going to be better off because they win a war, they get territory, whatever. And so I think the most important activity is still on the front lines. So the weapon aid is still much more important than sanctions aid, despite me being an economist, it's always been my view. Because ultimately, what will make the Russian population realize that this has kind of had an adverse effect on them is if they feel like they're not making progress on the front line, and then they will turn inwards and then they will notice more what's going on domestically. OK. Thanks for talking us through that, Anastasia. Anastasia Fedyk from the NGO Economists for Ukraine.