A Pot of Cold Gold. The Case of Frozen Russian Assets held by the EU
- Eugene Zinchenko
- 3 days ago
- 6 min read
Russian Assets held in the European Union have been frozen by the EU for more than 3 years now. With recent plans outlined by Merz concerning the use of these assets and their inclusion in both EU- and American-led peace plans, their fate has re-entered the spotlight. Some people believe confiscation of these assets will form the basis of just reparations for Russia’s war crimes, while others emphasise the legal framework and the dangers this precedent will cause for the EU’s legal and financial stability. Should frozen foreign assets be treated as a viable tool in international relations, or does their use destabilise global financial trust?
Background
On the 24th February 2022, Russian troops began pouring across the Ukrainian border, beginning a full-scale Russian invasion of Ukraine. Almost immediately, the EU imposes broad sanctions aimed at curbing the Russian war effort and making Putin reevaluate his strategy. Among these sanctions was the asset freeze of the Central Bank of Russia. Importantly, Russia could no longer access or manage a large part of its foreign exchange reserves held in the EU, amounting to about EUR 210 billion. These assets were held in the form of foreign currency reserves, securities, and government bonds. The biggest holder of Russian assets in the EU is Euroclear Bank in Belgium, which currently holds EUR 193 billion. By freezing these assets, the EU has deprived the Russian Central Bank of a critical backstop for managing the ruble, financing imports and servicing debt. The freeze amplified exchange rate volatility, contributed to a steep rouble devaluation in 2022, and made foreign currency liquidity scarce. As a result, Russia experienced a sharp economic contraction and disruption in trade and imports. Subsequent state fiscal actions and tighter controls helped soften the blow, but access to global capital markets still remains constrained, curbing Russia’s economic power.
From the beginning of the war, there were a number of EU politicians who advocated for the use of Russian frozen assets as aid to Ukraine. For instance, one proposal that was implemented was paying the annual interest generated by the assets, around EUR 3 billion, directly to Ukraine as compensation. More recently, the Chancellor of Germany, Friedrich Merz, proposed using the frozen assets as collateral on the EU's EUR 140 billion loan to Ukraine. The Belgian Prime Minister stated that this plan will never happen unless Belgium is protected from any liability. The head of Euroclear also expressed concern over Merz’s proposal.
Euroclear has opposed various measures to utilise Russian assets to help Ukraine because of international law. The legal basis for EU asset-freezing measures is found in the sanctions framework. However, when dealing with the assets of a foreign sovereign, seizing them outright violates sovereign immunity. Russia has already stated that any move resembling asset confiscation will be met with decades of lawsuits and litigation. Based on these grounds, Belgium continues to refuse any proposals that could trigger such processes.
A Truly Unprecedented Measure?
Various Russian officials have described the EU’s freezing of their assets as theft, calling the move unprecedented. However, similar measures have already been implemented by the EU and other states. The most recent example is when the EU froze the assets of Libya held in the EU after the beginning of the Libyan Uprising against the country’s dictator, Muammar Gaddafi. The EU froze approximately EUR 20 billion of Libya’s assets. Another case would be the EU freezing Iraq’s assets after Iraq's invasion of Kuwait. One of the few cases in which frozen assets were actually used as reparations happened in the United States. In 2017, the US Supreme Court allowed USD 2 billion of Iranian central bank assets frozen within the US to be used as compensation for terrorism victims. Yet this ruling was largely controversial and is not considered a legal precedent.
What separates these previous examples from what is happening currently is sheer scale. This is the first time the foreign assets of a major country like Russia, totalling over EUR 100 billion, have been frozen. Furthermore, previous measures taken by the EU against Libya and Iraq were backed by UN resolutions, thus having more robust legal justification. This will never happen in the current case because of Russia’s veto power in the Security Council. The EU has a history of freezing assets of countries involved in ongoing conflicts, but actually using these assets would indeed be an unprecedented move in the legal history of the European Union.
One of the reasons the EU is hesitant to take this step is the erosion of trust in the European financial institutions it can cause. EU banks are among the preferred locations for Middle Eastern, African and Asian countries to hold their exchange reserves. The head of Euroclear has stated that Arab and Asian partners are closely monitoring the situation to determine whether their own assets will be safe. If Russian assets, or even part of them, are confiscated, some of these countries may think twice before holding their assets in the EU. Some of the states, like China, the Gulf states, and Azerbaijan, are dictatorships with a history of human rights abuses. It can be Russia being punished now, but what prevents the EU from employing the same strategy and using the foreign assets they hold as a negotiating tool against the aforementioned countries? If countries began withdrawing their reserves from EU banks, it would reduce inflows, potentially substantially damaging the EU’s financial power.
What happens now?
As of writing this article, Ukraine has been presented with Trump's 28-point peace deal. Ukrainian and American delegations have already met in Geneva to negotiate the most controversial aspects of the plan. The EU has presented its own peace plan to counter Trump’s plan, which they think might go against Ukrainian interests. Trump’s initial plan outlined a scheme where EUR 100 billion of the Russian frozen assets would be channelled into the US-led reconstruction fund in Ukraine. The rest, over 200 billion euros, will be given to US-Russia investment vehicles. Under this US-led approach, Washington would effectively control how the assets are allocated and invested, thereby determining the distribution of reconstruction financing. It would also mean that the EU, despite being the jurisdiction holding most of the frozen assets, would lose direct authority over them and would have to participate in a system led by the US.
The EU counterplan states that the EU will keep ownership of all the frozen Russian assets it currently holds until Russia compensates Ukraine through reparations. This model preserves European legal and political control over the frozen assets and ties their use to accountability mechanisms. The funds cannot be released or spent until Russia explicitly commits to and fulfils reparation obligations. It ensures that the assets remain a tool of leverage under EU jurisdiction rather than being integrated into an external governance structure dominated by the United States. On the other hand, the new shortened version of Trump’s Plan point plan negotiated by the Ukrainian and American delegations drops the point mentioning frozen Russian assets entirely.
Russia’s official position has remained consistent: any seizure or use of frozen Russian assets is “theft” and illegal. Russian speakers stated that if Russian frozen assets are confiscated, retaliation will follow, possibly through confiscation of the EU assets still held in Russia, like EU-based company buildings, or through countless lawsuits.
It remains unclear what will happen to the Russian frozen assets held by the EU. Some observers note that Russia might privately accept losing this money in return for some major geopolitical concessions. So far, the EU stance advocates for continued holding of Russian assets until the war is over and Russia pays reparations to Ukraine. The most likely outcome is that these assets will remain frozen for the foreseeable future, with Russia refusing to properly compensate Ukraine and the EU afraid of setting a dangerous precedent and confiscating these assets outright. They will remain in a frozen hold, a pot of hidden hold, inaccessible to either side.
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