A challenge facing Ukraine is the uncertain willingness of its U.S. and European partners to continue providing financial aid support to Kyiv. But what if those responsible for Ukraine’s misery were made to pick up the tab? Wouldn’t that make pretty obvious sense?
Assuming so, there’s an easy option here that has yet to be adopted. The United States and its allies could provide Kyiv with Russian funds frozen in response to Russian President Vladimir Putin’s invasion.
Approaching $300 billion in Russian assets have been seized by the West, mostly by the European Union, since Russia’s February 2022 invasion of Ukraine. But while the U.S., United Kingdom, the Baltic states, and Poland support using at least some of these funds for Ukraine, others remain timid. Bloomberg notes that France and Germany oppose doing so. Whatever creative excuses France and Germany invent, the real reason they don’t want to give Ukraine these assets is that they fear Russian retaliation and disruption to the European banking system. Unlike the British, who have belatedly recognized that welcoming Russian finance is a recipe for assassinations and corruption, the French also fear the postwar departure of corrupt Russian oligarchs from St. Tropez and Paris.
These are weak excuses for lethargy.
Sino-Russian squeals to the contrary, the reason the dollar is the preferred international reserve currency is that the U.S. banking system is the most powerful while also being bounded by legal and bureaucratic oversights. It provides unmatched investor confidence (though the U.S. national debt significantly threatens this confidence over the longer term). The euro is the second major reserve currency for similar reasons. This means there are no credible competitors to this U.S.-European banking dominance. The Russian ruble is utterly unbound from the rule of law, hence why so many Russian oligarchs parked their wealth in the West in the first place! The yuan is similarly unreliable due to China’s vast levels of hidden debt and Chinese President Xi Jinping’s obsessive interference in the economy. Put simply, the U.S. and its allies could divert frozen Russian funds to Ukraine without major repercussions to the financial and banking markets.
Using these funds in a step-by-step fashion would have two further benefits. First, an allotment of around $100 billion to Ukraine would represent a sizable measure of much-needed new support to that nation. It would release pressure on the West to fill the financial gap. It would allow Ukraine to buy munitions at the high prices demanded by some exporting nations due to global supply shortages.
This step-by-step process would also encourage those whose assets are being used for Ukraine, oligarchs such as Alisher Usmanov, to reconsider whether Putin is their best option for future prosperity. They might begin to push Putin or those around him to reconsider his war strategy. An internal threat to Putin’s power is likely the only way he would reconsider his war effort. Indeed, some oligarchs, such as Mikhail Fridman, have already offered tentative criticisms of Putin as a result of asset freezes. And the more their assets are used by Ukraine, the more these oligarchs will have reason to question the credibility of Putin’s wealth-for-loyalty gambit.
At the margin, this will undercut the corrupt patronage network that undergirds Putin’s power. Putin needs the wealth he can skim off these oligarchs and the largesse they can distribute on his behalf domestically. In the context of the seismic political shock that was Yevgeny Prigozhin’s aborted 2023 coup attempt, Putin does not want any new friction within his power base. To be clear, those who support Putin at the highest levels ultimately do so because of the benefits they accrue from a corrupt oligarchy. This support consideration also applies to the highest levels of the security-intelligence services.
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Moscow recognizes the dangers it faces here. They underline why Kremlin officials frequently threaten vague retaliation to any such asset move. But unless the West is willing to bow to moronic threats such as the nuclear yarns offered by Dmitry Medvedev (threats made ridiculous amid U.S. strategic nuclear overmatch), it has moral, political, and economic cause to act.
Top line: Russia chose to start the war in Ukraine, to destabilize Europe, and to bring misery to the Ukrainian people. If Russian funds can help the West to support Ukraine, they should be deployed to that purpose.