What fate awaits Russia’s frozen assets and what scenario is the best for Ukraine?

The Group of Seven (G7) has failed to finalise its declaration by the third anniversary of Russia’s full-scale invasion of Ukraine, including due to the United States' disagreement over recognising Russia as an aggressor state.

Equally important though is the phrasing regarding Russia's sovereign assets held in Western jurisdictions.

The dispute over the $300 billion in Russian Central Bank reserves could signal an imminent practical decision regarding these funds and, at the same time, the consideration of options that might contradict Ukraine’s interests.

Read more about the scenarios for unfreezing Russian assets in the article by Ivan Horodyskyi, Director of the Dnistriasnkyi Centre – Protection from Trump: how Europe is preparing for increased pressure on Russia’s frozen assets.

The main factor determining the policy of the new administration on Russian assets remains the negotiations between the United States and Russia in Saudi Arabia.

The Trump administration’s business-oriented approach to international relations leaves little doubt that assets of such a magnitude will inevitably become a subject of diplomatic bargaining.

The information currently emerging indicates that the US position in negotiations could be more favourable to Moscow than to Kyiv.

For example, the day after the first round of negotiations, reports surfaced that the Russian delegation raised the issue of unfreezing assets blocked in the US since the beginning of the aggression.

Despite the relatively small amounts involved, such as just $6 billion from the Russian Central Bank reserves out of the $300 billion, such a decision would have significant consequences.

First, it could become a landmark decision that shatters the consensus on frozen assets. Second, regardless of the sums, it would strengthen Russia's economic position during what is likely to be the most challenging period of the war for Ukraine.

An even more concerning scenario, reportedly discussed in Riyadh, involves directing part of the frozen funds toward the reconstruction of territories that will remain under Russian control.

This option, previously discussed by Ukrainian experts, effectively divides responsibility for the consequences of the war between Ukraine and Russia, which is unacceptable.

However, the main obstacle to its implementation remains the fact that the majority of the Russian Central Bank reserves (over $200 billion) are under European Union sanctions.

It is the EU, not the US, that could make the key decision regarding their future.

The European Union is considering transferring the assets to an international compensation mechanism.

Under this mechanism, Russian assets would be used according to the decisions of a future Compensation Commission, which is expected to be established this year.

This mechanism, which already includes the Loss Registry for Ukraine, is one of Ukraine’s most significant diplomatic achievements over the past three years.

Transferring Russian assets to its jurisdiction may be the best option in the current situation.

This decision, however, still needs to be made.

If Ukraine does not act proactively and does not align with the EU, the new US administration could create conditions in which funding for the international compensation mechanism and reparations for victims becomes impossible.

In practical terms, the issue of reparations could disappear from the agenda for many years.