U.S. President-elect Donald Trump’s ambition to end Russia’s war on Ukraine has raised expectations of a peace deal and set off a flurry of discussions among U.S. allies about potential peacekeeping forces and security guarantees for Kyiv. All of this assumes that Moscow is even interested in a deal. There has been much less talk about the United States’ and Europe’s options in the more likely event that Moscow rejects Trump’s peace initiative.
Trump’s designated envoy for Ukraine, Keith Kellogg, has suggested that Russia’s rejection of peace would trigger a significant uptick in military support for Ukraine. But Trump has been more ambivalent. Indeed, many of his other advisors would like to eliminate or significantly reduce the U.S. share of assistance to Ukraine, which stands at roughly 45 percent of the trans-Atlantic total.
U.S. President-elect Donald Trump’s ambition to end Russia’s war on Ukraine has raised expectations of a peace deal and set off a flurry of discussions among U.S. allies about potential peacekeeping forces and security guarantees for Kyiv. All of this assumes that Moscow is even interested in a deal. There has been much less talk about the United States’ and Europe’s options in the more likely event that Moscow rejects Trump’s peace initiative.
Trump’s designated envoy for Ukraine, Keith Kellogg, has suggested that Russia’s rejection of peace would trigger a significant uptick in military support for Ukraine. But Trump has been more ambivalent. Indeed, many of his other advisors would like to eliminate or significantly reduce the U.S. share of assistance to Ukraine, which stands at roughly 45 percent of the trans-Atlantic total.
Moreover, Trump’s inner circle—including Elbridge Colby, his nominee to become the next deputy defense secretary—would like to execute a pivot to Asia by pressuring NATO’s European members to significantly boost their defense spending and take up most of the burden of ensuring Europe’s security.
An imperative to significantly increase European defense spending amid the growing threat posed by Russia, coupled with potentially increased outlays to support Ukraine, would bring new budgetary pressures on Europe’s already cash-strapped governments. Shifting social spending to military budgets would open the door to significant populist resistance.
These potentially explosive domestic conflicts over money and budgets are well understood in the Kremlin—and they will be another reason for Russia to resist a peace deal. From Russia’s perspective, all it needs to do is continue the war and wait for Western financing of Ukraine to eventually flag.
One clear solution to compensate for a deep reduction in U.S. financial support rests in the roughly $300 billion in frozen Russian hard currency reserves held in Western banks, the bulk of which is held by European financial institutions. Since February 2022, the United States has provided more than $110 billion in military and humanitarian aid to Ukraine, while European states have provided more than $130 billion in security and financial assistance.
Were the Trump administration to significantly curtail assistance to Ukraine, the $300 billion in frozen assets would be able to replace U.S. expenditures for roughly six or seven years. Until now, European and U.S. leaders have been reluctant to tap this resource. The closest that they have come was a decision by the G-7 countries to use the interest generated by these hard currency reserves as collateral for $50 billion in loans to Ukraine.
But pressure from the incoming Trump administration could spur Europe to the decisive step of confiscating these reserves. In an interview last year, Trump’s nominee for treasury secretary, Scott Bessent, said he believed that Russia’s Western-held hard currency reserves would eventually be deployed against Russia. Countering critics who worry about the possible risks associated with seizing these Russian assets, Bessent suggested such a step would not dramatically affect the stability of the euro or dollar, even as he acknowledged a trend toward the gradual de-dollarization of the global economy.
In a conversation with a high-ranking Biden administration official several months before the U.S. election, I asked about the likelihood that Russia’s reserves could be tapped to assist Ukraine.
“It would take time to overcome bureaucratic resistance and get it to the president’s agenda,” the official told me on background. “And then it would take time to socialize this with major Western leaders,” the official continued. “On the other hand, if [Trump] wins, it could happen quickly.”
Indeed, the very idea of using Russia’s own resources against it is a very Trumpian idea, echoing his 2016 claim that he would make Mexico pay for the construction of a wall between the U.S. Mexico border to stave off illegal crossings. And given the transactional nature of Trump’s foreign policy, one can envision negotiations around burden-sharing and the deployment of resources to offset reduced U.S. support for Ukraine.
For nearly three years—despite the urging of such respected U.S. voices such as Robert Zoellick, Larry Summers, and Philip Zelikow—Western leaders have resisted turning to this low-hanging fruit to help finance Ukraine’s war.
But today, amid a growing imperative to search for new resources to support Ukraine’s economy and defense, the confiscation and deployment of the $300 billion in frozen Russian assets is likely to become a tempting option both for Europe and the United States. It can clearly be justified under the doctrine of countermeasures against Russia’s peremptory violation of international norms.
On Dec. 10, Valerie Urbain—the head of Euroclear, the Belgian financial institution holding some two-thirds of the $300 billion in Russian assets—acknowledged in an interview with Bloomberg that the Trump administration “will put back again some discussion [of seizing Russian assets] on the table.” The European Union’s new foreign-policy chief, Kaja Kallas, has also called for using these Russian funds to aid Ukraine. A recent report by the Financial Times cited a sharp debate between German Chancellor Olaf Scholz and Polish President Andrzej Duda, with the former opposed to and the latter supportive of confiscation.
Urbain, however, has argued that using the Russian assets held at Euroclear could undermine the euro’s role as a reserve currency and put the eurozone’s financial stability at risk. Fear of weakening the U.S. dollar and other Western currencies has also been invoked by critics of asset confiscation, including senior officials at the U.S. Treasury and European finance ministries. These legitimate concerns need to be addressed.
Central to these concerns is how China might react. Beijing holds more than $3 trillion in hard currency reserves, of which 58 percent are in U.S. dollars, with most of the rest in euros, pounds, and yen. Were China to rapidly exit these holdings, it could potentially weaken several Western currencies and government bonds. But as the proponents of confiscation argue, Russia’s war is a uniquely egregious threat to the post-World War II order—and only the second instance since 1948 of an unprovoked military invasion and outright annexation of the territory of a U.N. member state. The one other instance of such a brazen violation of the United Nations Charter—a violation that was eventually reversed—was Iraq’s invasion and annexation of Kuwait in 1990; part of the U.S. response to that aggression was to confiscate Baghdad’s hard currency assets. (Israel’s Knesset controversially voted in 1981 to extend Israeli jurisdiction over the Golan Heights, a Syrian territory, but did not formally declare that territory’s annexation; this action, moreover, was taken in response to ongoing attacks on Israel.)
The confiscation of currency reserves will stay a rare case if it is made dependent on specific and rare conditions: first, that the target of such sanctions launched a military aggression against and occupation of the territory of a U.N. member state; second, that the war against another sovereign state was launched without military aggression by the state under attack; and third, that it formally annexed that territory.
If the confiscation of a state’s foreign assets has to meet these strict conditions, then the Russian case would have no direct implications in the event of a Chinese attack on Taiwan, which lost its legal protection as a U.N. member state in 1971. At the same time, confiscating these assets in response to Russia’s aggression would be a powerful deterrent against the use of military force to change internationally recognized borders.
The salutary effects of such an action by the community of democratic nations would go well beyond their contribution to maintaining the international rules of the road. They would also demonstrate to Russia that the United States and Europe have the resources for a sustained long-term commitment to Ukraine’s defense. The use of these assets—or even the credible threat to do so—could be a game-changer, especially now.
Russia’s economy is hurting, inflation is skyrocketing, and state reserves are dwindling. Russia’s ability to compete amid tough sanctions that limit the country’s access to new technologies, as well as labor shortages resulting from the Ukraine war and the flight of skilled young men from Russia, are beginning take their toll.
A powerful message from the United States and Europe, conveying that they are marshalling the needed resources to support Ukraine’s long-term resistance, would make it clear to members of the Russian elite that their ruinous war will ensure further massive losses of Russian lives and leave the country far behind economically—at a critical time when a new technological revolution based on artificial intelligence is gathering momentum.
In order to be effective in motivating the Kremlin to end the war, the use of Russian assets to fund the Ukrainian military needs to be coupled with other measures. These include, above all, the removal (or threat thereof) of tight Western restrictions on Ukraine’s ability to fight, finally giving it the ability to strike deep within Russia just as Russia strikes deep within Ukraine. This should include the capacity to disrupt the Russian power grid in Moscow and St. Petersburg, which would further drive home to the Russian elite that the war comes with steep costs.
Such a coordinated and consolidated Western approach would greatly strengthen the Trump administration’s hand as it seeks a diplomatic solution that preserves Ukraine’s national security and sovereignty.
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