By Timothy Ash
January 3, 2024
CEPA
The US, UK and Canada are reportedly set to present proposals to G7 leaders in February to finally utilize $300bn-plus in Russian assets frozen in the West. In one sense, it is strange this discussion even needs to be held. It’s clear that Russia’s war of aggression was unprovoked and that its behavior routinely contravenes the laws of war. It’s clear that Ukraine is the injured party and will need vast sums to expel the aggressor and get back on its feet. And it’s clear, from precedents such as Iraq’s war of annihilation against Kuwait in 1990-91, that the aggressor pays. (Iraq’s final reparations payment was made in 2022 for a total of $52.4bn.)
So the issue is not in question, but there are nonetheless numerous arguments made against this program, mostly of a financial and political character.
Let me explain why these are wrong. Very seriously wrong.
The first fear is that authoritarian states will pull assets from Western jurisdictions if the West moves to seize and allocate Russian assets to Ukraine,
Nonsense. The anxious autocrat, carefully watching the debate unfold, would already have made his or her decision. Why wait, when a freeze could be imposed at any moment?
Authoritarian regimes intent on similar aggressive acts have already pulled at-risk assets from Western jurisdictions. So the decision to use Putin’s money for Ukraine will not surprise anyone. Nor would it be entirely negative — the signal would be sent that if you attack your neighbors, your money will go the same way as Russia’s. It will end up in the hands of the victim.
Second, some of the West’s companies, banks, and lawyers argue that Russia will engage in tit-for-tat seizures of Western commercial assets in Russia. I have news for them — the Kremlin is already looting Western assets in its jurisdiction, forcing sales at often knock-down prices to the regime or to the Kremlin’s friends. The regime’s behavior has already been described as a “flagrant violation of investor property rights.” Putin has already pulled the trigger.
Further, Western companies who invested in Russia in recent years did so despite clear warnings. They made exceptionally bad business calls. It is not the responsibility of Western governments to bail them out.
Third, the sovereign immunity argument has already been overridden in other cases, most recently in the case of Saddam Hussein’s regime. In addition, the lawyer and former 9/11 Commission executive director Philip Zelikow, and others, have made a good case around the countermeasures argument by arguing that sovereign immunity lapses where the state acts against international law, as Russia clearly has.
But even if there were some force in any of the above arguments, those opposed to asset seizure should be asked — how do you plan to find the $100bn a year currently needed to bankroll Ukraine’s war efforts and its subsequent recovery needs over the next decade?
And what if the money is not found, what are the consequences and longer-term costs?
The fact that around $110bn of Ukraine funding is now stuck either in the US Congress or the European Union underlines the political challenges of getting Western taxpayers to sign off for big checks to foreign recipients. Voters are suffering tough cost of living pressures and it’s reasonable to think of their needs too. Asking them to pay further hundreds of billions — perhaps $1 trillion — needed for Ukraine is probably requiring too much. And why should they when Russia can be made to pay?
At the heart of this debate is the unalterable fact that a defeat for Ukraine would be disastrous for the Western alliance.
Military defeat might see Russian tanks back on NATO’s borders — the armored vehicles currently being destroyed en masse by Ukrainian forces near Avdiivka could move more than 1,000km (630 miles) westwards to the borders of Poland, the Baltic states, and Slovakia.
That’s not all. Ukraine’s now very potent military-industrial complex would be added to Russian capabilities, and increase the threat to the West.
Nor would it be reasonable to help Ukraine win the war but then see recovery and reconstruction fail because of inadequate funding. That would risk social and political instability in Ukraine; the high expectations of 1 million-plus demobilized troops will be disappointed, and they will be angry.
Either scenario risks huge migrant flows out of Ukraine to Western Europe and the need for NATO to spend even more money on security and defense. It also risks fanning the fires of populism within NATO countries, and raise the specter of political instability and fragmentation in the alliance.
It is easy, and lazy, to list the excuses why we should not act. Such arguments have bolstered the West’s feeble foreign policy of the past 20 years. Such arguments have brought us to this difficult and potentially disastrous situation today.
In the end Ukraine’s victory in war and, as importantly, the peace must be NATO’s central security project since the collapse of communism in the late 1980s.
We cannot fail. Handing Putin’s billions to Ukraine (however, it’s done) is a happy marriage of the legal and the practical. There is simply no alternative.
Timothy Ash is a Senior Emerging Markets Sovereign Strategist at RBC BlueBay Asset Management. He is an Associate Fellow at Chatham House on their Russia and Eurasian program.