Explained | How the West uses Russia's frozen reserves to help Ukraine

London: With President Donald Trump's suspension of U.S. military aid to Ukraine, European nations are again looking at how to utilise some $300 billion of Russian state assets frozen by the Group of Seven rich democracies after Moscow's 2022 invasion of Ukraine.

Here is what has been done so far and some of the other ideas under consideration:

Actions taken so far:

The Group of Seven (G7) agreed last year to provide Ukraine with $50 billion via a series of bilateral loans that Kyiv could pay off using windfall profits from the frozen Russian assets.

The European Union estimates that 210 billion euros ($221.5 billion) of the roughly $300 billion worth of frozen Russian assets are held in the EU, mainly in the form of government bonds that Russia's central bank had stored as reserves.

Euroclear, the securities repository in Belgium where the bulk of those bonds are held, made provisions last year for 4 billion euros worth of interest earnings to go into a specially created Ukraine fund.

An initial tranche of 1.55 billion euros for the first half of 2024 was paid into the fund last July. A further payment of approximately 2 billion euros covering the second half of 2024 is expected this month.

Those payments should keep flowing for years.

The EU has said it expects the assets to yield about 15-20 billion euros ($16-$22 billion) in interest earned by 2027, although falling euro zone interest rates will gradually decrease the amounts, Euroclear has said.

The United States committed to provide $20 billion of the G7's overall $50 billion of support loans. But Trump's move to suspend his country's military aid to Ukraine means it is now unclear whether Washington will stick to the plan.

The G7 groups the United States, Canada, Japan, Germany, Britain, France and Italy.

Full confiscation?

British foreign minister David Lammy recently restated the UK's long-standing position that Europe should move from just freezing Russian assets to seizing them.

However, other European countries, including France and Germany, remain far more wary about the confiscation idea.

The European Central Bank is also among the sceptics, fearing any move to seize the Russian assets would dent confidence in the euro and hurt financial stability.

The ECB wants to ensure that it is not only the euro that is affected if other countries such as China or Saudi Arabia started repatriating their reserves from European jurisdictions as a precaution against them potentially being frozen.

Ceasefire leverage

Speaking alongside Trump last week, France's President Emmanuel Macron said the frozen Russian assets could be part of negotiations with Russia to end the war.

According to a report in the Financial Times this week, French officials have discussed a proposal for European capitals to seize the assets if Moscow were to violate a future ceasefire deal.

Some top lawyers argue that, legally, there is little difference between siphoning off the interest earned from the bonds and seizing all of the estimated $300 billion of Russian assets.

They suggest the latter option could be done under a doctrine of international law known as "countermeasures". The assets would then be sold or collateralised and the proceeds handed to Ukraine, or to its dedicated reconstruction fund.

Previous examples of such seizures, such as of Iraqi assets after Iraq's 1990 invasion of Kuwait, and of German assets after World War Two, happened after those wars had ended, not while they were still raging - as with Russia's invasion of Ukraine.

Russian proposal

Sources told Reuters last month that Russia could agree to using the $300 billion of frozen money for reconstruction in Ukraine but will insist that at least some of it is spent in the parts of the country that Moscow's forces now control.

Reuters could not establish whether the idea of using the frozen funds was discussed when Russian and U.S. officials held their first face-to-face talks in Riyadh last month on ending the war in Ukraine.

Russian Central Bank Governor Elvira Nabiullina said the bank was not part of any talks on lifting sanctions or unfreezing of Russia's reserves.

Moscow has previously said the West's plans to use the frozen funds for Ukraine amounted to robbery and that it could retaliate by seizing Western assets on its territory.