The fate of frozen Russian assets: Trump's decision looms

UPDATED: Nov 28, 2024 11:41 IST

The fate of billions of pounds in frozen Russian assets now rests in the hands of U.S. President-elect Donald Trump. As Washington prepares for the transition of power in January, one of the most pressing issues on the horizon is what to do with the estimated $4 to $5 billion (approximately £3.2 to £4 billion) worth of Russian assets currently frozen in U.S. banks and financial institutions.

Since Russia’s full-scale invasion of Ukraine, Western nations have taken action, freezing approximately $300 billion worth of Russian assets. The United States has been at the forefront of this effort. But the critical question remains: should these funds be confiscated and redirected to Ukraine to help rebuild its shattered economy and infrastructure?

In April of this year, President Joe Biden signed the REPO Act into law, which paved the way for the U.S. government to seize frozen Russian assets within its jurisdiction for the purpose of aiding Ukraine’s reconstruction efforts. The law mandates that Russian assets identified within U.S. borders be frozen, but it leaves open the question of whether these assets should ultimately be liquidated and used for Ukraine's recovery.

As we approach the New Year, President-elect Trump will inherit this difficult dilemma. Known for his unpredictable stance on foreign policy, his decision on whether to liquidate these assets remains uncertain. While the U.S. has already taken steps to mobilise some of these funds, Europe has remained divided on the issue.

The European Union, which holds around $220 billion in frozen Russian assets, has been more cautious. There are fears that if assets are confiscated and mobilised by Western nations, it could destabilise global currencies and prompt other nations to pull their assets from Western banks, potentially triggering an international financial crisis.

Ukrainian officials, including President Volodymyr Zelensky, have consistently emphasised the urgency of using these frozen assets for Ukraine’s rebuilding and humanitarian efforts. With Ukraine’s economy facing an estimated $486 billion in reconstruction costs, these assets are seen as a much-needed lifeline.

However, the question remains: what will Trump do with these funds once he assumes office? The uncertainty surrounding his approach adds a layer of complexity. His previous rhetoric has hinted at the possibility of negotiations with Russia to bring the war to a close. Some experts fear that Trump could use these frozen assets as leverage in future diplomatic talks, treating them as a bargaining chip rather than immediately liquidating them.

Trump's decision could also have a significant impact on Europe. If he chooses not to mobilise the assets or, worse, cuts funding for Ukraine’s reconstruction, the European Union may be left with no choice but to act independently and liquidate the funds themselves.

Should Trump decide to proceed with confiscating Russian assets, he would likely need to work closely with other G7 nations, as the law stipulates that the U.S. can only move forward with such an action if other countries, such as the EU and the UK, agree to follow suit. Coordination among these key global players will be critical.

With Trump’s unpredictable approach to diplomacy, the world is left wondering which path he will take. Will he assert himself as a strong leader and push for the confiscation of Russian assets? Or will he opt for a more cautious approach, keeping the funds frozen and perhaps using them as leverage in future negotiations with Moscow? Only time will tell.