Frozen Russian Assets and Ukraine’s Reconstruction

Viktoriia Fylymonova is a first-year Philosophy, Politics and Economics student (viktoriia.fylymonova.25@ucl.ac.uk).

Introduction

In February 2022, Russia launched a full-scale invasion of Ukraine. In response, the European Union deployed a range of economic and political measures aimed at weakening Russia’s war machine. A particularly significant measure was the freezing of Russian Central Bank assets held in European jurisdictions. With approximately £200bn of Russian state assets currently frozen in Europe [1], the proposal to use these funds for Ukraine’s post-war reconstruction has become increasingly prominent. As peace talks continue, questions about who should bear the financial burden of rebuilding Ukraine are rising.

As of February 2025, the total damage inflicted on Ukraine is an estimated minimum of £380bn, and this figure continues to rise annually by approximately 5–10% [2]. Simultaneously, divisions among EU member states have widened regarding the legality, risks, and long-term consequences of confiscating and redistributing sovereign assets. Against this backdrop, this article explores the legal and political dimensions of harnessing frozen Russian assets to fund Ukraine’s reconstruction and addresses key legal questions surrounding sovereignty, international law, and financial stability.

Frozen Sovereign Assets

When interrogating how one country can hold assets within the financial system of another, it is important to note the concept of sovereign assets. Sovereign assets are primarily foreign-exchange reserves: financial instruments such as government bonds and securities denominated in major global currencies. These are not physically stored in one place but are held within international financial systems. Countries keep reserves abroad because they must be in stable, widely accepted currencies to support trade, stabilise their domestic currency, and intervene in global markets when necessary.

Another dimension to consider is where exactly Russian reserves are held.

A significant portion of Russia’s foreign reserves was stored through Euroclear, a Belgium-based financial market institution. [3] Euroclear acts as a central securities depository; it holds securities and facilitates their settlement during trade transactions. Since Russia invested heavily in euro-denominated assets and European government bonds, many of these securities were held through Euroclear in Brussels. Resultantly, the largest share of frozen Russian sovereign assets is concentrated in Belgium.

The above introduces the central legal question: if Russian assets are frozen, what is preventing the EU from directly confiscating them?

Noting the difference between freezing and confiscation is crucial. Freezing is a temporary legal measure that prevents assets from being transferred, accessed, or used, while ownership formally remains with the original holder. Confiscation, on the other hand, is a permanent seizure that transfers ownership, typically through a court order. Transitioning from freezing to confiscation, therefore, raises significantly more complex legal, political, and financial questions, which explains why the EU has acted cautiously. [4]

Windfall Profits and Entitlement

Although the assets are immobilised, they remain invested in financial instruments such as government bonds and other securities. These instruments continue to generate interest and investment returns while being held through Euroclear. When bonds mature, the proceeds are typically reinvested, which in the current high-interest environment has fostered significant additional revenue, often labelled “windfall profits” [5].

The estimated annual profit generated from the assets is approximately £2.6 billion (after Belgian corporate tax) [6]. However, the legal ownership of these profits is highly contested. Both the EU and Russia argue that Euroclear itself is not entitled to retain the extraordinary returns, as the profits stem directly from immobilised sovereign assets. Yet, determining who holds a lawful claim to this income, and under what legal basis it can be redirected, creates a complex legal dilemma for the EU, as explored in subsequent sections.

The Loan: Legal Constraints and Financial Risks

In December 2025, the EU agreed on a nearly £80 billion loan package for Ukraine to cover the next two years. Notably, this agreement does not involve the outright confiscation of Russian sovereign assets. Instead, the EU will raise the funds on capital markets, using its financial credibility to secure borrowing. [7]

This approach represents a political compromise. On the one hand, some support a more direct use of the frozen assets, such as Germany’s Chancellor Friedrich Merz. Alternatively, leaders warn of potential legal retaliation and financial instability, including Belgian Prime Minister Bart De Wever, whose country hosts the majority of the frozen reserves through Euroclear. [8]

Hungary has posed a political obstacle, at times blocking aspects of the package, partly due to tensions surrounding disruptions of oil shipments via the Druzhba pipeline [9]. Nevertheless, most EU leaders support the broader framework. The package is designed to ensure continued military and budgetary assistance for Ukraine in 2026 and 2027, while postponing the more legally sensitive question of full asset confiscation.

This raises a central question: if the frozen assets generate billions in annual profits, why has the EU opted for a large-scale loan?

Euroclear states that it “cannot expect to gain an undue and unintended economic benefit from” EU sanctions [10]. The institution itself is not entitled to retain profits generated by immobilised Russian assets. Arguably, allowing Euroclear to keep those windfall profits could amount to unjustified enrichment, since the gains result directly from the sanctions regime and the maturing of Russian sovereign bonds.

However, redirecting those profits, or confiscating the underlying assets, is not legally straightforward. Belgium, along with several allied states, fears that Russia could initiate legal proceedings claiming a violation of international law principles, including fair and equitable treatment, protection of property, and sovereign immunity. Even if such claims ultimately fail, lengthy litigation would create serious legal uncertainty regarding entitlement to the windfall profits.

Beyond court proceedings, there is also the threat of retaliation. Russia has openly warned that any confiscation of its sovereign reserves would trigger countermeasures. Countries hosting the largest share of the assets, therefore, face disproportionate exposure and tend to oppose outright seizure. Their argument rests on concerns that breaching established principles of international law, particularly state immunity from execution, could set a dangerous precedent.

Another layer of risk concerns financial stability. Euroclear is considered one of the safest and most important financial infrastructure institutions in Europe. Confiscating sovereign assets held within its system could damage its reputation for neutrality and security. If global investors begin to perceive that reserves held in Europe are politically vulnerable, confidence in the European financial system could weaken.

The consequences could extend beyond Russia. Major holders of European sovereign debt, such as Saudi Arabia or China, might reconsider their exposure. A sell-off of European government bonds would drive up borrowing costs for EU member states, many of which are already managing high levels of public debt. In the worst-case scenario, this could undermine trust in the euro and destabilise European capital markets. [11]

In this context, the loan mechanism appears as a compromise. By raising funds on capital markets rather than confiscating the assets outright, the EU can provide substantial support to Ukraine while avoiding immediate violations of sovereign immunity principles and reducing the risk of financial disruption.

Signalling: the Future of Ukraine’s Reconstruction

Evidently, the EU is attempting to balance principle with prudence. By refraining from outright confiscation of Russian sovereign assets, Europe signals that it remains committed to international legal norms, financial stability, and the protection of sovereign reserves. At the same time, the Union continues to position itself as one of Ukraine’s largest financial and military supporters. The message is therefore twofold: Europe stands firmly with Ukraine, but it is unwilling to undermine the legal and financial foundations of its own system in the process.

This balancing act is far from simple. Russia remains a significant geopolitical actor with worldwide economic, military, and energy leverage. Simultaneously, shifts in US politics have pressurised the EU to assume greater responsibility [12]. In this context, the Union is navigating between deterrence and escalation, solidarity and self-preservation. Acting too aggressively could trigger retaliation or financial instability; acting too cautiously risks projecting weakness.

For Russia, Europe’s restraint signals both strength and limitation. On the one hand, the continued freezing of assets demonstrates that sanctions remain in force and that economic pressure is sustained. On the other hand, the refusal to confiscate the assets outright suggests that Europe is constrained by its own legal order: a constraint that Moscow interprets strategically.

The scale of destruction is immense and continues burgeoning. With infrastructure devastated, cities damaged, and industries disrupted, reconstruction is not a future challenge but an ongoing necessity. Continued Russian attacks further complicate long-term planning, while uncertainty surrounding major donors (particularly the United States) intensifies the financial burden on Europe.

Many peace negotiations have so far failed to produce a decisive breakthrough. In this uncertain environment, reconstruction cannot remain an abstract political promise; it must become a structured, legally secure, and financially sustainable project. For Ukraine, such clarity would provide not only financial resources but also political certainty: a critical foundation for rebuilding after Russian aggression. Defining a clear reconstruction framework, whether through loans, profit redirection, or eventual legal pathways to asset use, is essential not only for Ukraine’s recovery but also for Europe’s geopolitical credibility.

Works Cited

[12] Buchheit, L. (2026). Europe’s Plan C: unlocking frozen Russian assets to fund Ukraine - Friends of Europe. [online] Friends of Europe. Available at: https://www.friendsofeurope.org/insights/critical-thinking-europes-plan-c-unlocking-frozen-russian-assets-to-fund-ukraine/ [Accessed 27 Feb. 2026].

[4] commission.europa.eu. (n.d.). Confiscation and freezing of assets. [online] Available at: https://commission.europa.eu/law/cross-border-cases/judicial-cooperation/types-judicial-cooperation/confiscation-and-freezing-assets_en.

[11] Crisisgroup.org. (2025). A Frozen Conflict: The Dilemmas of Seizing Russia’s Money for Ukraine | International Crisis Group. [online] Available at: https://www.crisisgroup.org/qna/europe-central-asia/caucasus/russia-internal-ukraine/frozen-conflict-dilemmas-seizing-russias-money-ukraine.

[12] Gozzi, L. (2026). ‘Difficult’ Russia-Ukraine peace talks end without breakthrough. BBC News. [online] 18 Feb. Available at: https://www.bbc.co.uk/news/articles/c0k1xj0d708o.

[9] Hancock, A. and Tamma, P. (2026). Hungary blocks €90bn EU loan to Ukraine days before war anniversary. [online] @FinancialTimes. Available at: https://www.ft.com/content/9bb03b35-2bf5-44fb-b02e-0dbbc3b87b7f [Accessed 27 Feb. 2026].

[3] Hayes, A. (2024). Euroclear: Definition, How It Works, vs. Clearstream. [online] Investopedia. Available at: https://www.investopedia.com/terms/e/euroclear.asp.

[1, 7] Kirby, P. and Graham, C. (2025). EU leaders to loan €90bn to Ukraine - but fail to agree on using Russian assets. BBC News. [online] 19 Dec. Available at: https://www.bbc.co.uk/news/articles/c3e025vyppeo.

[8] Rankin, J. (2025). What is the row about the EU using frozen Russian assets to support Ukraine? [online] The Guardian. Available at: https://www.theguardian.com/world/2025/dec/17/arguments-frozen-russian-assets-support-ukraine.

[2] Samus, Y. (2025). Updated damage assessment finds $524 billion needed for recovery in Ukraine over next decade. [online] UNDP. Available at: https://www.undp.org/ukraine/press-releases/updated-damage-assessment-finds-524-billion-needed-recovery-ukraine-over-next-decade.

[5, 6, 10] Steinbach, A. (2025). How to harvest the windfall profits from Russian assets in Europe. [online] Bruegel | The Brussels-based economic think tank. Available at: https://www.bruegel.org/analysis/how-harvest-windfall-profits-russian-assets-europe [Accessed 27 Feb. 2026].

[8] The Economist (2025). A crisis over using frozen Russian assets to help Ukraine. [online] The Economist. Available at: https://www.economist.com/europe/2025/12/07/a-crisis-over-using-frozen-russian-assets-to-help-ukraine.

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