G7 to Pressure China: Will Russia's Frozen Cash Help Ukraine?
At the upcoming G7 summit in Italy, leaders from the world's seven wealthiest democracies will grapple with a crucial question: how to leverage Russia's frozen foreign exchange reserves, estimated at $285 billion, to support war-torn Ukraine, BBC reports
The West faces a dilemma. While hesitant to directly provide Ukraine with Russia's frozen assets, they are equally opposed to returning them to the Kremlin. The US has proposed a potential solution: a $50 billion loan to Kyiv, to be repaid from future interest generated on these frozen assets. However, this plan faces significant hurdles, primarily due to opposition from Viktor Orban, Hungary's Prime Minister and a close ally of Vladimir Putin within the EU.
Withdrawing interest from Russia's frozen currency reserves remains the West's primary remaining economic sanction against the nation. These sanctions have gradually undermined Russia's economy and limited its access to Western markets for essential goods, technology, and financial resources.
However, the Kremlin has been actively seeking workarounds, buoyed by the continued support of allies outside the G7, particularly China. The US is determined to further isolate Russia by pressuring its allies to threaten small Chinese banks and other intermediaries facilitating trade in sensitive goods and services between Russia and the rest of the world. While large Chinese banks have already been subject to US sanctions, leading to a temporary decline in China-Russia trade earlier this year, the impact on smaller institutions remains uncertain. The upcoming G7 summit will be a key test of the European Union's willingness to follow the US lead in severing these economic ties with China.
One point of potential agreement at the summit is the unwavering commitment to withhold Russia's frozen assets until the war in Ukraine ends and Russia fulfils its reparations obligations. This stance was previously reflected in the December 2023 G7 summit communique and the May 2024 statement by G7 finance ministers. The staggering cost of rebuilding Ukraine, estimated by the World Bank at nearly $500 billion, far exceeds the value of Russia's frozen reserves.
As US National Security Council spokesman John Kirby stated before the summit, "We will announce new measures that will allow frozen Russian assets to be used for the benefit of Ukraine. I believe the G7 will demonstrate strong unity on this front."
