G7: US proposal for frozen Russian asset revenues gaining ground

A recent proposal by the United States to utilize the future interest earned on approximately $300 billion in frozen Russian assets to support Ukraine, rather than seizing the assets outright, is gaining traction among the Group of Seven (G7) nations. This proposal seeks to collateralize the interest earned on the frozen assets, estimated at around $5 billion annually, with the aim of bridging the gap between the U.S. and Europe's differing approaches.

Discussions among G7 members are ongoing, with various considerations such as taxes, fees, and reserves being debated. Despite disagreements over these issues, there is a shared sense of urgency to reach a consensus ahead of the G7 leaders summit scheduled for June in Italy. Finance ministers from G7 nations will revisit the topic in late May to finalize a proposal to present to leaders at the summit.

While Washington maintains that all options, including outright seizure of Russian assets, remain on the table, the focus is on garnering international consensus around a plan that could provide immediate assistance to Ukraine. The proposal aims to address financing gaps in Ukraine's budget, particularly in 2025 and 2026, despite significant aid pledges from the U.S. and the European Union.

The proposal suggests offering a loan, rather than issuing bonds, to expedite the process and allow sovereign nations to act swiftly. This approach would enable G7 countries to provide additional support to Ukraine at a relatively low cost. However, the shift towards focusing on interest from the assets reflects a strategic move by Washington after encountering resistance from European allies and concerns about the potential impact on the euro.

European countries, including France and Germany, are more amenable to the loan idea as it avoids direct asset seizure and mitigates the risk of future repercussions on their financial systems. Brad Setser, a senior fellow at the Council on Foreign Relations, views the proposal as a reasonable approach with limited legal risks, noting the commitment to keep Russian assets frozen until specific conditions are met.