US to send $20 billion to Ukraine backed by Frozen Russian Assets

Russians are never going to get the $300 billion in frozen Russian assets. Certainly not in time to save the state.

When I created a list of things that Ukraine has to do inorder to win the war, the number one item, the one that still remains perched at the top of the list was this: Contain and Constrain the Russian Black Sea fleet.

Why would that be? There are so many different parts to the equation. We have the ground forces, we have the weapons systems, we have artillery production and other manufacturing headaches and so on. With so many different pieces in the puzzle, why would I rank pushing the Black Sea Fleet into a corner as the first requirement to win the war.

Because it stands in the way of Ukraine’s economic lifeline. Without access to its maritime trading route Ukraine will become extremely dependent on western aid to sustain itself and overtime the cash drain may very well push the allies to drop their support. Lack of cash flow will stoke inflation, add pressure on the constituents and make it extremely hard for Ukraine to stay in the fight.

To win, they need to make their own money and keep chipping away at the dependency on western partners for sustenence. Money matters and it matters even more when you are at war.

The rotten luck Ukraine experienced at the start of this year is now a thing of the past. I mean, it’s truly gone. Ukraine has regained access to its maritime trading routes, while the allies have established a robust support system for Ukraine’s economy. Thanks to their efforts, only one country between Russia and Ukraine is now staring at an economic collapse.

Earlier this year European Union cleared €50 billion in grants and highly concessional loans for Ukraine. Dubbed ‘Ukraine Facility’ the delivery of aid has already begun and expected to run through 2027.

President Biden announced yesterday that United States will deliver $20 billion in loans to Ukraine, part of the $50 billion loan G7 has decided to deliver to Ukraine backed up by interest payments from frozen Russian assets.

The allies took forever to reach this stage.

To be fair, the United States has always expressed its willingness to utilize the frozen Russian assets, and at one point, they were even prepared to access the assets directly. However, European allies hesitated at this suggestion, leading to round after round of discussions with little progress.

Then, the United States proposed creating a fund backed by the interest payments accrued on the frozen Russian assets. That conversation dragged on for nearly a year, as France, Germany, and Italy remained uncomfortable with the idea. However, as the war continued, the allies eventually recognized that it would be more beneficial to shift the financial burden away from themselves and back onto Putin.

How is this done?

Over $200 billion in Russian reserves are held by Belgium’s central securities depository, Euroclear. These assets generate more than $3 billion in annual interest, which will be used to gradually pay off the loan.

The Final Hurdle

The Biden administration plans to allocate $10 billion of the loan funds for military aid, but this proposal will need Congressional approval.

While the specifics are still somewhat unclear, I believe a significant portion of the $50 billion loan — at least half — will be directed toward military assistance for Ukraine, with the remainder allocated for humanitarian and economic support.

Post Hurdle

There are significant repercussions stemming from this decision.

Putin is desperate to access the frozen $300 billion when he eventually comes to the negotiation table. With Europe and the United States opting to take out a loan backed by interest payments from these frozen assets, there’s no way Europe will return that money to Russia immediately — at least not until the repayment is complete.

If anyone is skilled at dragging things out, it’s the West. We excel at taking our time, which means Putin could wait years before seeing even a dollar from his frozen assets — time he likely won’t have. This economic cushion, which he relied on to stabilize his state after instigating the war, is effectively gone. Not permanently, but he won’t receive it in time to salvage his regime.

He’ll need to figure things out on his own.

On the other hand, Ukraine stands to gain significantly from this cash injection, with disbursements expected to begin in December.

The US will likely pause briefly to see if Congress authorizes the Biden administration to allocate half of the funds — $10 billion — for military aid to Ukraine. The administration has requested congressional approval by mid-December. If it’s granted, the U.S. will send $10 billion in military aid and an additional $10 billion for other purposes. If not, the administration will allocate all of it as non-military aid.

I don’t foresee any significant hurdles from the House on this issue; it should clear smoothly. Let’s hope the approval comes soon so the disbursements can begin.

The timing of the fund release is also crucial. At least half of the U.S. funds will be distributed to Ukraine later this year through a World Bank trust fund.

Ukraine is on the up, while Russia is struggling to hold itself together.

Military aid from the United States and Germany has ramped up significantly in the latter half of 2024.

While the West may have failed catastrophically in managing escalation, throughout 2024, they have made sound financial decisions that will support Ukraine over the next 12 months.

Having that financial cushion as the war edges toward a conclusion is vital; it could make a substantial difference between the two sides. Consider this: the odds of a side losing a war while possessing the necessary funds are minimal — very, very minimal.