Russia may agree to allow $300 billion worth of its state assets frozen in Europe to be used to rebuild Ukraine, but will insist that some of the money be spent on the one-fifth of the country controlled by Russian forces, three sources told Reuters.
Russia and the United States held their first direct talks on ending the war in Ukraine on February 18 in Saudi Arabia, with US President Donald Trump and Russian President Vladimir Putin saying they hoped to meet soon.
After Putin sent troops into Ukraine in 2022, the United States and its allies banned transactions with Russia's Central Bank and the finance ministry, blocking between $300 billion and $350 billion of Russian assets, mostly in European, US and British government bonds held at the European Depository Institution.
Although talks between Russia and the United States are at a very early stage, one idea circulating in Moscow is that Russia could propose using a large portion of its frozen reserves to rebuild Ukraine as part of a possible peace deal, three sources familiar with the matter told Reuters, speaking on condition of anonymity.
Large parts of eastern Ukraine have been devastated by war, with hundreds of thousands of soldiers killed or wounded on both sides, while millions of Ukrainians have fled to European countries or Russia. A year ago, the World Bank estimated that reconstruction and recovery would cost $486 billion.
The idea that Russia could agree to use frozen funds to help rebuild Ukraine has not been made public before and could provide insight into what Moscow is willing to compromise on as Russia and Washington seek ways to end the war, at a time when Trump is insisting on American access to Ukrainian minerals as a way to repay US debts for support to Ukraine. Trump said yesterday, increasing pressure on Kiev and President Volodymyr Zelensky to sign a deal on critical minerals, that “Ukraine has no trump cards.”
Russia's main demands for an end to the fighting include the withdrawal of Kiev's troops from Ukrainian territory that Moscow considers its own, as well as Ukraine's abandonment of its ambitions to join NATO. Ukraine, on the other hand, is demanding that Russia withdraw from its territory and is seeking security guarantees from the West. The Trump administration believes that Ukraine has unrealistic, "illusory" goals.
Reuters could not determine whether the idea of using frozen Russian assets was a topic of discussion between Russian and US representatives at a meeting in Saudi Arabia.
The Group of Seven (G7) announced in 2023 that Russian state assets would remain frozen until Russia paid for the damage it caused to Ukraine. Trump has said he would like Russia to return to the G7, a group of wealthy nations, the British agency reminds.
The Governor of the Central Bank of Russia, Elvira Nabiullina, said on Thursday that the bank is not participating in any talks about lifting sanctions or unfreezing Russia's reserves.
Russia has previously said that plans to use these funds in Ukraine constitute robbery.
“You can't decide on Ukraine and the EU without Ukraine and the EU,” said Anita Hipper, a spokeswoman for the European Commission. She stressed that the EU and its member states are helping Ukraine strengthen its position ahead of any negotiations, including a new package of sanctions against Russia.
Renaissance Capital chief analyst Oleg Kuzmin said differences between the US and Europe, which controls most of the frozen assets, complicate the possibility of lifting the freeze.
"This would require the European side to fully support the current US position aimed at dialogue with Russia," Kuzmin said, calling such a scenario "very optimistic."
Distribution of funds
Russia's frozen assets have been the subject of intense debate in the West, with some suggesting that they should be effectively given to Ukraine through a complex "capital repatriation credit mechanism."
A source familiar with discussions in Moscow said Russia could accept up to two-thirds of the reserves being used to rebuild Ukraine as part of a peace deal, provided there are guarantees of accountability.
The rest could be aimed at Russian-controlled territories in eastern Ukraine, which Russia now considers part of its territory, the source said.
Another source familiar with the discussions said Moscow would agree to use the money to rebuild Ukraine, but it was too early to talk about the possible distribution of the funds. Two sources stressed that it was crucial to consider which companies would receive future reconstruction contracts.
A third source, close to the Kremlin but not directly involved in the negotiations, said Russia would still demand the lifting of the asset freeze as part of a gradual lifting of sanctions.
Several Western officials, particularly in the German government and the European Central Bank, have been skeptical of confiscating state reserves, warning that such a move could face legal challenges and undermine the euro as a reserve currency.
Russian officials have repeatedly warned that state asset seizures violate free-market principles, destroy the safety of the banking system and undermine confidence in reserve currencies. In response, Russia has drafted a law that would allow the confiscation of assets of companies and investors from so-called enemy states, those that have imposed sanctions against it. The law has not yet been put to a vote in the lower house of the Russian parliament, the State Duma.
European blockade
At the time the funds were frozen, the Central Bank of Russia said it held about 207 billion in assets in euros, 67 billion in US dollars and 37 billion in British pounds.
It also had assets that included 36 billion in Japanese yen, 19 billion in Canadian dollars, 6 billion in Australian dollars and 1,8 billion in Singapore dollars. Its Swiss franc deposits were about 1 billion.
Russia reports that its total gold and foreign exchange reserves are around $627 billion, including frozen assets. The value of Russia's frozen assets fluctuates depending on bond prices and currency movements.
The bank's largest bond investments were in government bonds of China, Germany, France, Britain, Austria and Canada. Russian gold reserves are located within Russia.
About 159 billion euros of Russian funds were under the management of Belgian clearing house Euroclear Bank at the beginning of last year, according to Euroclear data.
Although the freezing of the funds has infuriated Moscow, some of Russia's most ardent war hawks have previously acknowledged that Russia could eventually give up the frozen reserves, provided that the territories under Russian control remain part of Russia.
“I propose a solution. Let them pay that money to buy those territories, those territories that they want to be with us,” said Margarita Simonyan, director of Russian state broadcaster RT, in 2023.
Russian-controlled territories in Ukraine account for about 1% of Russia's gross domestic product (GDP), but some economists believe their share could grow rapidly if they remain part of Russia after the war. The areas already provide about 5% of Russia's grain harvest.
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