New Delhi (ABC Live): The freezing of Russian sovereign assets after the invasion of Ukraine created a $300-billion geopolitical balance sheet. However, despite political alignment, the United States and the European Union now follow sharply different strategies on how—and whether—these assets should finance Ukraine’s war effort.

This divergence is not ideological. Instead, it flows from structural, legal, and financial asymmetries—especially where the assets sit, who controls them, and who bears the fallout of touching them.

Deep Introduction: When Sanctions Became a Financial Front

Financial sanctions usually function as pressure tools. Yet the post-2022 freeze marked a break from past practice. For the first time at scale, a major power’s central bank reserves—a symbol of monetary sovereignty—were immobilised across Western jurisdictions. That single step turned sanctions into a parallel financial front of war.

Central bank reserves are not ordinary holdings. They support currency stability, enable trade settlement, and act as crisis insurance. Therefore, freezing them signals that access to global finance can become conditional on geopolitics. As a result, the debate is no longer only about punishing Russia. It is also about protecting the system that makes reserves credible in the first place.

Where Russian Sovereign Assets Lie

First, the map matters. The distribution of assets shapes the strategy. Since the EU holds most of the principal, Europe also holds most of the risk.

Global Snapshot

Interpretation: Because the EU holds more than two-thirds of frozen Russian sovereign assets, it also bears the largest legal and systemic risk. Consequently, EU policy choices dominate the asset-use debate.

Euroclear Concentration: The Structural Constraint

Next, the EU’s holdings are not spread evenly. Instead, a single clearing house in Belgium sits at the centre of the system.

EU Custody Breakdown

Interpretation: Since most assets sit inside one Belgian clearing house, confiscation would not remain a political act. Instead, it could become a global financial-stability event, exposing Euroclear and the euro system to litigation and confidence shocks.

1) Where the Assets Shape the Strategy

The US–EU divergence starts with a core asymmetry: the EU holds the money, while the US holds stronger legal escalation tools.

Interpretation: The EU controls the principal, so it must protect the system. Meanwhile, the US controls the enforcement law, but not the money. This asymmetry explains nearly every policy divergence.

2) The US Strategy: Legal Enablement and Financial Engineering

Washington has built domestic legal authority for seizure, but it leans more heavily on multilateral financing because its asset base is limited.

• Seizure authority: The REPO for Ukrainians Act enables seizure of Russian sovereign assets under US jurisdiction.
• Limited scale: Since the US holds comparatively little principal, unilateral confiscation would be symbolic.
• ERA framework: The G7 Extraordinary Revenue Acceleration (ERA) model lends $50 billion to Ukraine, serviced using profits from frozen assets mainly in Europe; the US contributes $20 billion.

Interpretation: The US approach externalises risk. It enables an aggressive legal posture while relying on European-held assets to generate repayment flows.

US logic in one line: Create a seizure authority, but let Europe’s balance sheet fund the war.

3) The EU Strategy: Preserve the System, Monetise the Yield

Europe’s strategy prioritises financial-system credibility. Therefore, it prefers using profits and lending tools rather than outright confiscation.

• Frozen, not confiscated: Ownership remains Russian, while access is blocked.
• Windfall interest: Frozen assets generate approximately €3–5 billion annually, redirected to military aid, budget support, and guarantees.
• Large EU borrowing: The EU agreed to a €90-billion (~$105-billion) loan for 2026–27 backed by EU borrowing rather than Russian principal.

Interpretation: The EU converts frozen assets into a yield-producing leverage tool, not a confiscated war chest. This stance protects reserve-currency norms and settlement confidence.

EU logic in one line: Use Russian assets as leverage and yield—not as loot.

4) US vs EU Strategies — Direct Comparison

5) How This Fits into Ukraine War Financing

In practice, the West has converged on a three-layer architecture designed for long-duration funding.

This shift toward loan-heavy, multi-year financing hardened after diplomatic exit options narrowed. As ABC Live has analysed, Ukraine’s rejection of a US-backed peace proposal reset Western assumptions—from ceasefire-linked aid to open-ended war financing.

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ABC Live Explained: Why Ukraine Rejected the US Peace Plan — and What It Means for the War

Interpretation: This model funds Ukraine now, pushes costs onto Russia indirectly, and avoids a systemic rupture in global finance.

6) Why Confiscation Keeps Returning

Confiscation keeps returning because the numbers are irresistible. However, the legal and financial precedent risks are equally large.

Interpretation: Confiscation remains tempting but dangerous. Once sovereign reserves lose immunity, reserve currencies lose neutrality.

Why This Matters Globally

What is at stake extends far beyond Ukraine or Russia. The freezing—and partial monetisation—of Russian sovereign reserves marks the moment when central bank assets became contingent on geopolitics, not just macroeconomic credibility. If sovereign reserves can be immobilised during a great-power conflict, then no reserve currency is purely neutral. Consequently, reserve holders reassess diversification, settlement exposure, and reliance on Western clearing infrastructure. In this sense, the debate is not only about war funding; it is also about whether the global financial order stays rule-based or evolves into a selectively coercive system where infrastructure doubles as strategic leverage.

Data Signals Behind the Caution

Several measurable trends illuminate why Europe is cautious and why confiscation remains contested.

• Dollar share of global reserves: ~71% (2000) → ~58–59% (2023–24)
• Euro share of global reserves: ~28% (2009 peak) → ~20% (2023–24)
• Gold share of global reserves: ~10% (2000) → ~15% (2023–24)
• Central bank gold buying: ~1,080 tonnes (2022), ~1,030 tonnes (2023), ~900+ tonnes (2024 est.)

Interpretation: Central banks increasingly prioritise sanction resilience and settlement safety. Therefore, reserve confidence becomes a policy constraint—especially for the EU, which hosts the largest share of immobilised Russian assets.

Bottom Line

The US and EU play complementary but asymmetric roles. Washington supplies legal muscle and geopolitical pressure. Europe supplies the balance sheet—and therefore restraint. Together, they have engineered a system where Russia’s frozen wealth finances Ukraine indirectly, while the principal remains a hostage asset reserved for a future settlement.

FAQ

Can the EU legally seize Russia’s central bank assets?

The EU can freeze and immobilise assets under sanctions, and it can redirect certain windfall profits under specific legal designs. However, outright seizure of principal raises higher legal risk, including sovereign immunity concerns and litigation exposure—especially due to Euroclear’s central role.

Why does the US push confiscation more aggressively than the EU?

The US holds far less Russian sovereign principal under its jurisdiction. Therefore, it faces a lower settlement system and custodial risk. By contrast, the EU holds most of the assets, so Europe carries the main legal and financial exposure if the principal is confiscated.

How does the G7 ERA loan model use frozen assets?

The ERA framework provides loans to Ukraine that are serviced using profits and extraordinary revenues generated by immobilised Russian assets—most of which are located in Europe—while keeping the principal frozen as leverage for a future settlement.