Sanctions on Russia's oil and gas industry by the US and European countries (Shutterstock)

The indirect confrontation between the EU and Russia is undergoing new changes with the emergence of "frozen assets" fronts, hybrid wars, and drone invasions. This approach is fraught with political and legal risks, which could affect the EU's unity and may also trigger an open response from Russia.

The freezing of Russian assets began in February 2012 at the start of the Ukraine-Russia war, when the EU froze about 200 billion euros of the Russian Central Bank's assets.

Now, at a summit held in Brussels in October, the European Commission proposed a plan to use these assets to provide Kyiv with a 140 billion euro loan, disbursed in installments to meet its military and economic needs, but subject to specific conditions.

The proposed scheme seems vague and lacks details, but there are risks involved since most of Russia's funds are held in the international clearing institution Euroclear, which must transfer the generated funds to the European Commission.

The End of Sovereign Wealth Funds?

According to the EU's temporary scheme, Kyiv would only need to repay the loan if Moscow agrees to compensate for war damages, hence it is called a "compensation loan." The European Commission would then transfer the funds to Euroclear, which would pass them on to Russia.

Although the EU and the UK hope to reach a short-term agreement before Christmas to decide how to use Russian assets, the entire scheme still depends on Belgium's stance, as the headquarters of Euroclear is located there. Brussels is concerned about being drawn into a confrontation with Russia and the potential legal and security consequences.

Dmitry Prigozhin, a Russian researcher and head of the Russian Studies Department at the Eurasian Arab Center, published an analytical article on Al Jazeera's website stating that the EU's proposal is not only a financial lifeline for Ukraine, but also a shift in crisis management towards dealing with a long-term conflict with Russia. In addition, it undermines the post-World War II capitalist and private (financial) ownership concepts established by the West itself.

Dmitry believes that the proposal will directly harm Russia in two ways:

  • First, it undermines the inviolability of sovereign property rights, setting a legal and political precedent that could be exploited by other countries in the future at the expense of their assets.
  • Second, it increases the cost for Russia to waste time without direct military involvement, which could bring financial difficulties to Moscow and further deplete Russia's resources.

European Unity Is Under Threat

The main concern of Belgium is what response Russia might take if it demands the return of its assets once the sanctions are lifted. This situation is similar to Japan's position. Japan holds 50 billion euros of the Russian Central Bank's reserves, but has ruled out the possibility of using them to assist Ukraine.

In addition, Belgium should recall the previous warning by European Central Bank President Christine Lagarde that sufficient liquidity must be ensured to deal with any repayment requests from Russia after the sanctions are lifted.

Therefore, Brussels urges other European capitals to share the risk, provide legal guarantees, and include Russian sovereign assets stored in other European jurisdictions in a joint fund.

To obtain broader guarantees, the Belgian Prime Minister has called on the EU to include other G7 member states in the plan. The UK and Canada have expressed concerns about this proposal, while Japan has reservations because it also holds Russian sovereign assets.

The proposal could ultimately become a test of European unity and a unified stance against Russia, given that Hungary has clearly rejected the asset freeze plan, which seems far from being resolved. EU Commission President Ursula von der Leyen also acknowledged the complexity of the issue and pointed out that further research and clarification are needed on several points.

Regardless, financial support for Ukraine, including how to use frozen Russian assets, is likely to be discussed again at another EU Council summit in December to reach a final decision. Kyiv is pushing for the loan to be disbursed in early 2026 to meet its financial and military needs.

To calm the public, Hajiya Habib, the Commissioner responsible for equality, emergency preparedness, and crisis management in Belgium, stated at the summit in October that implementing the plan is just a matter of time. She attributed Belgium's reservations to the lack of similar precedents and emphasized the need to assess the plan and ensure its legality.

Will Sanctions Weaken Russia?

The EU's proposal to use frozen Russian assets comes on top of a series of Western measures aimed at limiting Moscow's operational space and weakening its economy and military strength. To what extent can these measures achieve their goals?

New measures include U.S. sanctions on two major Russian oil companies - Rosneft and Lukoil and their subsidiaries - which Russian President Putin called "unfriendly." The EU's 19th round of sanctions also includes a full ban on importing Russian liquefied natural gas (LNG) from 2027, following previous bans on imports of oil and gas from Rosneft and Gazprom Neft.

According to data from Oxford Economics, due to falling oil prices, Russia's energy revenue has declined, causing its budget share to drop to about 6.3 billion euros in September, a 25% decrease compared to the same period in 2024.

However, the Kremlin believes that, given the diversification of Russian exports, which include not only oil and gas but also fertilizers, wheat, and precious metals, the new Western measures will not affect Russia's economy or its military strategy in Ukraine. Additionally, Russia has successfully circumvented Western sanctions through its "shadow fleet," exporting oil to China and India.

Experts at the independent European research center CASEA said that even in the long term, although oil revenue is expected to decline due to reduced exports to India and China, it will not have a substantial impact on Russia's military system for at least a year, and possibly until the end of 2027.

Moreover, Oxford Economics expects that even if the war continues for years, Russia's economy can be supported by its sovereign wealth fund, which had a size estimated at 5.9% of GDP in September.

How Much Leeway Does Russia Have?

Russia's response to the European sanction schemes and measures has been varied. On one hand, as Russian President Vladimir Putin's envoy Kirill Dmitriev stated during visits to Saudi Arabia and the United States, Russia hopes to resolve the Ukraine conflict within a year; on the other hand, Russia has shown the ability and willingness to prolong the war.

Nevertheless, Moscow has directly threatened that if the EU continues to "freeze" Russian assets, it will take a firm response. Last October, Russia publicly demonstrated its nuclear forces, launching a new "Neptune" cruise missile, a giant "Poseidon" nuclear torpedo, and conducting nuclear missile launches and tests, sending a clear threat message.

However, according to Russian expert Dmitry Prigozhin, given that Russia is aware of the provisions of Article 5 of the NATO treaty, which states that collective responses will be taken against any attack on NATO members (including most EU countries), Moscow is unlikely to resort to any military action.

In contrast, Dmitry Prigozhin told Al Jazeera that Russia may respond to European actions in a step-by-step manner, starting with legal measures, followed by political measures, and finally geopolitical measures.

  • Legally, Moscow could expand cooperation with European and international courts and file lawsuits against acts that infringe on sovereignty over property.
  • Financially, Moscow is expected to increase financial restrictions on European companies operating in the Russian market and take equivalent measures against European assets registered in Russian courts or held by regional partners.
  • Reorganizing energy contracts and transfer pricing is another possible option.
  • Geopolitically, Moscow could exert indirect pressure by expanding military and economic cooperation with partners in Eurasia, Central Asia, the Middle East, and Africa.

Additionally, the Russian expert believes that Russia still has room to continue cyber activities to increase the economic costs of any escalation by Europe, but will not cross the red line.

However, all of this still depends on the outcome of the key European negotiations scheduled for December.

Sources: Al Jazeera

Original: https://www.toutiao.com/article/7571980101546525238/

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