Escalating tensions between Russia and the European Union over the potential use of frozen Russian assets to aid Ukraine are raising the specter of economic retaliation. The EU’s plan to leverage approximately €210 billion in Russian funds-held largely by Belgium’s Euroclear-as collateral for a €90 billion loan to Kyiv has prompted Moscow to threaten countermeasures targeting Western investments within Russia. Concerns are particularly acute in nations with important exposure, as Russia weighs options ranging from asset seizures to the forced sale of foreign-owned businesses at steep discounts.
Moscow’s threats of retaliation for the indefinite freezing of Russian assets have heightened concerns within the European Union about potential losses for Western businesses operating in Russia. The escalating tensions center on the EU’s recent decision to utilize approximately 210 billion euros in frozen Russian sovereign funds as collateral for a 90 billion euro loan to Ukraine.
Russia has warned of possible countermeasures should its funds be used to support Kyiv, sparking the most significant anxieties in Belgium, Italy, and Austria. These nations fear repercussions for their national companies and financial institutions. The potential for the confiscation of assets belonging to foreign companies and investors, valued at over $200 billion, is now a major concern.
According to reports, Moscow is considering the seizure of remaining Western assets within the country. The Russian Central Bank has filed a lawsuit against Belgian depositary Euroclear for $229 billion, related to frozen Russian funds held there. The first hearing in that case is scheduled for mid-January. Simultaneously, measures have been prepared to streamline the expropriation of foreign property in response to what Russia deems “hostile actions.”
The Kyiv School of Economics estimates that Western companies held at least $127 billion in assets within Russia as of the end of 2024. Russia has already frozen or confiscated assets belonging to at least 32 foreign companies, resulting in losses of $57 billion. Investments, dividends, and profits of companies remaining in the country are now under the control of Russian authorities.
Companies seeking to exit the Russian market are often required to sell their businesses at a discount of at least 60%, with a minimum of 35% of the transaction value being transferred to the state budget. In September, President Vladimir Putin signed a decree accelerating the procedure for the nationalization of foreign assets.
Belgium is particularly concerned that Euroclear could be a target, with 17 billion euros of its clients’ assets potentially at risk. Prime Minister Bart De Wever cautioned that utilizing the frozen funds held by the depositary could have serious consequences not only for Belgium but for all of Europe and the euro. Fitch Ratings has already revised Euroclear’s ratings with a negative outlook. The development underscores the potential for broader economic fallout from the ongoing conflict.
Since the start of the war, over 1,900 foreign companies have either left Russia or reduced their presence. However, more than 2,300 continue to operate in the country, including subsidiaries of banks like Raiffeisen and UniCredit. These banks have generated substantial profits, but are unable to repatriate them due to restrictions on dividend withdrawals, resulting in funds accumulating in Russian “C” type accounts.
Foreign companies earned approximately $19.5 billion in Russia last year. According to Deputy Finance Minister Alexei Moiseev, the volume of foreign funds held in these “C” type accounts is comparable to the volume of Russian assets frozen abroad. Alexandra Prokopenko, a former Central Bank employee, notes that the amount in these accounts has increased significantly since March 2023, when it was estimated at 500 billion rubles (approximately $6.3 billion).
Sberbank reported that around 25% of the 2024 dividends – from a total of 787 billion rubles – were transferred to these accounts. Dividends from BP’s stake in Rosneft could amount to approximately 340 billion rubles, while JPMorgan is reported to hold Russian assets worth 243 billion rubles, primarily in “C” type accounts.
“This is one of Moscow’s trump cards,” Prokopenko stated. “If Europe takes steps against Russian reserves, Russia could simply transfer funds from the ‘C’ accounts to the budget. This creates a direct source of income in a situation of deficit and high military spending.” She believes such a move would demonstrate Russia’s willingness to “return evil for evil” and could be implemented more quickly than similar measures in the EU.
Sources at RBC report that authorities are considering several scenarios for retaliatory measures. The initial phase could involve offsetting investments from countries on a list of “unfriendly” nations – including investments from Norway’s sovereign wealth fund, the EBRD, and the APG pension group. This would primarily involve writing off sovereign and quasi-sovereign investments, as well as assets held by banks and international financial institutions with state participation.
While the volume of such investments is smaller than the Russian holdings in Euroclear, sources suggest this could be just the beginning. A complete write-off of funds from “C” type accounts is also being discussed, with the scenarios potentially complementing each other.
The European Commission considers the threats from Moscow to be exaggerated, maintaining that the use of Russian assets remains the only way to continue funding Ukraine without increasing its debt burden. The ongoing dispute highlights the complex economic and political challenges stemming from the conflict in Ukraine.
