Nicholas Mulder has an opinion piece posted in the Financial Times which pushes back against freezing and then utilizing as yet only immobilized Russian assets for Ukraine’s victory in war and then recovery in peace.

The arguments used by Mulder in my mind are pretty weak and way off the mark - academic in fact at this stage.

First, he argues that if by freezing and then allocating the $300bn in assets the West means to dissuade Russia from its actions, Moscow does not really care much.

I would dispute this as recent aggressive statements by Russian officials against seizure suggest that they do, and quite meaningfully.

Mulder also claims that the fact that Russia ran a current account surplus of $227bn in 2022 that it has near replenished its FX reserves for the above $300bn lost - hence implying it does not care much about now losing these assets.


Balance of payments accounting is not that simple and Mulder takes no account of capital flight which was also huge in 2022 and indeed last year. Official CBR data suggests in fact no such full recovery in reserves to account for the $300bn lost as per the Western actions taken so far. The CBR reports reserve data on a weekly basis, inclusive still of the $300bn in Western jurisdictions and hence immobilized.

This data shows reserves stood at $643bn in the week before the full-scale invasion in February 2022, then dropped (mostly due to capital flight) to a low of $541bn in October 2022. They have recovered somewhat since then due to a combination of higher oil and energy prices, higher policy rates and capital account restrictions in defense of the ruble but are still only in the range $580-600bn.

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Note also the current account remained in surplus in 2023, albeit likely two thirds lower than 2022, but still no huge reserve accumulation as Mulder suggested. Indeed, excluding the immobilized $300bn from Mulder’s calculations, accessible CBR reserves stood at $343bn pre-invasion and are now around $280-300bn.


The current account surplus has not much helped replenish reserves, but much has just disappeared in capital flight - I would argue because of the war and sanctions.

So, Russia has still much reduced FX reserve buffers and this has made the CBR’s management of the exchange rate and monetary policy more difficult - as seen by ruble weakness (higher inflation resulting) and higher policy rates (lower growth).

Second, Mulder argues that assets are expropriated usually only by belligerents, and in this war the West is not a belligerent so should not be taking such action - Ukraine should.

 Again, I would contest the logic here. Putin has made clear he sees this as a wider war with the West - and Russian state TV continually makes the case that Russia is at war with NATO in Ukraine, not just Ukraine.

The hundreds of billions of dollars in NATO military support also suggests that the West sees Russia now as an existential threat and the war in Ukraine is a front line against the threat from autocracy.

War or proxy war, the West needs to win, or ensure Ukraine does as its best first line of defense

And remember also that Russia has used WMD twice on the territory of a NATO state - Salisbury and Litvinenko.

Sure, Ukraine is taking action to receive reparations for Russia’s invasion, but the assets are in the West and the legal process will take years, even decades, and Ukraine simply does not have the time. It needs the financial resources now, or it loses the war, and then the whole argument about reparations will be academic.


Third, Mulder implies that the West does not need to expropriate Russian assets as it can easily afford to support Ukraine. Indeed, one might think so given that the $100bn or so annual cost of supporting Ukraine is small change compared to the combined $40 trillion GDP of the West or the $1 trillion and change in combined Western defense spending.

But if the travails of getting the new $61bn US spending bill for Ukraine thru Congress, or the EUR50bn four-year Ukraine financing arrangement agreed by the EU against the veto of Orban are anything to go by - evidently not.

In a global cost of living crisis with competing spending priorities and focus in the West, it is hard to get Western taxpayer sign off. And if the West fails to find the resources to support Ukraine, Ukraine loses the war and ceases to exist.

The West then has Russian tanks close to more of its borders and a belligerent, confident and expansionist Russia seeking to change more borders. It will also likely face the destabilizing impact of tens of millions of Ukrainian migrant flows West.


Mulder does not tell us how we will realistically fund Ukraine if we don’t use Russian assets. He mentioned potentially using interest earned on these assets, but at $4-5bn a year this does not touch the sides on what is realistically a $100bn a year ticket for the next decade.

Fourth, Mulder then raises the rule of law argument. That by expropriating Russian assets we undermine the perception of the rule of law in the West.

I might quip here where was the rule of law when we accepted kleptocratic dirty Russian money in the first place - why weren’t the right questions asked when the dirty money was coming in in the first place?

The West thinks it’s fine to launder the proceeds of Kleptocracy earned in jurisdictions where there is no rule of law, and then to bank them and protect them with sanctimonious rule of law claptrap arguments later to protect the assets of war criminals and genocidal leaders like Putin

As if Putin, the aggressor, has more rights to protection under the Western rule of law than the clear victim here of numerous rule of law violations - Ukraine.

Now we can wait years for laws to be changed to make this squeaky clean as Mulder seems to want - by which time a shortage of funds means that Ukraine will have lost the war, and so will the West.

And the whole debate about asset expropriations will be academic as Russia will control the government in Kyiv and it will not be in a position to pursue Russia for damages. And then the $200bn plus the West has already spent helping Ukraine defend itself and fend off Russian aggression will just be money down the drain.

Instead, I would argue the West, and Europe in particular, will need to spend hundreds of billions of bucks annually extra on its defense against Russia - which will have added the Ukrainian military industrial complex to its armory.


So, Mr. Mulder your arguments might sound nice on paper, and academically feel appealing, but in realpolitik, the hard reality is that they mean defeat for Ukraine. And ask yourself then what that means.

Politicians make laws. In this case laws need to be changed, if necessary, to make this happen.

The West’s number one strategic priority post the fall of Communism in 1989/91 is now Ukraine’s victory - Russia is the biggest threat now to peace and stability in Europe for the past 30-odd years.

We just have to fund Ukraine by hook or crook, and I see no other realistic way of doing this but by using as yet only immobilized Russian assets.

Reprinted from @tashecon blog. See the original here

The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.

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