KSE Institute has released a new report titled “Implications of the Confiscation of Russian Sovereign Assets,” which addresses the economic concerns that are commonly levied against proposals to seize Russia’s frozen reserves. The report devotes particular attention to the potential consequences for European debt markets and the roles of G7 currencies.

The comprehensive analysis comes at a critical juncture, as changing geopolitical dynamics—including the United States’ potential shift away from supporting Ukraine—have reignited discussions about the full seizure of over $300 billion in immobilized Russian assets to fund Ukraine’s defense and reconstruction.

Key Findings:

• No Evidence of Reserve Shifts: Despite fears that immobilizing Russian assets would trigger a global move away from G7 currencies, no such shift has occurred in the three years since the initial freezing of funds. Central banks continue to face significant challenges in finding viable alternatives to G7 currencies for reserves. Russia’s CBR itself failed to protect its assets from immobilization.

• Limited Impact on Currency Status: Even if certain countries attempt to divest from non-US G7 currencies in favor of the US dollar, such moves would be constrained by economic fundamentals, trading relationships, and diversification needs.

• Sovereign Debt Market Effects Are Ambiguous—And May Even Be Positive: Contrary to widespread concerns, the confiscation could potentially lower European bond yields by reducing the need for approximately €230 billion in new debt issuance to finance Ukraine’s defense and reconstruction.

• Manageable Interest Rate Risk: Even in a scenario where bond yields temporarily increase by 50 basis points across confiscating countries (excluding the US, which is unlikely to participate in seizure), additional debt costs of $37.3 billion would be distributed across multiple economies, with Japan, the UK, and France bearing the largest burdens. While this sum is significant, it is only a fraction of the estimates provided by erroneous methodologies that apply the costs of rate hikes to the G7’s entire stock of sovereign debt.

• Strong Institutional Safeguards: The European Central Bank possesses effective tools, including the Transmission Protection Instrument (TPI) and Outright Monetary Transactions (OMTs) mechanism, to counter any politically-motivated attacks on European sovereign debt markets.

Setting Precedent Through Action, Not Inaction

While critics focus on the precedent of confiscating sovereign assets, they often overlook the dangerous precedent that inaction would set—signaling that a country can engage in unprovoked aggression without meaningful financial consequences. Allowing Russia to destabilize peace in Europe while its overseas assets remain protected would undermine the very foundations of the rules-based international order.

Russian Retaliation Already Underway

The Russian state has already expropriated over $50 billion in assets from foreign companies since early 2022, and is poised to continue doing so. Russia has a history of expropriating foreign investment in recent decades without invoking the geopolitical pretext of doing so. Governments should not cover the costs of companies’ decisions to do business in a dictatorship by forfeiting ~€230 billion in funds available for protecting Europe and rebuilding Ukraine, thus forcing taxpayers to foot the bill for corporations’ risky investments. 

The report concludes that with the United States potentially stepping back from its support role, European countries must carry a much larger burden for their defense against Russian aggression. Confiscating immobilized Russian sovereign assets would help pay for it without the exaggerated costs that critics suggest.