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G7 Loan to Ukraine and Western Corporate Assets in Russia

Maxim Trudolyubov
G7 session on Ukraine 2024
Apulia, Italy - June 13, 2024: Leaders of G7 member states attend a summit meeting with Volodymyr Zelenskyy, President of Ukraine.

During their summit in Italy, leaders of the Group of Seven industrially developed democracies agreed to provide Ukraine with a $50 billion loan, using interest earned from frozen Russian sovereign assets as collateral. Moscow will likely respond by expanding its program of seizing corporate assets held in Russia by Western companies.

In fact, the West’s leading nations are treading carefully on the matter and avoid outright confiscation of at least $260 billion in Russia’s assets, held primarily in European banks. These assets generate about €3 billion in profits a year. Russia’s assets in the United States are minimal, although, owing to a separate decision, the United States will now be able to seize those for the benefit of Kyiv. 

The new loan will be guaranteed by the U.S. government, with additional guarantees shared by European countries. According to the Financial Times, the scheme will “direct the funds to Ukraine’s military, budget and reconstruction needs.” The G7 statement says that Russia’s assets “will remain immobilized until Russia ends its war against Ukraine and repays the damage it caused.” Once finalized, the funds could reach Kyiv before the end of the year.

The G7 decision comes amid political turmoil in key Western nations. In the United States incumbent president Joe Biden is entangled in a tight race against Donald Trump. The UK will see a tidal power shift soon, with the Labor Party projected to win the July 4 general election by a record landslide. In France, Emmanuel Macron declared a snap election in an attempt to counter the far-right surge after Macron’s party suffered a major loss in the European Parliament elections. In that same election, Germany’s Social Democrats, led by the chancellor Olaf Scholz, scored their worst result ever. 

“The fact that American funding is not quite reliable is a very important additional reason to go that route,” John Herbst, a former U.S. ambassador to Ukraine, said at a recent Atlantic Council event. The political logic behind the G7’s loan facility is thus to secure funding for Ukraine regardless of the likely political outcomes, which are generally thought to favor isolationism, and aim to avoid provoking Russia. One additional risk is that the use of profits generated by the frozen assets is made possible by the EU sanctions, which need to be reconfirmed every six months, and there is no 100 percent guarantee that the freeze will remain in place indefinitely.

How Russia Will Respond 

On Friday, Russian president Vladimir Putin reiterated that he considered the freeze on Moscow’s assets “theft” and promised that it would not go unpunished. Late last year, at a previous stage of the international debate about the use of frozen Russian assets to aid Ukraine, Kremlin spokesman Dmitry Peskov too called it theft and warned the West that Moscow had a list of American, European, and other assets that it would confiscate if G7 leaders confiscated Russia’s.

In fact, at the time of that exchange, a program of confiscation of Western assets had been underway for at least half a year. In April 2023, Putin signed decrees seizing the Russian assets of the Finnish energy company Fortum and Germany’s Uniper, operating in the same field. A few months later Moscow confiscated assets of France’s Danone, which operated Russia’s second-largest dairy facilities, and Baltika, the Russian subsidiary of Denmark’s Carlsberg, Russia’s second-largest brewer. 

Facing a similar prospect, the Dutch brewer Heineken sold its Russian holdings for the sum of one euro and an obligation to service the company’s €100 million corporate debt, a relatively good deal under the circumstances. 

In April 2024, Putin placed facilities owned by two major European home appliances manufacturers, Germany’s Bosch and Italy’s Ariston, under the “temporary external management” of Gazprom. Ariston’s managers say that the move makes no economic sense as the company, thrown out of its international supply chain, would not be able to produce quality goods.

Contemplating these and numerous similar stories, many Western companies have decided to stay in Russia, all moral pressure notwithstanding. Such majors as Mondelez, Unilever, Nestlé, and Philip Morris have decided to remain. Investors did not “morally care” whether the companies they watched left the country or decided to stay, Mondelez’s chief executive recently told the Financial Times.

Coca-Cola, which in 2022 stopped shipping its soft drinks to Russia, has recently reapplied for patents on its brands in Russia, which means it is likely to return. Rival PepsiCo suspended the production and sale of its beverages in 2022 in the country but has continued to operate a dairy business there. All in all, according to calculations by the Kyiv School of Economics, about 2,200 foreign companies remain in Russia, 1,200 have reduced their presence, and fewer than 400 have exited completely.

Between a Rock and a Hard Place

The Russian government has taken care to make exiting the Russian market as costly as possible. If a company from an “unfriendly” country decides to depart, it faces a mandatory 50 percent discount on the sale of its assets to a Russian buyer and a 15 percent “exit tax” on top of that. Even this may not be enough as a special government commission on foreign investment can stop any deal.

Given the arbitrary nature of such decisions, no Western company’s property is safe from effective nationalization in Russia. Yet so far Moscow has focused its retaliation efforts on corporations that thought it important to express their moral indignation at the invasion and their solidarity with Ukraine. This means that the decision to extend to Ukraine a loan guaranteed in part by frozen Russian assets will increase the risks for Western companies thinking to depart the country. 

The Moscow government has been seeking to extend to the corporate world its division of the world into friendly and unfriendly powers. A company remaining in Russia would then be expected to avoid taking any moral stance and increasingly to express loyalty to the country and its government at the risk of losing its assets. Those that decided to leave would suffer major losses and see their less sensitive competitors seize their market share. 

The opinions expressed in this article are those solely of the author and do not reflect the views of the Kennan Institute.

About the Author

Maxim Trudolyubov

Maxim Trudolyubov

Senior Advisor; Editor-in-Chief, Russia File;
Editor-at-Large, Meduza

Maxim Trudolyubov is a Senior Fellow at the Kennan Institute and the Editor-at-Large of Meduza. Mr. Trudolyubov was the editorial page editor of Vedomosti between 2003 and 2015. He has been a contributing opinion writer for The International New York Times since the fall of 2013. Mr. Trudolyubov writes The Russia File blog for the Kennan Institute and oversees special publications.

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Kennan Institute

The Kennan Institute is the premier US center for advanced research on Eurasia and the oldest and largest regional program at the Woodrow Wilson International Center for Scholars. The Kennan Institute is committed to improving American understanding of Russia, Ukraine, Central Asia, the South Caucasus, and the surrounding region though research and exchange.  Read more