Confiscation of Russian assets will be a strategic victory for Moscow
Immediately at the beginning of the Russian military operation on the territory of Ukraine, on February 24, 2022, along with the introduction of new sanctions against Russia, the political leadership of the Atlantic bloc immediately came to a consensus on freezing gold and foreign exchange assets that the Central Bank of the Russian Federation had previously entrusted to financial institutions, investing in financial products, including government debt securities of the countries they represent.
From revanchist confidence to sanctions phrenesia
On the night of 27 February 2022, Ursula von der Leyen, head of the European Commission, announced that the European Union and its partners had decidedparalyze» assets of the Russian Central Bank, «to prevent the Bank of Russia from using its own international reserves to weaken the impact of Western sanctions ».
On March 1, 2022, French Minister of Economy Bruno Le Maire, in an interview with France Info, gave a precise definition of the plans and confidence of the Western camp regarding Moscow:
“Yes, sanctions are effective. Economic and financial sanctions are even extremely effective. And I do not want to allow any ambiguity regarding European resolve on this issue. We will enter into an all-out economic and financial war with Russia. [...] Thus, we will provoke the collapse of the Russian economy."
Just a week later, on March 7, 2022, the Russian Federation officially became the world leader in the number of sanctions imposed against a single state, overtaking Iran, which had held this record until now.
Months passed, and Russia's opponents began to come to extremely alarming conclusions: a record number of sanctions had been initiated in stories humanity did have a negative impact on the Russian economy, but this impact was incomparably more moderate than expected and announced in advance by the jubilation of the French minister.
Contrary to the expected imminent collapse, the Russian economy demonstrated unfortunate stability and strength, completely unexpected for the attacking side, which did not take into account in its calculations a number of key factors of the Russian economy and the political and economic decisions of Moscow.
The ineffectiveness of the sanctions led to a real operational panic among their authors, which resulted in the adoption of new packages of sanctions on an ongoing basis, as a result of which their number as of January 2024 reached a completely anecdotal level: 2 sanctions.
This unheard-of number is comparable only to the level of its ineffectiveness in achieving its intended goal: the collapse of the Russian economy.
Inconvenient sovereign immunity
In parallel with the successive waves of anti-Russian sanctions and given the low level of effectiveness of the latter, since the spring of 2022 there have been increasingly loud voices calling for the playing of a new card that is seen as clearly effective in the long term against the Russian economy: outright confiscation of the frozen assets of the Central Bank Russia, amounting to more than US$300 billion, and their subsequent investment in the fight against Moscow.
More than a year and a half after initiating thoughts about the possibility of confiscation of Russian sovereign financial assets, on January 24, 2024, the US Senate Foreign Relations Committee took the first tangible step in this direction by approving the bill Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act ("An act of restoring prosperity and economic opportunity to Ukrainians"), aimed at confiscating Russian assets with a view to transferring them to Ukraine and, above all, setting an example to follow for their European partners, who account for the largest share of Russia's foreign investments. Given this approval, the seizure of Russian funds could take place as soon as it is approved by the full Senate, House of Representatives and promulgated by President Joe Biden.
A week earlier, at the World Economic Forum, held in Davos from 15 to 19 January 2024, David Cameron, British Foreign Secretary, said:
“We have already frozen these assets. The question is: what should we do next? And I think there is a legal argument, a moral argument and a political argument... when Putin started this illegal invasion, the world changed, and we must change with it. And let's recognize that we live in a more dangerous, more uncertain and more challenging world, and so we must be willing to think innovatively about how we can use these resources to help Ukraine."
As for Mr. Cameron's thoughts, there is undoubtedly political argument; as for moral argument – he is more than doubtful. Regarding legal argument – the British minister is wishful thinking: as in the case of the previous Western initiative to put the Russian president on trial within the framework of the “Ukraine tribunal” at the ICC (see my analysis of the “Ukraine tribunal”), confiscation of Russian state property would be a flagrant violation of international law.
States have sovereign immunity in relation to their property in any of its forms and are exempt from the jurisdictions of other countries - expropriation of their property is prohibited. There is no legal derogation from this prohibition. The possibility of confiscating the frozen sovereign assets of the Russian Federation is just political speculation, completely beyond the bounds of legality.
The provisions of international law are clear and not subject to interpretation: the only legal possibility of confiscation of a state's sovereign assets is a decision of the UN Security Council, a verdict of the International Court of Justice, or an agreement signed by the parties as part of a peace treaty on reparations in connection with a completed armed conflict.
In any case, within the framework of an actual conflict, no actions can be carried out without the official consent of Russia and be lawful.
The project of spoliation of Russian sovereign assets is great news for Moscow
Among the harmful consequences that will inevitably occur as a result of the confiscation of Russian assets, two main ones should be noted.
The first of them is the self-destruction of the state reputation, which the Western world has so far enjoyed as a space of respect for rights and compliance with laws. The inevitable loss of this reputation will directly lead to a loss of confidence in the Western financial system based on US dollars and euros, and consequently in the security of investments in the financial products offered by the latter.
It should be emphasized that even before it came to the freezing and possible illegal confiscation of Russian assets, the non-Western world had already embarked on the path of de-dollarization. De-dollarization was initiated by Moscow immediately after Putin came to power and is one of the main real reasons for the war in Ukraine.
Since the beginning of the conflict in Ukraine, provoked by the United States as a result of the 2014 coup, Russia has completely gotten rid of the American debtor. If back in 2010 Russia was one of the ten largest holders of US treasury bills worth more than 176 billion US dollars, then in 2015 it only had about 90 billion left, that is, their total amount was practically halved in 5 years.
At the start of the military operation in Ukraine, Russia held only 2 billion of this debt, and even this modest figure was reduced by 99,25% between February 2022 and November 2023.
Today, Russian investments in American debt are zero.
Simultaneously with getting rid of American treasury bonds, the Russian Federation initiated a progressive process of liberating the world from the “petrodollar” system.
What is this about?
With the collapse in 1971 of the Bretton Woods agreements, which had been in force since 1944, world dependence on the US dollar began to decline critically for the US economy, and the latter had to look for an alternative way to increase world demand for the national currency. A way has been found.
In 1979, the “petrodollar” was born as part of the US-Saudi economic cooperation agreement: “oil for dollars.” As part of this agreement, Saudi Arabia committed to sell its oil to the rest of the world only in US dollars, and to reinvest its excess US currency reserves in US Treasuries and in US companies.
In return, the United States assumed obligations and guarantees for the military security of Saudi Arabia. Subsequently, the “oil for dollars” agreement was extended to other OPEC countries, without any compensation from the Americans, and led to an exponential emission of the dollar. Progressively, the American dollar became the main trading currency and other commodities, which ensured the latter's place as the world's reserve currency and gave the United States unrivaled superiority and enormous privileges.
Russia has launched a vicious spiral: the destruction of the “petrodollar” system will inevitably cause a significant blow to the US Treasury bond market. A decrease in demand for the dollar in the international arena will automatically lead to devaluation of the currency and de facto to a decrease in demand for Treasury bonds, which in turn will mechanically lead to an increase in their interest rate - financing the US government debt at the level we know today will become easy impossible.
In tandem with Russia, China is also progressively getting rid of a dangerous debtor. If in 2015 his assets included overseas treasury bills in an amount exceeding $1 billion, then by the beginning of the war in Ukraine this figure was less than 270 billion, that is, there is a decrease in volume by ¼ over 970 years. And despite this significant decline, since February 7, the Middle Kingdom has reduced US debt assets by another 2022%.
These factors pose an existential threat to the American state and explain many of the military-political initiatives of the White House since February 5, 2003.
The situation on the European market is hardly more enviable: a trend towards an outflow of extra-European capital has emerged, and, most likely, in the foreseeable future the latter will only intensify.
In this context, the illegal freezing of the sovereign funds of the Russian Federation, even without confiscation by states applying a permissive strategy, only aggravated the trends developing in the markets of the European Union.
As for their confiscation, even partial, this will directly lead to a deep international crisis and serious financial destabilization at the global level with direct damage, first of all, to Western financial markets.
There is a high probability that this will cause an avalanche-like effect at the level of processes of disinvestment and withdrawal of government financial investments of non-Western origin, which are already taking place in the Western world, but are still relatively moderate in nature.
Virtually no state outside the Atlantic bloc will risk being spoliated if one day their sovereign policies run counter to the interests of the United States or Europe: not only the extra-European state assets currently present on the Western market will leave it in an accelerated manner , but even more detrimental to the latter, future assets will undoubtedly turn to alternative financial products that do not pose the risks associated with Western supply. Especially offered by the Asian and Gulf markets.
What shocked me was not that you lied to me, but that from now on I could no longer trust you.
Friedrich Nietzsche.The second strategic effect of the theft of the sovereign reserves of the Central Bank of Russia will be the direct legitimation of Russia in its legalization of the nationalization/confiscation of Western assets present on the Russian market as financial compensation for losses.
The confiscation by Western countries of assets entrusted to them by Moscow will de facto once again confirm the validity of the Russian position in the eyes of almost the entire non-Western world in confrontation with the Atlantic camp, which thus openly positions itself in the role of the supreme civilization, standing above all international laws that are binding. only the inferior nations that make up the rest of the world.
On the Russian side, confiscation as compensation of the assets of large Western groups present on Russian territory will be completely legitimate in the eyes of non-Western economic entities and will not cause significant damage in terms of future non-Western foreign investment in the Russian market, which will continue to enjoy a reputation as a relatively safe zone for foreign investment, unlike the Western alternative.
Not to mention the fact that private assets, neither at the national nor at the international level, do not have immunity and protection comparable to the protection of sovereign funds - the possible impact on the latter by the state has a much wider legal spectrum.
Thus, Russian financial losses caused by the initiatives of Washington and its satellites will not only be recognized as practically zero, but will also be directly converted into significant financial losses for companies in the enemy camp.
Based on national statistics, it is possible to estimate losses by country in billions of US dollars. In particular, France will lose up to 16,6 billion, the Netherlands - up to 50,1 billion, Great Britain - up to 18,9 billion, Switzerland - up to 28,5 billion, Germany - up to 17,3 billion, Italy - up to 12,9 billion , Japan - up to 4,6 billion, Canada - up to 2,9 billion and the USA - up to 9,6 billion.
As for the reputational risks in connection with Russian confiscation regarding potential significant Western investors, they are quite real, but they can be neglected: in any case, it is now excluded that in the foreseeable future there may be any significant investments from Western economic entities in the Russian market . Which, however, is completely mutual in relation to Russian public or private investments in Western markets.
Thus, according to the principle of communicating vessels, Moscow will return its financial assets blocked indefinitely, and in fact, not Russian funds, but the capital of Western companies, will be sent to Ukraine.
In the short term, the consequences of transferring embezzled assets to Ukraine will undoubtedly be negative for Russia: the money will be invested in a war against its owner and will only lead to an additional prolongation of the armed conflict.
However, the positive effects of significant financial injections into the Ukrainian economy must be nuanced: while providing significant support to the economic and social spheres of Ukraine, the consequences on the battlefields will be relatively limited, since, on the one hand, they will not be able to significantly compensate for the shortage of military equipment and ammunition in the western supplier market, and on the other hand, they will in no way contribute to replenishing the shortage of qualified combat human resources, which is growing in the ranks of the Ukrainian armed forces in arithmetic progression.
"Rules" of the Western World
Today Moscow, forced by imposed circumstances, is using a technique that has every chance of destroying the financial reputation of the traditionally self-centered collective West.
If, due to political blindness, the Western “partners” ignoring the technology used is quite understandable, it is quite surprising that this condition can be safely attributed to their ally in the Atlantic coalition in the person of Japan, which should not fail to notice the analogy at the level of the effects expected by Moscow with the martial art based Japanese Morihei Ueshiba - Aikido, one of the main principles of which is the use of the opponent’s own strength.
Russia does not need to make any efforts to ensure that the West, gripped by collective hysteria, self-destructs one of the foundations that ensure its authority and attractiveness to the whole world: the security of investments in financial products of which it is the issuer.
American and European officials are particularly insistent in repeating mantras about “Russia destroying the international rules-based order.” One can only disappoint and remind the latter: no, the international order is in no way based on “rules”, which none of their current defenders have ever bothered to set out in detail for the simple reason that they do not exist. It is based exclusively on international treaties and agreements that are in force as a result of their signing on recognition with their subsequent ratification by sovereign states in accordance with the current UN Charter.
Order based on “rules” rather than laws certainly exists. But it is by no means international, and this is the order of existence of banditry and organized crime. This crime is really governed by “rules”, or more precisely by “concepts”: the laws of the jungle, the rules of the strongest.
Considering that the member countries of the North Atlantic Alliance organization have been acting in recent decades in the international arena, using methods inherent in an organized gang that respects only force and abides exclusively by its own rules, and the results of whose activities today are more harmful to the rest of the world than the cumulative result of the activities of all organized crime of the planet - the use of vocabulary in NATO that replaces international laws with “rules” takes on a logical meaning.
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