Will Russia pay for the war? Efforts to create a compensation mechanism for Ukraine

Summary:

The almost two-year-long Russian assault has inflicted huge losses on Ukraine. According to the World Bank, the latter lost $135 billion in direct costs in the first twelve months of the war alone. The total economic, social and monetary damage has been estimated at $290 billion, while the funding needed for reconstruction has been estimated at $411 billion, equivalent to 2.6 times Ukraine’s GDP in 2022. In order to partially cover the latter, Ukraine has been working to persuade its partners to create a compensation mechanism through which the Russian assets that have been frozen in Western countries could be transferred to Ukraine.

This is potentially a vast pool: the G7 countries and the European Union (EU) have blocked reserves from the Central Bank of Russia’s (CBR) worth more than €300 billion, as well as around $60 billion in private funds. However, Ukraine’s plans face a number of obstacles. Western countries are yet to develop legal instruments that would allow them to confiscate these funds. There are also grave concerns that the status of the dollar and the euro as international reserve currencies could be undermined, and that other countries could come forward with compensation claims. Furthermore, a compensation commission has never started work in the midst of an ongoing war.