Russia is considering the use of $300bn in frozen assets held in Europe to help rebuild Ukraine, but insists part of the money be used to rebuild the Ukrainian territories under its control, Reuters reported on February 22, citing three sources familiar with the ceasefire talks.

Russia and the US opened negotiations in Riyadh on February 18 as US President Donald Trump says he wants to bring a quick end to the war in Ukraine.

In an interview on his first 30 days in office Secretary of State Marco Rubio, who led the US delegation, said nothing concrete was discussed at the talks, which were merely to find out if there was any common ground for negotiations to begin. However, Rubio said there was an opportunity to “unlock a historic US-Russia economic alliance” if a deal could be struck.

Some $300bn of Central Bank of Russia (CBR) assets were frozen in the first days of the war of which over $200bn are held by Euroclear in Belgium. While Ukraine’s supporters have called for these assets to be seized to pay for Ukraine’s reconstruction, EU leaders have been reluctant, afraid of undermining trust in Europe’s financial system and the euro.

Discussions between Moscow and Washington are still in their early stages, but Russian officials are considering using a significant portion of the reserves as part of a potential settlement, Reuters reported. The World Bank estimated last year that Ukraine’s reconstruction would require $486bn.

“The idea that Russia may agree to using the frozen money to help rebuild Ukraine has not been previously reported, and may give an insight into what Russia is willing to compromise on as Moscow and Washington seek to end the war, at a time when Trump is pushing for US access to Ukrainian minerals to repay Washington’s support,” Reuters wrote.

Allotting the frozen $300bn to Ukraine’s reconstruction would solve several problems. While the Western allies have committed themselves to so-called security assurances that promise to continue to support Ukraine’s military, no money has been allotted to Ukraine’s reconstruction. At the Ukraine Recovery Conference held in London in June 2023 it was suggested that the private sector provide the tens of billions of dollars of investment needed, but fund managers bne IntelliNews has interviewed said that it would take years before the investment climate was good enough for them to commit to the obvious opportunities the country has to offer.

They worry about political instability in the still young democracy, the unreformed judiciary, that is notoriously corrupt, and the lack of solid property rights. But looming over all these concerns is the possibility that Russian President Vladimir Putin, after taking a pause to rearm and reposition his forces, would renew his attack on Ukraine.

A deep dive report by Centre for European Policy Analysis (CEPA) detailed the level of destruction. The physical damage alone amounts to over $150bn while a complete “build back better” programme the government is planning will cost anywhere between half a trillion to one trillion dollars according to various estimates. Excluding the CBR money, Ukraine can only depend on around $75bn in commitments from the various International Financial Institutions (IFIs), the report said.

On top of the physical destruction, Ukraine is also facing a serious demographic crisis as it has the worst demographics in the world with mortality outstripping fertility by three to one. Millions of refugees now living in EU countries are also unlikely to return home. The UN predicts the population will fall from the current 32mn to some 25mn in the coming decade, adding to the economic recovery headaches.

bne IntelliNews has suggested one compromise would be for Ukraine to sell the Crimea to Russia in the same way that Russia sold Alaska to the US in 1887 for $7.2mn (circa $150bn in today’s money). Russia is unlikely to get its frozen money back anytime soon, but Russia is also unlikely to ever return the Crimea to Ukraine, which will remain a sore point between Kyiv and Moscow forever. By writing off the $300bn in exchange for recognition of Russia’s sovereignty over the Crimea would provide Kyiv with the funds it needs to rebuild and end the territorial dispute at a stroke, killing two birds with one stone.

Europeans have been blindsided by Trump’s aggressive approach to the talks and his apparent willingness to lift sanctions on Russia and cut economic deals, especially concerning Arctic oil and gas, which has prompted renewed calls for Europe to seize the frozen CBR funds to pay for Ukraine’s defence and reconstruction if the US abandons Ukraine to its fate.

Moscow has been preparing to expand its powers of confiscation of the hundreds of billions of frozen foreign assets still trapped in Russia in retaliation if its own reserves are seized.

Rubio said during his interview that the talks are at a very early stage, but the Kremlin has signalled that so far it is pleased with the US tone and remains in a constructive frame of mind, according to remarks made by Russian Foreign Minister Sergei Lavrov following the first meeting, who is leading the Russian delegation.