Strapped for Cash, Kremlin Seizes Western Assets to Fund War

A decision that could bolster the American case to sieze frozen Russian assets. Will Europe wake up?

Shankar Narayan
9 min readMay 21, 2024
What will you do, when your savings is on fire? (Licensed Image)

I am going to give you three data points. You tell me if they are connected or disconnected…

  1. In 2023, Gazprom, the crown jewel of Russia’s commodities market, reported a net loss of $6.9 billion, its first annual loss in more than 20 years.
  2. Three days ago, a St. Petersburg court seized more than $773 million worth of assets belonging to three Western banks: UniCredit, Deutsche Bank, and Commerzbank. The assets were seized to pay for claims made by Ruskhimalliance, a subsidiary of Gazprom.
  3. Yesterday, Gazprom’s shares plunged in Moscow to reach their lowest level since October 10, 2022, as the Kremlin ordered the struggling gas giant not to pay dividends
Screenshot from Reuters

Isolated events?


I don’t think so.

At the beginning of 2022, Russia’s rainy day fund, the National Wealth Fund (NWF), held $210 billion. By January 2024, its reserves had decreased to $130 billion, which is still sufficient to cover expenditures for the year. The NWF, built from years of profits on oil and gas exports, had liquid assets amounting to $54 billion as of March 1st.

Russia uses these savings to cover its budget deficits. Obviously, they are very adept at financial engineering, some of the best in the business of tricks. Every now and then, the rainy day fund will show a spike in reserves despite the relentless drawdown. In March 2023, Russia announced to the world that their rainy day fund had increased by $7 billion.

How on earth did that happen, when there is a deficit, your expenses are rising every month, and your revenue is squeezed so tight that your crown jewel is running out of money for regular operations? Well, in that case, you take the underlying assets carried by the fund and revalue them upwards.


The growth in the fund’s reserves is largely due to a revaluation of state-owned lender Sberbank’s (SBER.MM), shares — to 2.42 trillion roubles from 1.92 trillion roubles — and flag carrier Aeroflot’s (AFLT.MM), shares to 74.5 billion roubles from 66.8 billion roubles, data showed.

Neat. Traders see this data point and react to it. The Kremlin pats itself on the back for a job well done. But how long will they be able to keep doing this? They managed it for more than a year, but now the lack of real cash is starting to bite.

The first question that popped into my head was, why wouldn’t Russia raise some debt to cover the gaps? Will you lend your money to Russia? I won’t. The West is not going to let the Russians raise cash from their capital markets. They can turn to China, or they can turn to India. They might allow or may be even help. But the issue here is, the moment Russia takes this route and tries to raise money from an external market, the Ruble will crash and burn.

Whoever is willing to lend Russia money will factor this into their calculation, and if they reach that decision, they are going to ask for collateral. Not going to happen.

Russia does not have an easy path to raise debt, and it is way too risky to go there, considering the delicate dance choreographed by the Russian central bank to protect the Ruble from collapsing.

There is not enough space for the Kremlin to maneuver things around. This is not the first time Russia has seized Western assets, but this is one of the largest seizures, and it comes exactly a month before the G7 is going to meet to discuss the pros and cons of utilizing Russia’s frozen assets.

If they had enough money, the Kremlin would have avoided taking this decision at this point. At least they would have waited for the G7 meeting scheduled for next month to unfold, where they could have used these assets as a threat to deter the West from proceeding.

The Biden administration, along with counterparts in Great Britain, has demonstrated a significant willingness to seize the frozen Russian assets. However, Germany, France, and Italy are among the nations hesitating at this idea. They fear that a seizure could trigger a flight of funds from the European Union, as most of the frozen Russian assets held by the West are located in a clearing house in Brussels.

Blue: Interest payments. Red: Value of Russian Assets. Euroclear holds $205 billion of the $280 billion of Russian Central Bank assets. Image by me.

After spending months trying to convince the big three in Europe, the Biden administration has devised an interim solution. The idea is not to seize the entire funds but to maintain the block on the funds and bring forward the interest earned by the $300 billion frozen assets.

The United States is proposing the creation of a $50 billion fund backed by the interest payments from frozen Russian assets.

What the Kremlin has done this week, by seizing European bank assets, is to give a boost to the discussion over the creation of the fund to assist Ukraine.

To some extent, this was a very effective political and financial risk management strategy by the Kremlin. They are fully aware that they are unlikely to receive the $300 billion from the West until the war is over. Their challenge was to use their information operations to prevent the West from providing this money to assist Ukraine.

In that regard, they have already succeeded.

Now, the Kremlin is extremely tight on cash. They are scrutinizing their internal finances meticulously. If they find a penny here and a dollar there, they won’t hesitate to seize that money. They are determined to do whatever it takes to secure funds, regardless of the West’s actions or reactions.

Russia has taken the risk. Now it’s up to Europe to decide how it wants to respond. The United States and the United Kingdom have consistently been on the right side of this discussion. However, after observing the Scholz administration’s operations over the last two years, I have very little confidence in their ability to make tough decisions that factors in the long-term future.

They tend to resort to panic buttons and underestimate themselves. While they are stronger than they believe, it’s challenging to convince anyone otherwise when they get stuck in that mindset.

So, I don’t think Europe will ever seize the entirety of frozen Russian assets. The best path is to embrace the American idea and create a $50 billion assistance fund for Ukraine using the interest payments. It is also highly likely that once the fund is created, it will be used to buy weapons for Ukraine.

The reason I am confident that the West will use this money to help Ukraine buy weapons is that Europe has already created a $50 billion fund to assist Ukraine on the economic front using its own money. That amount is sufficient for Ukraine’s budgetary needs in the near to medium term. So, they are unlikely to allocate another $50 billion on top of it. Instead, they will likely use it to assist Ukraine militarily.

Russia is grinding its way towards the Soviet Union

On the one hand, the Russian army is grinding its way into Ukrainian territory, expending significant manpower for every square kilometer they gain. Manpower losses on the field have increased from less than 500 in 2022 to 1,000 early this year and are threatening to stabilize at 1,500 in May this year.

If you are a medium author, please feel free to use any image I create. Don’t use the licensed images and screenshots. I drew this one. April 2024 data from Defense of Ukraine. April 2022 and April 2023 from UK ministry of defense

If they try to sustain the current pace of attacks, they will have to maintain the current rate of losses. If they continue to sustain this rate of losses, they will need to draw 45,000 workers from an economy that was short nearly 5 million workers in 2023. To address the gaping hole left by the worker shortage, the Kremlin has been running a deficit budget for more than a year now, supported by the rainy day fund.

If the deficit per month is $2 to $3 billion, the rainy day fund, with overvalued assets and $50 billion cash, will run out in 24 months. However, this timeline is valid only if the Ruble holds its ground and the economy, which is now hyper-dependent on global oil prices, remains free of any systemic shocks.

If this were a company and you were the CEO, then your days are numbered because instead of slowing down your expenses and extending your runway, you are doubling down on your bills.

This is exactly how the Soviet Union was broken up into pieces. At its height, to maintain parity with the United States, which had a much larger economy than the Soviet Union, they spent nearly 13% of their GDP on weapons and the military.

Not that Putin wasn’t aware of this fact.

He knows this:

In his February state-of-the-nation address, President Vladimir Putin actually promised to avert an economic collapse on the scale of that seen in the late Soviet Union.

In the speech, Putin explained that the West forced the Soviet Union into an arms race that consumed an unsustainable 13 percent of Soviet GDP. He insisted that Russia would not allow a repeat of this “trick.”

Russia is now spending closer to 8% of its GDP on its defense and security. Now, add up everything we discussed here. It will clearly explain why the Kremlin took the risk to seize Western assets despite knowing that their action will make it easier for Europe to embrace the US idea to assist Ukraine.

Kremlin does not care about Ukraine getting more money. They care about how much money they have. This can mean only one thing: the Kremlin knows it is running out of runway. Last year, I kept writing that Russia wants to push things by a month. That is all they cared about. They will ask, how can we survive this month and get things done.

I think they are now planning on the fly.

Highly disruptive decisions are occurring at an alarming pace. An economist in a suit has been appointed as the head of the ministry of defense, typically filled with men in green. Gazprom is struggling to stay afloat, while the Kremlin is seizing Western assets and importing jet fuel from Belarus.

If there ever was a time for Ukraine to target Russian oil depots, it would be now. I don’t see this war continuing beyond this year.

A few things still need to go Ukraine’s way in order to accelerate the demise of the Russian war machine, such as receiving western weapons to keep the Russian army challenged at the frontline. If that can be taken care of, Russia won’t have the cushion to continue the war beyond six months.

The best part of all of this is that Russia has also lost its ability to weaponize the global energy market. It’s in their best interest to keep global oil prices stable. If prices drop too low, they will be in trouble, because they will have to dip deeper into the cash savings to cover.

Russia cannot allow the price to rise either because they will have to pay extra for the oil they are importing from Belarus and other Central Asian countries.


Update: After I published this story, Bloomberg reported that Germany supports the U.S. proposal to create a Ukraine assistance fund using interest payments from frozen Russian assets.

Screenshot from Bloomberg

In an about face, German officials are ready to support a US plan to leverage the future revenue generated from frozen Russian assets — mostly stranded in Europe — to back $50 billion in aid to Ukraine, according to people familiar with the discussions.

A big thanks to Putin and his friends. Without their help, the about face would not have happened. At least not in time.

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Shankar Narayan

He didn't care what he had or what he had left, he cared only about what he must do.