By: Timothy Ash is an economist and senior emerging markets strategist at London-based BlueBay Asset Management
Russia appears troubled by the growing trend in the West to use frozen Russian central bank assets, amounting to $330 billion, to support Ukraine in its fight against Russia's unjustified and illegal invasion of its territory.
The Kremlin has warned that any move to confiscate these assets will be met with retaliatory measures from Moscow, including the confiscation of Western assets inside Russia. But these threats, while not surprising, should not be a reason to change Western policy.
First, this position reflects Russia's confusion. Moscow realizes that transferring the assets of the Russian Central Bank to Ukraine would be a "game changer." It would ensure Kiev's funding for the next two to three years and enable it to purchase the Western military hardware needed to defend itself and achieve victory. Such a move would raise the cost of the war for Moscow and force it to ask itself: Is it really willing to keep fighting for more years, matching Ukraine dollar for dollar, with its own money?
Second, the West has found asymmetric leverage against Moscow. The value of Russian assets held in the West - both governmental and private - is about $500 billion, ten times the value of Western assets held in Russia. The actual amount at risk could be even greater, given that Russian capital outflows since the collapse of the Soviet Union have exceeded $2 trillion.
Third, Russia's threat to confiscate Western assets "in response to Western confiscation" is ironic, as Moscow has already confiscated many Western assets within its territory, often transferring them to Putin's cronies at nominal prices.
Fourth, and most importantly, the Western companies that have suspended their assets in Russia were well aware of the type of regime they were dealing with and the risks involved. They were repeatedly warned by their governments and could observe Russia's aggressive behavior from the first invasion of Georgia in 2008, the Litvinenko case, the Salisbury chemical attack, the annexation of Crimea in 2014, the invasion of Donbass in the same year, Western warnings of an invasion in 2021, to the actual invasion in 2022 and the subsequent massacres in Bucha and Mariupol.
Over these long years, these companies had many opportunities to sell their businesses in Russia and exit the market, but they chose to stay and reap extraordinary profits. Today, they are stuck because of their poor investment decisions.
Why should Western taxpayers bail them out now? Because refraining from using frozen Russian central bank assets to finance Ukraine - in order to preserve the interests of these companies - simply means that taxpayers will bear the cost of financing the Ukrainian war and the defense of Europe.
It is a clear example of "moral hazard," where private companies expect public funds to bail them out of their mistakes. More seriously, Western national security interests will be subordinated to those of greedy corporations that have long profited from doing business with a fascist and murderous regime.
Simply put, the interests of Western taxpayers, and our national security, must come first.
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