The Impending Collapse of Russia Sanctions: The Cost of Inaction

‘One of the great imbecilities that I discovered all through my life’, the late Yale classicist Donald Kagan once said, ‘is the quiet assumption – unquestioned, unexamined – that restraint, the failure to take action is safe; taking action is dangerous’. Kagan was speaking of the ancient Greek city states of Athens, Corinth and Corcyra; but he might as well have been passing a verdict on the sanctions policies of today’s Brussels, Paris and Berlin.

In six months, the EU’s sanctions against Russia may lapse. This is a striking thought that may be new to those who do not follow EU sanctions closely. Even amidst the turmoil of the Trump administration’s abandonment of Ukraine and Europe, an unravelling of the EU’s Russia sanctions would be a catastrophic and likely irreversible development. So, what precisely is going on – and what is at stake?

The EU has had sanctions in place against Russia since the annexation of Crimea in early 2014. Following the full-scale invasion in 2022, the EU has adopted 16 sanctions packages, the latest of them in late February 2025. They span the gamut from targeted sanctions against Russia’s officials and oligarchs, to a raft of financial and trade restrictions, to the international ‘price cap’ on Russian oil, to – crucially – the freezing of €200 billion in Russian central bank reserves.

This freeze was enacted via a Council Decision covering sectoral economic measures, while another Council Decision lists the two thousand or so individuals and companies subject to EU sanctions. Neither of these two instruments have been adopted in perpetuity: instead, they require regular renewal every six months with the unanimous agreement of all 27 member states.

Two among them, Hungary and Slovakia, are already on the record opposing sanctions against Russia. So far, the EU has managed to secure their acquiescence to earlier extensions; the latest such extension took place just now, in March 2025, as relates to personal sanctions against Russian oligarchs and officials. This time around is different. With the rush from the White House to close in on a deal with Russia, no matter the consequences for the EU or Ukraine, Hungary’s Orban and Slovakia’s Fico may well be emboldened to scupper EU sanctions. This would immediately end all of the EU’s financial and trade restrictions against Russia.

Frozen Assets Under Consideration

Nowhere are the consequences starker than with regard to the fate of the Russian central bank billions, which were frozen within two days of Russia’s full-scale invasion. Few countries have publicised the exact figures of frozen assets, but the best available estimates put the amount across all G7 economies at approximately $300 billion, including over $200 billion held via Euroclear, a Belgian securities clearinghouse.

Within months, proposals emerged to transfer those assets to Ukraine in satisfaction of Russia’s obligation to pay reparations. Leading international lawyers have since confirmed that such a transfer would be lawful, including in an EU-commissioned study by the doyenne of state immunity Professor Philippa Webb and a memorandum co-signed by 11 of the world’s top international lawyers, including Chichele Professor of Public International Law at the University of Oxford Dapo Akande, who also sits on the UN’s International Law Commission. Despite this, some governments – for instance, that of Germany – have pleaded legal uncertainty as an excuse for inaction.

In reality, such a transfer would not only strengthen international law by enforcing Russia’s obligation to pay reparations, but also alleviate the financial burdens of Ukraine’s reconstruction. Instead of pursuing this opportunity, the EU has resorted to the half-measure of handing over to Ukraine the tax that Belgium has levied on the interest that Euroclear has earned from re-investing frozen assets, whilst leaving the principal intact. This manoeuvre generates the occasional headline about frozen assets being used for Ukraine’s benefit, but fails to deliver meaningful reparations.

One of the real political obstacles has been the fear that seizing Russian assets would deprive the EU of a valuable bargaining chip in future peace negotiations. However, this belief is misplaced; the assets have remained frozen for over three years with no indication that they factor into Putin’s war calculus.

Soon, the EU’s carefully calibrated dithering may no longer be an option, with dramatic ramifications. If even one EU member state – like Hungary or Slovakia – votes against the asset freeze, the freeze will lapse. The Central Bank of Russia can then immediately withdraw its deposit from Euroclear, and the money will be returned to Russia.

Once Russia’s now-frozen assets are returned to the Kremlin, they are lost forever. Financial and trade restrictions may lapse and be reinstated, but this particular horse will have truly bolted. The EU will have foregone its largest source of funding for Ukrainian defence, reconstruction and reparations.

Furthermore, any ongoing initiatives as to the disbursement of proceeds on the frozen Russian assets would be undermined. This includes the issuance of the $50 billion total in loans backed by the future revenue stream generated by Russia’s reserves. The practical result is that G7 taxpayers would bear the cost of the loans. It is telling that the US was wary of joining this initiative precisely because the assets serving as collateral for the loan could one day vanish if the EU failed to extend its sanctions.

Third, the return of frozen assets to Russia will be an unprecedented blow to EU sanctions credibility. For all the talk of reparations, accountability, and a tribunal for the crime of aggression, the EU would find itself handing over €200 billion to the regime that launched Europe’s biggest war since World War II. The lesson for all to see would be that European unity has a short lifespan, and any serious adversary can simply outlast EU sanctions.

Retaining Sanctions Deterrence

For all these reasons, the return of Russia’s central bank reserves would cause unique, unprecedented and lasting harm to the EU’s sanctions stature. To release those assets would produce nothing short of a US-withdrawal-from-Afghanistan-style moment for EU foreign policy.

To avoid this, policymakers in Brussels and domestic capitals need to work urgently along two tracks.

First, they must maintain the current freeze. This will involve working with Hungary and Slovakia to pull a rabbit out of a diplomatic hat yet again; exploring options for unilateral member-state action within the parameters of EU law; and consulting with overseas partners, including the UK, Japan, Canada and Australia, where Euroclear holds some of the Russian securities and cash. These countries must act to maintain their national sanctions over the Russian state cash held via Euroclear, independent of the EU sanctions regime, in the event that it lapses.

Second, whatever happens in July, this situation shows that ‘wait and see’ can no longer be a credible sanctions strategy, if it ever was. Ultimately, the EU has fallen into the trap of overstating the risks of action while being oblivious to the risks of inaction. The best way forward is to work with renewed urgency on the transfer of Russian state assets to a compensation fund for Ukraine – the only foolproof way to secure them against a return to Russia. This will ensure reparations to Ukraine and contribute to the costs of reconstruction that otherwise the EU will likely have to bear, due to its own short-sighted cautiousness alone.

© Anton Moiseienko and Yuliya Ziskina, 2025, published by RUSI with permission of the author.

The views expressed in this Commentary are the authors’, and do not represent those of RUSI or any other institution.

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