Russia could retaliate if the West seizes assets, as it has taken conservatorship of assets from several foreign companies estimated at approximately $288 billion, which refused to operate in Russia.

Russian assets worth over $300 billion were locked up overseas in 2022 as a result of the Ukrainian crisis turning into a full-fledged NATO-Russia proxy conflict. Threats have been made by Western authorities to take these monies and send them to Ukraine for “reconstruction.” Leading economists from Russia explain why that is a terrible idea.

The new U.S. sanctions imposed on Russia in reaction to the passing of opposition leader and anticorruption crusader Alexey Navalny are threatening India’s oil supply from Russia.

To support Ukraine’s ongoing resistance and long-term reconstruction, Treasury Secretary Janet Yellen has urged members of the Western “coalition” against Moscow to “find a way to unlock the value of [Russia’s] immobilized assets.”

“I believe there is a strong international law, economic and moral case for moving forward. This would be a decisive response to Russia’s unprecedented threat to global stability,” Yellen said at a meeting of G20 finance ministers and central bank governors in Sao Paulo, Brazil on Tuesday.

In response to inquiries about the possible risks an unusual step like this one would pose to the dollar’s standing as the de facto global reserve currency, Yellen stated that it is “extremely unlikely” that the dollar would suffer. She reassured me that “there are really no alternatives to the dollar, euro, and yen.”

As Western nations’ desire to keep igniting the Ukrainian proxy war against Russia falters, Yellen is the most recent prominent Western official to suggest pressing forward with the seizure of Russian assets. Moscow has called the European Union’s adoption of a bill earlier this month that permits Brussels to bank windfall earnings from Russian assets held in European banks and utilize them in Ukraine as obvious “theft” that will face legal repercussions.

Both independent economic analysts and Russian authorities have cautioned about the potential repercussions of Yellen’s proposal. Russian Finance Minister Anton Siluanov stated that Moscow is prepared to respond to this type of Western financial warfare with a “symmetrical” response.

“We have no fewer frozen [assets than Western countries],” Siluanov said in an interview on Monday. “Any actions taken against our assets would receive a symmetrical response.”

Mechanism for Tit-For-Tat Response Already Exists

Dr. Andrei Kolganov, chief researcher at the Russian Academy of Sciences’ Institute of Economics and a professor of economics at Moscow State University, said that the West’s plans to seize assets were foolish because “Russia has already taken conservatorship of assets of several foreign companies which refused to operate in Russia.”

The professor pointed out that this device had already been utilized against assets owned by the Finnish energy company Fortum as well as foreign investors who had a share in the Baltika Beer Company.

“So in principle, the mechanism for the confiscation of foreign assets has already been worked out. Moving from conservatorship to confiscation is, in principle, a fairly simple technical procedure. The amount of assets that are ‘frozen’ on the territory of the Russian Federation, or which may be frozen, is now estimated at approximately $288 billion,” Kolganov explained.

The professor put it this way: Russia has a significant portion of Western assets, which, should the US and its allies move on with their confiscation, “will not escape to the West, but will work here in Russia, because we are talking about investment, first and foremost, in the manufacturing sector.”

After that, these assets might be given to the Russian government or passed to private Russian owners, who would then be able to use them as before.

Western firms’ bottom lines would be severely impacted if their assets were confiscated in Russia. As a result, they could try to exert pressure on the governments of both Russia and their home countries to try to avoid having their capital seized.

“We have a lot of foreign companies working in Russia, including those from so-called unfriendly countries. We have more than 50 decently-sized American firms alone working here, and plenty of European companies,” Dr. Georgy Ostapkovich, director of the Center for Market Research at the Institute of Statistical Research and Economics of Knowledge at Russia’s Higher School of Economics.

Sorry Yellen, Seizing Assets Won’t Crash Russian Economy

Even while a seizure of Russia’s assets abroad could be unpleasant, according to Kolganov, it wouldn’t destroy the economy of the nation because Moscow could continue making international payments using its substantial and robust foreign exchange revenues by shifting its commerce toward emerging nations. The professor clarified that the funds frozen in Western banks are reserves, which “were not actively used for international trade and international payments” in any case.

“For private businesses, the confiscation of assets would create a pretty big hole in their earnings and budgets. Therefore, it would be a rather sensitive measure if Russia had to resort to it in response to the confiscation of its assets,” the economist added.

Dr. Ostapkovich highlights that to minimize the possibility of friendly nations and businesses conducting business in Russia feeling intimidated, Moscow will need to use caution and strategic judgment when deciding which foreign assets to take.

“Every operation” on Russia’s part “must take place with the help of legal services, that is, through the courts,” the veteran economist said. “We are a state based on the rule of law, and cannot just go ahead and close them, because they will naturally go to court. Moreover, they will file in the London court, which judges according to Anglo-Saxon law. This is case law. They will look for a precedent.”

Ostapkovich emphasized that Moscow should anticipate a tug-of-war on the global scene over the West’s asset confiscation and Russia’s tit-for-tat reaction.

Pandora’s Box of Damage to the Dollar

Russia’s finance minister discussed in an interview the potential shift among the world’s developing countries, particularly China, from Western to new currencies.

“The Chinese are reducing their holdings of American securities. This is a consequence of what’s happening [to Russia, ed.] The reliability of the dollar and the euro has been undermined,” Siluanov said.

Kolganov also agreed that the decision to seize the assets of a large economy such as Russia may potentially badly damage the reputation of the dollar and euro, even though it may be too soon to talk about the collapse of these currencies.

“The yuan’s share in international transactions has doubled over the past two years, but doubled to only about 4.6 percent of the total. This is not a huge amount, but still, an upward trend exists. The share of rubles in international payments has also increased, mainly in the form of payments with our country…Nevertheless, a gradual move away from the dollar will of course take place. Because here we’re talking not only about the confiscation of assets, which will undermine confidence in payments made in reserve currencies. Because any country and any central bank may feel threatened that if the geopolitical situation changes, they could be treated in a similar way.”

The issue is made worse by the fact that both Europe and the United States are experiencing a decline in domestic economic confidence. The former is particularly affected, as its debt levels are out of control, which might eventually lead to significant shocks to the entire global currency system, according to Kolganov.

Recipe for Action

According to Ostapkovich, Moscow can already take tit-for-tat action against the Europeans over a Brussels law that permits the seizure and use of interest earned on Russian assets frozen in Western banks. If the EU proceeds with the seizures, Moscow may also begin withholding dividends and interest from European businesses doing business in Russia.