Warfare, especially the sort of prolonged fighting against a near-peer adversary that has characterised the conflict between Ukraine and Russia, is a very costly business. Those costs are measured in both human suffering and financial terms. More than three years after Russia’s invasion of Ukraine, its own casualties have likely topped one million, whilst Ukraine has suffered around 400,000 service people or civilians killed or injured.
Alongside that horrific, and still climbing, human toll is a large economic cost. One recent study, by Gorodnichenko and Vasudevan, tried to estimate the lost GDP resulting from the conflict (so far) by examining how professional forecasters revised their estimates for the Russian and Ukrainian economies, alongside their neighbours, following the invasion.
Professional forecasters suggested a staggering $2.4 trillion cost of Russia’s full-scale invasion of Ukraine, not only for belligerent countries but also for their neighbours in the region. However, we argue that even this amount understates the full scale of economic harm. Professional forecasters predicted the war to weigh heavily on the region, far beyond the immediate war zone, but with the strongest effects on countries close to the war. Additionally, these shocks are expected to have long-lasting negative effects, imposing an anchoring drag on the region’s economic trajectory, particularly for Russia.
The financial, economic, and material support of allies has been crucial to sustaining Ukraine’s war effort so far.
Over the past 3 years, Ukraine has received a low but steady inflow of foreign aid, with Europe taking the lead. On military aid, Europe’s support of EUR 62 billion is on a similar level to that of the United States, which has allocated EUR 64 billion in total. However, Europe has long surpassed the US when it comes to financial and humanitarian aid allocations (EUR 70 billion vs. 50 billion). Total aid allocations by all donor governments to Ukraine amount to EUR 267 billion as of Dec 2024, or about EUR 80 billion per year.
To put that EUR 80B in context, Ukraine’s total annual GDP in 2021, the last year before the invasion, was around EUR 170B. In other words, the annual flow of foreign military and economic aid has been worth almost half of the pre-war national output. That is, proportionally around twice as large as the Lend-Lease aid the UK received from the United States during the Second World War, often held up as a benchmark of major support for a belligerent power.
But even that EUR 80B or so a year may not be enough.
The US Experts Panel this week considered whether the G7 should go further. Rather than just using the interest on frozen assets to back loans, should the G7 instead make the seized $300B available to Ukraine?
The panel was first asked ‘seizing frozen Russian state assets and using them to support Ukraine’s defense, economy and reconstruction would substantially accelerate the ending of the war’?
On this, the experts were broadly supportive, although with a high degree of uncertainty. Weighted by confidence, some 44% of respondents either agreed or strongly agreed with the statement, while only 11% disagreed. 45% were uncertain.
There was less uncertainty when it came to the next question. Asked whether ‘seizing frozen Russian state assets and using them to support Ukraine’s defense, economy and reconstruction would, by reducing the burden on Western taxpayers, substantially increase Western voters’ political approval for supporting Ukraine’? 8% of respondents (again, weighted by confidence) strongly agreed and 57% agreed. Only 15% disagreed.
Using frozen Russian assets to fund Ukraine certainly seems like an easier sell domestically in many countries than using their own resources.
But is such an option cost-free?
The final question to the panel was whether taking such an action ‘would substantially reduce investment in assets denominated in Western currencies and/or increase the likelihood of another country seizing Western sovereign assets in a future conflict?’
For policymakers weighing up the decision, the panel did not provide a clear-cut answer. Instead, weighted by confidence, it split down the middle. 29% of respondents agreed, 29% disagreed, and 42% were uncertain.
Ukraine is going to need continuing support for as long as the war continues. And it will need substantial sums afterwards to rebuild itself. Seizing frozen assets is likely to remain on the agenda for some time to come. It certainly offers a less politically costly way for the Western allies to fund Ukraine, but perhaps not an entirely cost-free one.
