The new aid package, expected to arrive in within a week or two, should prevent substantial gains for Russia, enhancing Ukraine’s defense capabilities
Multinationals should expect the War in Ukraine to persist into 2024, with Russia escalating its offensives targeting logistics centers, weapon depots, and critical infrastructure as the window for action narrows. Meanwhile, Ukraine will maintain an active defensive stance in 2024, rebuilding its forces and establishing in-depth fortifications. As the fighting and destruction continue, reconstruction efforts will mainly prioritize restoring energy and other critical civilian infrastructure. Multinationals should also note that the substantive ceasefire talks will remain elusive for both parties at least until after the US elections.
As the war drags on, multinationals from the US and its allies in Russia should prepare for more erratic and unpredictable decision making regarding the seizure of their assets. Given the recent approval of the Repo Act, which grants the US president authority to seize Russian sovereign assets in the US, multinationals from the US, especially those in non-high-tech sectors will be more susceptible to such seizures. The Kremlin’s retaliation will mirror the magnitude and pace of the Russian asset confiscations in the West, suggesting that substantial seizures of Russian assets abroad will trigger reciprocal actions against Western assets in Russia. Although it is hard to assess their current market value, several Western companies operating in Russia have already written down their asset values. Also worried by foreign capital flights, Moscow is effectively forcing companies to stay, forbidding the withdrawal of local assets in dollars or euros, which further diminished the net worth of these assets in Russia.
Overview
- On April 20, the House approved Ukraine funding with a 311-112 vote; all 112 “no” votes were cast by Republicans, with 101 Republicans supporting it. Following it, on Tuesday, the Senate overwhelmingly approved an aid package, with a vote of 79-18, setting it up for President Joe Biden’s signature.
- The aid package aims to replenish military supplies, support Ukraine’s military operations, and provide economic and humanitarian assistance.
- The US$ 61 billion aid package for Ukraine entails around US$ 13.4 billion designated for restocking US military inventories, with an additional US$ 13.9 billion earmarked for the Ukraine Security Assistance Initiative, aimed at enabling direct procurement of cutting-edge weapon systems for the Ukrainian military from American defense firms.
- About US$ 20 billion will be allocated to support ongoing US military activities and exercises in the region, aimed at bolstering Europe’s and Ukraine’s military capacities and promoting intelligence cooperation.
- Approximately US$ 9.5 billion is designated for economic assistance for Ukraine and other affected countries, including US$ 7.9 billion to support essential operations of the Ukrainian government, including salary and pension payments.
- The US is already preparing a US$ 1 billion military package for Ukraine as a part of its larger aid bill, which includes vehicles, air defense munitions, 155 mm artillery ammunition, TOW and Javelin anti-tank munitions, and other weapons for immediate battlefield use.
- The House also passed the Repo for Ukrainians Act, granting the president authority to seize Russian sovereign assets in the US and allocate them to the Ukraine Support Fund established by the bill.
- The Kremlin has already issued a warning, threatening to retaliate by seizing the assets of foreign investors in Russia, which, according to the Kremlin, amount to US$ 300 billion.
Our View
The approval of the aid comes in line with our base-case expectations for the Russia-Ukraine war. After several months of delay, House Speaker Republican Mike Johnson was finally able to push the package forward despite threats from his fellow Republicans to oust him from office. The upcoming military supplies, coupled with ongoing mobilization, should help Kyiv avoid major breakthroughs for Russia amid its intensifying offensive operations in eastern Ukraine. Russia could still make minimal gains in 2024 due to its material and manpower superiority, but reaching its war objectives by taking all the Kharkov and Donetsk seems unlikely.
In our view, the prospect of long-term military support beyond 2024 remains uncertain and will be particularly contingent upon variables such as the outcome of the US elections and the evolving battlefield dynamics later this year. As of now, it appears that the primary objective of the West is to prevent Russia from seizing more Ukrainian territories and inflict significant costs on Russia, thereby positioning Ukraine in an advantageous position when the negotiations start.
To secure long-term support, Western nations are also actively considering the potential confiscation of Russian state assets. While the US holds a modest portion, around US$ 6 billion, a significant amount remains within European institutions, particularly at Euroclear based in Belgium. The US acting first with confiscation is believed to prompt similar responses from other G7 members. However, European skepticism due to legal and reputational concerns will potentially delay a substantial confiscation. While Russia will ultimately be held accountable for damages and losses, the timing of substantial asset confiscation for Ukraine’s reconstruction will remain uncertain for the foreseeable future. Nonetheless, redirecting interest income from these frozen Russian assets amounting to US$ 3–5 billion toward Ukraine’s war and reconstruction efforts is a realistic short-term possibility.
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