Jose Parejo & Associates quoted at THE JAPAN TIMES

https://www.japantimes.co.jp/news/2024/06/14/world/politics/g7-ukraine-russia-assets/

To help Ukraine buy more weapons and rebuild damaged critical infrastructure, the United States and other Group of Seven nations agreed Thursday to provide a $50 billion loan to Kyiv this year to be repaid using interest generated by $300 billion worth of immobilized Russian funds.

The first of a three-day leaders' summit in the Italian resort village of Borgo Egnazia also saw Washington sign a 10-year, nonbinding security agreement with Kyiv designed to help bolster the war-torn country’s deterrence capabilities while putting it on track for eventual NATO membership.

Several other members of the U.S.-led coalition also clinched similar long-term security agreements with Ukraine, including Japan, which signed its own support deal with Kyiv the same day. These nations fear a recent battlefield push by Russia, particularly around Ukraine’s second-largest city of Kharkiv, could reverse Ukraine's hard fought territorial gains.

Kyiv has repeatedly asked for increased international military and financial support as it struggles to repel the Russian invasion and awaits delivery of an additional $60 billion worth of U.S. weapons and munitions approved by Washington in April.

“We’re not backing down. In fact, we’re standing together against this illegal aggression,” U.S. President Joe Biden told a joint news conference with Ukrainian President Volodymyr Zelenskyy.

The loan, security deals and a set of new, collective sanctions meant to disrupt third countries such as China that have been supplying dual-use items to Russia are meant to send a strong message to Russian President Vladimir Putin, Biden added.

“He cannot wait us out, he cannot divide us, and we will be with Ukraine until they prevail in this war," Biden said.

The loan deal, the first to be backed by frozen Russian assets, was announced by Italian Prime Minister Giorgia Meloni, who is hosting this year’s summit and invited Zelenskyy to join a special session. The Ukrainian leader said the money would go toward “both defense and reconstruction.”

The loan will be underwritten by Washington, although its European allies are also expected to provide some of the funds.

“We will not be the only lenders,” a senior U.S. administration official told reporters, describing the move as a “loan syndicate.”

“We found an idea that respected every jurisdiction’s red line; it respected every jurisdiction’s rule of law,” the official added.

But while the agreement signals the G7’s political commitment to support Ukraine, it seems to only have marked an important, albeit incremental step. Washington and its allies must still overcome differences over the loan’s technical implementation and how the financial arrangements will be structured, negotiations that could go on for quite some time.

Washington, however, did not rule out that the assets could eventually be seized.

“The principal is untouched for now, but we have full optionality to seize the principal later if the political will is there,” the U.S. official said, adding that the G7 joint communique expected late Friday would make clear this “is still on the table.”

Seizing the assets would complicate the matter, though, as the windfall profits would no longer be able to be used to pay off the loan.

Washington also signed Thursday what it called a “historic” bilateral security agreement with Kyiv aimed at building and maintaining a “credible” Ukrainian defense and deterrence capability.

“A lasting peace for Ukraine must be underwritten by Ukraine’s own ability to defend itself now and to deter future aggression anytime in the future,” Biden said.

The nonbinding deal outlines Washington’s long-term pledge to train, advise and equip Ukrainian forces both in Europe and the U.S., provide more weapons and ammunition, expand intelligence-sharing, and enhance military interoperability with NATO standards.

It also mentions Washington’s intention to bolster Kyiv’s defense industrial base through co-production and joint ventures and to support Ukraine’s economic recovery and energy security while advancing reforms needed for Ukraine’s accession to both NATO and the European Union.

Zelenskyy, who called the 10-year deal a “bridge” to NATO membership, said it includes provisions for a number of assets, including more Patriot air-defense systems and the supply of “fighter squadrons” to Ukraine — “including but not limited to F-16s.”

The nonbinding nature of the agreement, however, means it could be undone by future U.S. administrations.

“The recent deals will at least keep funding flowing to Ukraine until the end of the year but the outcome of the war will be determined by who wins the next U.S. presidential elections in November,” said Judith Jacob, a geopolitics expert at risk management company Forward Global.

Should former President Donald Trump be elected, he is likely to rescind the security deal as well as the Russian sanctions, she said.

This prospect, experts say, is driving a sense of urgency among G7 leaders as they try to lock in as much support for Ukraine as possible before the end of the year.

NATO officials also aim to institutionalize long-term aid as soon as possible, with a proposal Thursday that the allies provide Ukraine at least €40 billion in military support each year “for as long as necessary.”

“The paradox is that the longer we plan, and the longer we commit, the sooner Ukraine can have peace,” NATO Secretary-General Jens Stoltenberg said.

Meanwhile, G7 leaders also agreed to take “collective action to push back” against countries such as China that have been accused of providing Moscow with dual-use items to support Russia’s defense-industrial base.

“China is not supplying weapons but the ability to produce those weapons and the technology available to do it,” Biden said. “So it is, in fact, helping Russia.”

While no specific measures were revealed Thursday, a set of sanctions and export controls are expected in the group’s final communique.

U.S. national security adviser Jake Sullivan had previously warned that Washington would reserve the right to take action against companies and entities it believed were providing such dual-use items.

“We have put our money where our mouth is,” he said.

The U.S. and G7 measures are likely to prompt strong responses from both Moscow and Beijing that could intensify the war in Europe, worsen ties with China and push Sino-Russian relations even closer, said Jose Parejo, head of the JP & Associates intelligence consultancy.

“This could lead to a decline in the already tense diplomatic environment between China and the West, impacting global trade and economic stability,” Parejo said.