G7, EU eye frozen Russian assets to rebuild Kyiv; rocket attack on Luhansk bakery kills 28

The death toll rose to 28 overnight in a strike on a bakery in the Russian-controlled city of Lysychansk in eastern Ukraine’s Luhansk region, rescue authorities said. Kremlin-installed officials said the building was hit by a Ukrainian rocket attack on Saturday.

The US House of Representatives will next week vote on a standalone $17.6-billion Israel aid package without any Ukraine aid, Speaker Mike Johnson said on Saturday.

A sizeable amount of refining capacity is likely to be offline at the large Lukoil facility in Volgograd following a fire blamed on a drone downed overnight, the latest attack by Ukraine on a Russian energy facility.

G7, EU eye Russian assets as collateral to raise funds for Ukraine

The Group of Seven (G7) and the European Union are discussing a plan to use more than $250-billion in frozen Russian central bank assets as collateral to help fund Ukraine’s reconstruction, according to people familiar with the matter.

Under the proposal, Ukraine’s allies could sell debt to contribute to the war-torn country’s rebuilding, using the frozen assets as collateral. Proponents believe that any settlement of the conflict under international law would find Russia liable to pay for the damage it has caused its neighbour. Should Russia refuse, claims could be made on the frozen assets, the people said.

Discussions were taking place at a technical level, meaning a political decision had not yet been taken, said the people, who spoke on condition of anonymity. One of the people said some countries wanted to move faster than others.

The G7 has pledged to make Russia pay to rebuild Ukraine and to keep sanctioned assets frozen until it does. Several G7 nations, including France and Germany, have so far resisted the option of confiscating the frozen assets outright because of legal concerns and the potential consequences on the stability of the euro.

The plan could allow for the creation of a special-purpose vehicle that would issue zero-coupon bonds backed by callable collateral, one of the people said. A hierarchy would be established on the collateral that would use the assets held by Euroclear as well as banks, the person said.

The option to use the assets as collateral in the meantime, which was first reported by the Financial Times, is seen as an alternative to that route, said the people. Russia has vowed to legally challenge any attempt to seize assets.

Read more on this topic:

• EU moves ahead on plan to tax gains of frozen Russian assets


• White House throws support behind seizing frozen Russian assets

Any move would come on top of EU plans to apply a windfall tax to the profits generated by the frozen central bank assets. Though slowly, that plan is progressing, Bloomberg previously reported. The vast majority of the sanctioned assets are held by the Belgium-based clearing house Euroclear, where they generated €4.4-billion in 2023, according to financial results published last week. Several Russian firms have contested the sanctions and several legal proceedings are ongoing, almost exclusively in Russian courts.

The discussions focus on Kyiv’s longer-term needs and are separate from a drive to support Ukraine’s economy in the immediate term. Last week the EU approved a €50-billion multi-annual aid package, while talks in the US over $60-billion in assistance remain stuck in Congress. 

Russia says 28 dead in Luhansk bakery strike blamed on Kyiv

The death toll rose to 28 overnight in a strike on a bakery in the Russian-controlled city of Lysychansk in eastern Ukraine’s Luhansk region, rescue authorities said. 

Kremlin-installed officials said the building was hit by a Ukrainian rocket attack on Saturday. The Russian foreign ministry said Western weapons, potentially Himars rockets, were used in the strike. Local leader Leonid Pasechnik wrote on Telegram that at least one child was among the dead. 

Ukrainian officials haven’t commented on the incident, which comes as Russia’s invasion of its neighbour will reach the two-year mark later this month.  

Luhansk is one of the four Ukrainian regions illegally annexed by Russia in 2022, along with Donetsk, Kherson and Zaporizhzhia. Russia doesn’t have full control of any of the regions. 

Two weeks ago, Russia claimed at least 25 people had been killed by a Ukrainian strike on a market and shopping centre on the outskirts of the Russian-occupied city of Donetsk.

US House to vote on Israel aid without Ukraine funds next week

The US House of Representatives will next week vote on a standalone $17.6-billion Israel aid package without any Ukraine aid, Speaker Mike Johnson said on Saturday.

Johnson said the move was needed to get aid to Israel quickly in its battle with Hamas in the Gaza Strip because there was no time to consider a package combining aid to Ukraine and Israel with US-Mexico border security provisions. That proposal is set to be released soon by the Senate after lengthy negotiations.

The Israel Bill unveiled on Saturday is the latest sign that House Republicans are prepared to delay action on Ukraine aid indefinitely due to disputes over US migration policy, reflecting that aid for Israel is far more popular with the House GOP than aiding Ukraine. White House spokesperson Karine Jean-Pierre called it a “cynical political manoeuvre.”

The Bill includes funds for Israel’s Iron Dome and Iron Beam missile defence systems, funds for US military operations in the Middle East and enhanced protection for US personnel at embassies. It won’t have offsetting spending cuts, unlike a $14-billion Israel aid Bill that passed the House over Democratic objections. 

Fire extinguished at Russia’s Lukoil plant after drone downed

A sizeable amount of refining capacity is likely to be offline at the large Lukoil facility in Volgograd following a fire blamed on a drone downed overnight, the latest attack by Ukraine on a Russian energy facility.

“Last night, air defence and electronic warfare systems repelled a UAV attack on the territory of the Volgograd region,” Andrey Bocharov, the region’s governor, said in a statement on Telegram. “As a result of the consequences of the downed UAV, a fire broke out at the Volgograd refinery.”

The oil-product spill blaze was extinguished at 7.55am local time, according to the regional emergencies ministry. There were no casualties, it said in a website statement.

A Ukrainian drone targeted the facility in an attempt to slash its production capacity, according to an official with knowledge in Kyiv, who spoke on the condition of anonymity. 

Several Russian oil processing and storage facilities have been targeted or damaged in what appeared to be Ukrainian drone attacks in recent weeks. As the war between the two countries is soon to enter a third year, Ukraine is focusing on targets that provide revenue to the Russian state and supply fuel to the Russian army.  

The fire hit a pipeline at a unit of primary crude processing, Lukoil’s Volgograd refinery said in a website statement, adding that the facility was functioning in a normal mode. Part of the production cycle at the plant would be halted to repair damage caused by the drone attack, Kommersant newspaper reported earlier, citing people at the plant it didn’t identify. 

The refinery, hundreds of kilometres east of the Ukrainian border and one of the nation’s largest, processed almost 289,000 barrels a day of crude oil in the first 24 days of January, or more than 5% of Russia’s total crude processing volume, according to a person familiar with industry data. 

The unit accounted for some 22% of the facility’s total nameplate production capacity, estimated Mikhail Turukalov, an independent US-based oil-products analyst.

“Taking into account that another crude distillation unit has been out of service since the middle of last year, as much as 30% of production capacity could be offline,” Turukalov said.  

Russian air defence systems intercepted and destroyed seven drones across the Belgorod, Volgograd and Rostov regions overnight, the nation’s defence ministry said on Telegram. 

At the same time, residents of Ukraine’s Kryvyi Rih, the home town of President Volodymyr Zelensky, were cut off from electricity supplies for several hours overnight after the latest Russian drone strike, the power grid operator Ukrenergo said on Telegram. Power was later restored. 

It was the third consecutive Russian attack on energy infrastructure in the Dnipropetrovsk region, the company said. DM