Exclusive: Ukraine Pushes Back Against EU Conditions on $163 Billion Loan Backed by Frozen Russian Assets

Ukraine is urging European nations not to restrict how it can use a proposed $163 billion loan backed by frozen Russian state assets, arguing that Kyiv must have the freedom to purchase non-European weapons, rebuild war damage from Russian attacks, and compensate victims.

European Union leaders are set to discuss the so-called “reparation loan” on Thursday, in a meeting that will also include Ukrainian President Volodymyr Zelensky. Some member states have suggested the funds should be spent mainly on European-made weapons — a move that would bolster the bloc’s defense industries amid growing security threats from Russia.

A senior official in Zelensky’s administration told Reuters that Ukraine needs both funding and autonomy over its allocation before the end of the year — the most detailed public statement yet outlining Kyiv’s stance.

“Ukraine believes that any restrictions would undermine the principle of justice,” said Iryna Mudra, a top legal adviser in the president’s office, in an interview. “It is the victim — not the donors or partners — who should decide how to address the most urgent defense, recovery, and compensation needs.”

U.S. Weapons Still Central to Ukraine’s Defense

For example, U.S.-made Patriot air defense systems have been crucial to Ukraine’s ability to intercept Russian ballistic missiles that have targeted military sites, power infrastructure, and civilian buildings.

In remarks that come at a pivotal stage of EU deliberations, Mudra said Ukraine supports closer cooperation with European defense industries and is already finalizing deals with several major firms.

“However,” she added, “we will insist on having autonomy in allocating defense resources. If European countries lack sufficient production capacity, we must retain the option to buy from non-European suppliers.”

Mudra said part of the loan should also fund “urgent reconstruction needs”, such as restoring critical energy infrastructure heavily damaged by Russian strikes, while a portion should go toward “reasonable compensation for victims.”

EU Split Over How Funds Should Be Spent

According to a European Commission document reviewed by Reuters, some EU countries want the money to go primarily toward European-made arms, while others advocate for more flexibility.

As a compromise, the Commission has proposed that the majority of the loan be spent on Ukrainian and European weapons, while a smaller portion could provide general budget support — allowing Kyiv to use it for purchases outside Europe if necessary.

Toward a Legal Framework

Earlier this month, European leaders broadly backed the idea of using frozen Russian assets to provide Ukraine with a €140 billion ($163 billion) loan.

EU diplomats, however, note that legal and technical challenges remain — particularly in convincing Belgium, which holds a large share of the assets through its Euroclear securities depository, that the arrangement will not violate international law.

Senior EU officials say they expect Thursday’s summit to give political approval for the Commission to draft a formal legal proposal.

The Kremlin has condemned the plan as the illegal confiscation of Russian property and warned of retaliatory measures. Under international law, sovereign assets generally cannot be seized outright.

The proposed mechanism would allow EU governments to lend Ukraine funds now, to be repaid later using war reparations from Russia as part of a future peace agreement.

Europe Under Pressure to Step Up

Supporting Ukraine has become more challenging for Europe amid its own financial strains and after Donald Trump’s return to the White House in January, which made clear that new U.S. assistance is unlikely.

According to Ukraine’s Finance Ministry, the country still faces an $18 billion budget gap for 2026 that must be filled.

“We sincerely want our partners to understand that to avoid this financing gap and sustain both military and macro-financial support, the EU’s reparation loan must become operational by the end of 2025,” Mudra said.

“Otherwise,” she warned, “Ukraine risks entering next year with no predictable source of funding.”

($1 = €0.8575)