Russia was able to save abroad about a third of the $227 billion windfall earned last year from its commodity exports, creating a potential new flashpoint as the US and its allies look to tighten their sanctions over the invasion of Ukraine.

About $80 billion is scattered across holdings of cash, real estate, and investments in affiliates abroad, according to a Bloomberg Economics estimate. The stash amounts to shadow reserves, a byproduct of a record current-account surplus — roughly the difference between exports and imports — that helped sustain the Kremlin’s finances since its attack on Ukraine in February 2022.

“Due to Europe’s delay with targeting Russia’s energy sector, the Kremlin was able to accumulate one of the largest current-account surpluses in its history,” said Maria Shagina, an economist at the UK-based International Institute for Strategic Studies. “This has de facto negated the effect of freezing the central bank assets in March 2022, as Russia could recoup what it lost.”

Any new earnings piling up abroad could make them an inviting target for Russia’s adversaries, especially if the funds are controlled by the state. The government is a shareholder in many of Russia’s biggest exporters which contributed to last year’s windfall, though the question of where the money wound up and who controls it has taken on the greater mystery.

In amassing international assets last year, Russia added the equivalent of around 5% of the gross domestic product. That’s close to the average for 2009-2013, another period of elevated oil prices and limited foreign-exchange interventions by the central bank.

The fate of Russian funds abroad is increasingly in focus as Ukraine’s backers such as Canada and Germany broach the idea of using billions in frozen Russian assets to compensate the country and help it rebuild. 

For the government, the assets accumulated abroad are a resource that can be tapped by way of extraordinary levies on exporters, according to Alexander Knobel at the state-run Russian Foreign Trade Academy.

“Such ‘shadow reserves’ can be formally turned to the state’s benefit in a variety of ways,” said Knobel.

As the European Union becomes less dependent on Russian energy supplies, it’s likely the funds abroad will draw more attention as a possible target of sanctions, he said. 

Financial Choke

Unprecedented restrictions on the central bank last year already blocked some $300 billion of its reserves, leaving it with few options for investments outside yuan and gold. Assets held by sanctioned Russian businesspeople have also been frozen in some western jurisdictions, leaving them in limbo.

With lower commodity prices and new restrictions on oil exports recently coming into force, the current-account surplus has dropped sharply. The Bank of Russia forecasts it at $66 billion this year, reaching $48 billion in 2024 and $41 billion in 2025.

Even if foreign governments are able to determine ownership of new Russian funds abroad and link them to the state, the total will likely be smaller than official estimates.

While Russia’s net acquisition of foreign assets last year reached $107 billion, according to the central bank, Bloomberg Economics estimates the number is likely overstated by around $21 billion.

To arrive at the figure, Bloomberg Economics adjusted the total by tourism spending, purchases on a shadow fleet of oil tankers, and outflows related to Russians opening accounts at overseas banks. Such bank transfers distort the data because they appear as an increase in foreign assets but instead represent a redirection of imports.

“The accumulation of hidden reserves by Russia is quite possible,” said Sergei Guriev, an economist who once advised the Russian government but later fled to Paris, where he’s now the rector of Sciences Po. 

“The main question is, to what extent would these reserves be enough to finance the budget deficit in 2023,” Guriev said.