At the recent gathering of G20 finance ministers in Brazil, delegates were gripped by a deep sense of unease over a pressing issue: the potential seizure or use of Russian assets frozen under the western sanctions that followed its invasion of Ukraine.

Two ministers — Saudi Arabia’s Mohammed al-Jadaan and Indonesia’s Sri Mulyani Indrawati — were among those particularly alarmed by the idea. Were G7 countries seriously preparing to do this? And had they considered the full implications of such a drastic step?

Their questions to their western counterparts cut to the heart of a fraught debate over whether hundreds of billions of euros in frozen Russian central bank assets should be mobilised to help fund Ukraine as the conflict there drags into a third year.

Doing so would deliver a financial boost with the potential to turn the war in Kyiv’s favour, argue those in support, led by the US. For opponents of the idea, such a move risks setting a dangerous precedent in international law — one that could endanger not only the interests of any country that falls out with western capitals, but also the international legal order itself.

For now, Kyiv is relying on the $61bn package of military aid approved by the US Senate on April 24 following months of political wrangling. But US President Joe Biden is pressing his allies to seek ways of tapping into the roughly €260bn of Russian reserves, with the G7 leaders’ summit in Italy next month seen as a key moment to push for progress.

“We immobilised the assets together; we would like to mobilise them together as well,” says Daleep Singh, White House deputy national security adviser for international economics. 

Yet the topic is dividing the club of advanced economies. The Biden administration has backed calls for confiscation, as have Canada and some members of the UK government, especially its foreign secretary, Lord David Cameron. Meanwhile, Japan, France, Germany, Italy — and the EU itself — remain highly cautious, resulting in a stalemate.

Some of the most prominent sceptics are G7 central bankers who are conscious of the stabilising role that foreign exchange reserves play. European Central Bank president Christine Lagarde has warned that “moving from freezing the assets, to confiscating them, to disposing of them [could carry the risk of] breaking the international order that you want to protect; that you would want Russia to respect”.

Speaking in São Paulo in February, finance minister Giancarlo Giorgetti of Italy, which holds the G7 presidency this year, said that it would be “hard and complicated” to find a legal basis for seizing Russian state assets. His French counterpart, Bruno Le Maire, was even more trenchant, arguing that the legal foundation simply did not exist.

Further afield, the worry is about the precedent this would set. Countries such as Indonesia and Saudi Arabia have been lobbying EU capitals not to seize the assets, according to officials, fearing for the future of their own reserves held within the west. “They are very worried,” says one European official, adding that their main concern is: “Is our money still safe there?”

“Our international legal system doesn’t have a police force . . . it really does rest on fundamental respect for international law,” says Philippa Webb of King’s College London, author of a European parliament study on the legality of confiscating Russia’s assets.

“The risk is that if we just start ignoring these principles, they can equally be used against us by other states and that we set a precedent that can have unintended effects down the line.”

The debate over what to do about Russian foreign reserves has been raging ever since Kyiv’s allies took the landmark step of immobilising hundreds of billions of euros following the full-scale invasion of Ukraine in 2022.

The move showed how far Kyiv’s supporters were willing to go to harm the Russian economy, with one senior US official vowing to send the rouble into freefall.

But since then the vast trove of Russian assets has been sitting inert in western financial institutions, such as central securities depository Euroclear.

To the government of Ukrainian President Volodymyr Zelenskyy, the case for grabbing the assets, the majority of which are in the EU, is clear-cut and well founded in international law.

Kyiv itself has already confiscated the equivalent of some €366mn in Russian state assets belonging to state-owned Sberbank and the Russian state development corporation VEB.RF, using countermeasures and self-defence as legal arguments.

Ukraine’s Iryna Mudra, deputy head of the presidential office, argues that confiscating the central bank’s assets would not be a way of penalising Russia, but rather “restoring the rightful norm” by compelling Moscow to honour an existing obligation to make war reparations. 

“It’s not just because Ukraine wants this, it’s because international law allows this and requires the states to act all together, in order to cease this aggression,” she says. 

But other governments, including those within the G7, are wary of being accused of taking any step that would amount to a violation of international law — the very thing they accuse Russia of.

“It is morally and politically absolutely sound, but legally it is not sound,” says Armin Steinbach, professor of law and economics at HEC Paris business school.

Any plan to use these assets would test the legal principle of state immunity, whereby no country can be sued by the courts of another if they do not agree it has jurisdiction over it, say some academics. “It’s a very old and well-established principle, and it’s based on the idea that all states are equal,” says Webb, a public international law professor at King’s. “Even the world’s superpowers can’t sit in judgment on a tiny island state.”

Some European officials also worry that such a move would unleash a flurry of reparations claims relating to decades-old disputes such as those against Germany after the two world wars, as well as former colonies staking claims on former imperialist powers.

The US, however, argues there is a legal basis for outright confiscation of the assets as a lawful countermeasure to Russia’s war of aggression. It has sought to convince others that G7 countries are “specially affected” by Russia’s unlawful invasion, including through the impact on their economies, and can therefore act to make Moscow end its aggression.

The foreign aid package passed by Congress last week grants the Biden administration the right to seize Russian assets held by the US, paving the way for confiscation.

But Europeans point out it is easier for the US to adopt a hardline stance given America holds only $5bn in Russian state assets. “They have little skin in the game,” says one European diplomat. 

While violations of international law can, in very restricted circumstances, be justified, an important condition is that the countermeasures be temporary and reversible. 

Confiscation would not fulfil that requirement, says Webb, adding that central bank assets “have traditionally enjoyed a very high level of immunity”.

Violating this could lead to other states seizing western assets in their jurisdictions, opponents say, damaging the standing of Europe’s financial centres and creating a wild west where anything goes.

China, which opposed western plans to impose “unilateral sanctions” on Moscow in the first place, has concerns about the credibility of the international financial system if frozen assets are mobilised, says Cui Hongjian, professor with the Academy of Regional and Global Governance, Beijing Foreign Studies University.

China has pursued a de-dollarisation agenda, partly by encouraging countries to switch to Renminbi as an alternative, with so far limited success.

“It will maybe send a message to China to try to provide more guarantees for its assets abroad,” says Cui, a former director of a think-tank affiliated with the Chinese foreign ministry. “It will also maybe give some encouragement to the discussion within China about the internationalisation of the renminbi.”

Although Ukraine continues to push for an all-out seizure of Russia’s assets, G7 officials say privately that is no longer on the table. Instead, they are exploring alternative ways of extracting funding from the frozen assets.

One idea proposed in February by Belgium, which holds about €190bn in Russian central bank reserves at Euroclear, suggested using those reserves as collateral to raise debt for Ukraine.

Under this plan, the G7 would set up a special purpose vehicle issuing debt in Russia’s name and the collateral would only be called on when the debt reached maturity.

But after initially gaining traction — US Treasury secretary Janet Yellen has touted it as an option — the Belgian plan was abandoned. The idea could leave the liability for any resulting legal claims with Euroclear, which argued the plan comes with the same challenges as full confiscation.

European countries want to steer clear of anything that appears to touch the assets themselves for fear of retaliation.

To get around this, the White House is pushing a new idea that it hopes will win the support of G7 leaders in June. This would involve releasing about $50bn of funding for Ukraine via a loan or bond secured against future profits from the frozen assets, explains Singh.

Euroclear has already made more than €5bn in extraordinary profits after tax since the start of the war, as it reinvests stuck coupon payments and cash from maturing securities that cannot be paid out to Russia under the sanctions.

But the EU has a different plan for this money. Under EU proposals, set to be adopted in the coming weeks, a majority of present and future profits from Russian assets held by Euroclear will be used primarily to jointly purchase weapons for Ukraine. All the profits generated up to mid-February will be left to Euroclear to act as a buffer against legal costs and risks.

“We can think about other actions, but for now we believe that this is something that is legally supported,” said Josep Borrell, the EU chief diplomat, in an apparent rebuff to US proposals in a speech at the end of April.

Politicians, legal experts and Euroclear itself agree that using the extraordinary profits, rather than the assets themselves, is legally sound, making it far less risky than grabbing the Russian reserves.

But the EU’s plan, which needs a consensus of all 27 member states, would only generate an estimated €3bn a year, depending on the evolution of interest rates.  

Under the White House plan, however, those profits would be brought forward as rapidly as possible, with a goal of handing Ukraine tens of billions of dollars shortly after any potential deal is agreed at the forthcoming G7 leaders’ summit.

“We are developing the option that seems to have the greatest likelihood of delivering the most impact in the shortest period of time,” says Singh. “It is really important for us that we maintain solidarity.”

The problem with that plan, for Europe, is what happens if the war ends in the near future. The debt raised against the expectation of decades’ worth of profits would need to be backed by state guarantees or by the Russian assets themselves — something that could be “complicated and costly”, says one EU official.

“If there is ever a peace negotiation and Ukraine decides to participate, there might be a situation where Russia demands its frozen assets back and in exchange agrees to make territorial concessions to Ukraine. You can’t do that if you’ve already mortgaged those assets,” says one German official.

Eurozone officials are also deeply wary of anything that could negatively affect the euro’s hard-fought gains as a global reserve currency. 

Given that most of the Russian reserves are held by EU jurisdictions, the ECB and key EU capitals argue that the euro would carry the brunt of any flight from foreign reserves triggered by an effort to tap into the assets. 

They also consider the safety of European assets still held in Russia, given that Moscow has pledged to retaliate against property held by western public and private actors held in the country if the G7 moved to confiscate Russia’s foreign reserves.

“We have ways to respond. We have also frozen sufficient volumes of financial assets and investments of foreign investors in our securities, all of which transfers we carry out for the owners of our securities,” says Russia’s finance minister, Anton Siluanov.

According to European officials, European investors have €33bn stuck in Russia’s National Settlement Depository — the Russian equivalent of Euroclear — which are slowly being seized through its courts.

While many western companies have left Russia, often selling their business at a loss, some of them maintain physical assets there, such as factories and stock, worth billions of euros.

Foreign companies hold physical assets in Russia worth $285bn, according to research by Steinbach based on data from the Kyiv School of Economics. The largest part, $105bn, are European companies’ assets — more than three times the $36bn of assets held by American companies in Russia.

If the G7 measures are carefully designed and in accordance with international law, Russia would be violating international law by seizing any western assets, experts say. 

But it is unlikely that crossing that line would have much of an impact on Moscow’s thinking. Russia is already seizing western businesses, recently nationalising Russian subsidiaries of German and Italian home appliance makers BSH Hausgeräte and Ariston.

The urgency of the situation in Ukraine may be the issue that finally breaks the deadlock on frozen assets.

Some countries are hoping the recently approved US aid package will alleviate the pressure of having to tap into Russian assets now that Kyiv is on more stable financial footing, European officials say.

But that notion is rejected by the White House’s Singh who warns that the decisions made by the G7 in the short term “have generational consequences.”

There are risks to mobilising the reserves, he acknowledges. But the alternative is the “risk that Ukraine is not sufficiently funded and one of the most egregious violations of international law in recent history occurs with impunity.”

Additional reporting by Kana Inagaki in Tokyo, Joseph Leahy in Beijing, Guy Chazan in Berlin and James Politi in Washington

This article has been amended to correct Iryna Mudra’s role

President Biden on Friday will give the nation’s highest civilian honor, the Presidential Medal of Freedom, to 19 people — with recipients covering nearly every corner of American life, including former House speaker Nancy Pelosi (D-Calif.), Olympic champion Katie Ledecky, Academy Award winner Michelle Yeoh and, posthumously, civil rights leader Medgar Evers.

When Berkshire Hathaway announced the acquisition of MidAmerican Energy in 1999, Warren Buffett hailed the Iowa gas and electric utility as squarely in the conglomerate’s “sweet spot”.

Unheralded at the time, the $2bn transaction catapulted Buffett into the energy business, kicking off a quarter of a century of dealmaking that has transformed Berkshire into a major player, operating across 28 states, transporting 15 per cent of America’s natural gas and serving 13mn customers.

The $138bn of assets owned by its subsidiary, Berkshire Hathaway Energy, are varied but the appeal of the businesses — and their place within Berkshire — have gone unquestioned. Its utilities, accounting for the bulk of BHE’s assets, boast the economic moats against competition prized by Buffett and have long been an attractive home for the cash that the conglomerate generates.

But if predictability was hardcoded into the sector’s DNA 25 years ago, global warming is bringing epochal change. The threats confronting Berkshire are multipronged: from billions of dollars in potential damages from wildfires, to criticism over how quickly it plans to retire its coal-fired power stations and the increasing politicisation of climate change in the US.

“I thought the energy business was going to be the place that absorbed a few billion dollars every year and has a consistent and steady return attached to it and it’s protected,” said Darren Pollock, portfolio manager at Cheviot, a California-based investment firm and Berkshire shareholder. “That’s no longer the case.”

This is the third in a series looking at the future of Berkshire when 93-year-old Buffett is no longer at the helm.

The energy division arguably faces the most fundamental upheaval of any part of the Berkshire empire. When Buffett no longer has the reins, deciding whether to allocate more capital to utilities — or remain in the business at all — will fall to Greg Abel, chair of BHE and the man Buffett has picked as his successor. BHE declined to put any executives up for interviews.

The 61-year-old Abel can expect to be subject to far more public criticism over its controversial parts, such as 28 coal-fired power units, one of the largest such fleets in the US, and a more recent bet on natural gas, than Buffett, the most celebrated American business leader of the past half century.

“People have this vision of Berkshire Hathaway and Berkshire does a great job, honestly, with the PR to elevate Warren Buffett as the face of the company,” said Kerri Johannsen, energy programme director at the Iowa Environmental Council.

The scale of the potential financial threat tied to climate change was laid bare last summer when an Oregon jury found PacifiCorp, the largest electric utility owned by Berkshire, liable for causing a series of deadly wildfires in 2020 by failing to shut off power lines.  

As claims against the company mount from separate cases, PacifiCorp has estimated it could face more than $8bn in damages, though its lawyers last year outlined a scenario in which the figure could reach $45bn. The company has said it would “vigorously pursue appeals”.

This week PacifiCorp faced an expansion of an existing class action lawsuit, seeking up to $30bn in damages, in the wake of the Oregon judgment. PacifiCorp blasted the move, saying utilities were in danger of becoming “de facto insurers of last resort”.

The Oregon verdict had already prompted Buffett for the first time to cast doubt over the future of the utilities business.

“Berkshire can sustain financial surprises but we will not knowingly throw good money after bad,” he noted in his annual letter to shareholders in February, warning of the “spectre of zero profitability or even bankruptcy” across the industry.

Wildfire lawsuits pushed California’s PG&E into bankruptcy in 2019 and Hawaiian Electric has seen its share price collapse amid mounting lawsuits over devastating fires on the island of Maui last year.

“I think part of Warren Buffett’s point was that you’re seeing excessive damages being awarded, that means that power companies are essentially underwriting what is a societal risk that is being driven by climate change,” said Pedro Pizarro, chief executive of Edison International, the owner of Southern California Edison, one of the country’s biggest utilities. “That breaks the model.”

Berkshire is one of several companies pushing states, including Wyoming and Idaho, to pass laws that would cap payouts if a utility is found culpable in the event of a wildfire. Utah recently adopted a law that shifts some of the cost of wildfire claims on to a utility’s customers and caps damages.

If other states passed similar legislation it would mark a “happy ending” for the company, said one big Berkshire shareholder. “They have some leverage with these legislatures to say we need you to change the rules.”

A decision to eventually abandon utilities would represent a sharp reversal of Buffett’s long-standing enthusiasm. Two years ago, he described the energy business as one of the company’s “four giants”.

BHE generated $2.3bn in operating earnings for Berkshire in 2023, down sharply from $3.9bn the previous year, as the group made provisions for damages. Although the subsidiary accounted for less than 10 per cent of Berkshire’s overall earnings, analysts and investors say this understates its role within the conglomerate.

“It’s a place that Berkshire can take some of their excess cash — a lot of it from their financial businesses — and put it to work every year consistently at scale,” said Steve Fleishman, managing director at Wolfe Research, an investment research group.

Regulators look at the amount of capital a utility invests when setting the level of returns owners can generate, which has made the sector a perfect fit for Berkshire.

Some utilities have been faulted for not spending more on technology, satellite modelling and sensors that could help them better predict conditions that would spark a wildfire. If such costs are not approved by state public utility commissions, they eat into the profit margins as the utility earns nothing on its spending.

Berkshire estimated it would have to spend more than $1bn over the next three years across its utilities to mitigate the risk from wildfires.

Former industry executives and regulators say that such levels of spending on a permanent basis, alongside the danger of legal risks, would undermine the case for owning utilities.

“They all are unfortunately financially rewarded by how much money they spend on capital expenditures, so it’s all structured around how much they can spend,” said Jon Wellinghoff, a former chair of the Federal Energy Regulatory Commission. “You can’t fault them for that. That’s the way the system is set up.”

While the PacifiCorp ruling exposed the rising litigation threat from climate change, the increased weight institutional investors are giving to it has thrust a reluctant Berkshire into the spotlight.

A decade ago, MidAmerican won plaudits for pouring money into wind power in Iowa, an investment credited with turning the state into the country’s biggest player in the renewable energy source after Texas. Today, BHE is the largest owner of wind generation among regulated utilities in the US, giving the group a significant renewable energy business.

“We are committed to managing the energy transition in a cost-effective, customer-centric manner,” BHE said in a statement, noting it had invested $39.9bn in renewables through to the end of last year. “We will continue to move forward in the energy transition at a speed our customers can afford and at a pace that allows us to maintain reliable service for our customers.”

But Berkshire has faced pressure from shareholders, including the California Public Employees’ Retirement System, BlackRock and State Street, to provide greater disclosure on the risks the company faces from climate change.

“The company does not meet our aspirations for disclosing a plan for how their business model will be compatible with a low-carbon economy,” BlackRock said last year as it backed more disclosure.

At this year’s annual meeting on Saturday, the state treasurer of Illinois has tabled a resolution calling on BHE to publish a detailed annual breakdown of its emissions. Berkshire has urged shareholders to vote against the motion, pointing to existing disclosures and arguing that such a report was not “necessary at this time”.

Buffett, who has long adopted a hands-off approach to managing Berkshire’s subsidiaries, has previously labelled calls for a company-wide climate report as “asinine”.

The billionaire has acknowledged that global warming is happening, but in past years he has signalled his reluctance to use it as a factor when deciding whether or not to invest.

“I would hate to have all hydrocarbons banned in three years,” Buffett said in 2021. “We’re going to need a lot of hydrocarbons for a long time . . . but I do think that the world’s moving away from them, too.”

Charlie Munger, who helped build Berkshire and died in November, was more sceptical. Last year he said that he thought there was “a good chance that climate change will be less important than a lot of people think”.

Last year, Berkshire was given one of the lowest grades for its engagement on climate change in an analysis compiled by Climate Action 100+, a coalition of about 700 global investors including Amundi and Fidelity. Only a handful of companies including Saudi Aramco have received such a low designation.

“Berkshire has been resistant to climate scrutiny,” said Danielle Fugere, president of investor advocacy group As You Sow, which has tabled a number of climate motions at the company.

BHE declined to comment on the analysis by Climate Action 100+. Berkshire Hathaway did not respond to a request for comment.

Under fire from climate campaigners, the decisions that Abel will face over the future of the business are likely to grow more complex as the speed of the transition to renewable energy is reassessed.

As a major shareholder in US oil producers Chevron and Occidental, Berkshire has benefited from an emerging argument, since the energy crisis generated by Russia’s full-scale war on Ukraine, that weaning the world off fossil fuels will take longer than previously expected.

Munger was an outspoken defender of the investments, saying last year that “having a big position in the Permian Basin [America’s most prolific oilfield] through those two companies is likely to be a pretty good long-term hold”.

There are signs that Berkshire is prepared to make a significant wager on a slower pace in the green energy shift, even if it draws criticism.

In 2020, Berkshire paid $8bn for Virginia-based utility Dominion Energy’s natural gas infrastructure business just as some other industry players were seeking to cut exposure to the fossil fuel.

Gas has proved contentious. Advocates point out that it emits less carbon dioxide than coal when burnt and has a significant role to play in weaning countries such as China off the dirtiest fuels. Opponents highlight that natural gas is largely composed of methane, which when it escapes generates more warming than carbon dioxide even if it is shorter-lived in the atmosphere.

The Dominion deal handed Berkshire thousands of miles of natural gas pipelines and a 25 per cent stake in the Cove Point liquefied natural gas terminal in Maryland, a big export facility. Last year, Berkshire paid $3.3bn to take its stake in Cove Point to 75 per cent.

The Biden administration in January indefinitely paused the issue of new permits required to construct LNG export terminals, in a move to win climate conscious voters in an election year and aligned with its UN pledge to cut emissions by about half of their 2005 levels by 2030.

The pause should benefit existing facilities such as Cove Point, potentially creating a new competitive moat for Berkshire and other operators of export terminals. It also illustrates the combustible mix of politics and a fast-changing landscape that Abel will have to navigate to keep energy part of Berkshire’s sweet spot.

“Everything is changing all at once: the climate is changing; the financial climate is changing; the consumer and shareholder climate is changing,” said Michael Webber, professor of energy resources at the University of Texas at Austin and author of Power Trip: The Story of Energy. “These are big challenges — it will take a change in thinking and companies will have to consider their options.”

With reporting by Attracta Mooney in London

This article is part of a series looking at the future of Berkshire Hathaway when Warren Buffett is no longer in charge. To read the other pieces in the series on Berkshire after Buffett click here.