Why the European Union's wartime loan is a vital lifeline for cash-strapped Ukraine

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KYIV, Ukraine — Cash-strapped Ukraine has secured a crucial European Union loan that will provide a vital lifeline to sustain its wartime efforts this year.

The 90 billion-euro (US$106 billion) package was formally approved on Thursday, days after Ukrainian President Volodymyr Zelenskyy announced that the Ukrainian section of the Druzhba pipeline had been repaired and the flow of oil would resume to Slovakia and Hungary, conditions linked to the release of the funds.

Approval had been held up for months amid political friction inside the 27-nation EU, including resistance from outgoing Hungarian Prime Minister Viktor Orbán, widely seen as the Kremlin’s closest ally in the bloc. Orbán was defeated in an election earlier this month, clearing the way for a breakthrough in negotiations.

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Here’s the importance of the EU package:

Why Kyiv needs the loan

The funding arrives at a critical moment. The International Monetary Fund estimates that Ukraine faces a financing gap of roughly 136 billion euros (US$158 billion) over the next two years.

The EU loan is expected to cover about two-thirds of Ukraine’s funding needs in 2026 and 2027. Without it, officials warn that Kyiv could have run out of resources to sustain basic state functions and its war effort as early as this spring. The first tranche of funding is expected to be released in the coming months.

Ukraine will have access to 45 billion euros (US$53 billion) for the remainder of this year, and 45 billion euros (US$53 billion) for all of 2027.

Under the agreement, roughly a third of the funds will go toward budgetary support for Ukraine’s government, while the remainder will be directed to defence, covering weapons procurement and expanding domestic arms production.

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Why it took so long

EU leaders agreed to the loan in December 2025, but implementation stalled for months amid a dispute over the Ukraine-linked section of the Druzhba oil pipeline.

In December, the Czech Republic, Hungary and Slovakia agreed not to stop their EU partners from borrowing the money on international markets as long as the three countries didn’t have to take part.

The pipeline, which carries Russian oil to Slovakia and Hungary, went offline in late January after Ukrainian officials said it was damaged in a Russian attack. The Hungarian and Slovakian governments accused Ukraine of deliberately cutting off supplies, turning the issue into a broader political standoff inside the EU.

The loan was finally unblocked after Hungary and Slovakia said that Ukraine had restored transit this week. Zelenskyy said that repairs had been completed, removing the final obstacle to approval.

The final step, taken Thursday, was to unanimously approve changes to the EU’s long-term budget to allow for the future spending. That’s why Hungary and Slovakia had to be brought onboard.

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How the loan will be repaid

EU leaders have agreed that Ukraine will only begin repaying the loan once Russia pays war reparations.

Rather than using Russia’s frozen central bank assets to guarantee the loan, member states opted for a more cautious approach. Instead, European leaders decided that they would borrow the money to lend to Ukraine.

Concerns over potential Russian retaliation and legal challenges led them to keep the assets frozen until Moscow ends its war and compensates Ukraine for the destruction caused.

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Samya Kullab, The Associated Press