Bangladesh, Nov. 23 -- For more than a year, the European Union has been searching for a legally defensible pathway to use frozen Russian assets for Ukraines financial survival. But just as Brussels believed it had found a viable mechanism-one that would deliver tens of billions of euros to Kiev over the next two decades-the emergence of a US-drafted peace plan has upended the entire calculus. According to reporting by the German newspaper Handelsblatt, the American proposal does not simply complicate the EUs ambitions; it may “torpedo” them altogether.

At the heart of the issue is the €140 billion loan package the European Commission has been preparing for Ukraine. This loan would be backed by the roughly €210...