The signing of the minerals deal between the United States and Ukraine on 30 April is one of several headline stories about the Russian war in Ukraine. The agreement and its demands, a precondition for continued US support for Ukraine, would have been unthinkable only a few months ago. While substantially improved from its earliest iterations, the profit-sharing deal overrides Ukrainian domestic legislation without offering any formal security guarantees in return. The agreement also comes at a time when the USA is pressuring Ukraine to cede territory while considering economic concessions to Russia in its attempts to secure a peace deal. This now represents a new geopolitical reality and baseline, for Ukraine’s advancement towards either a negotiated peace or a continued fight against Russian aggression.
The minerals deal’s underlying logic—that economic incentives create political stakes in peace and development—is a sensible one in theory. The deal could make it easier for Ukraine to access international capital markets and help it to attract much-needed post-war reconstruction and industrial projects. An active and long-term US stake in the safety and profitability of Ukrainian economic assets may also serve as a low-level deterrent to Russia. Indeed, the impetus for the deal first came from Ukraine, which for several years had been making overtures to Western investors and partners, advertising its subsoil wealth and the potential economic payout of partnership.
However, as this essay argues, the deal is also predicated on several flawed assumptions and short-sighted ideas. First of all, it is far from clear that Ukraine’s minerals sector has any significant level of revenue windfall potential. The deal may amount to very little financially, for all the diplomatic bluster during its months-long negotiation. Second, Russia is actively blocking access to significant mineral resources in the occupied territories, while subsuming these subsoil resources, as well as related industries and even export facilities, into its own economic networks. On these issues, as in the wider peace talks, the USA has been placing pressure on the wrong counterpart. Finally, implementation of the minerals deal is likely to focus on hydrocarbons and resource extractivism as opposed to sustainable value chains—and risks making Ukraine less, rather than more, resilient in environmental, economic and even social terms.
What windfall? The economics of the minerals deal
Under the terms of the deal, half of the Ukrainian state’s future earnings from natural-resource assets will go into the USA–Ukraine Reconstruction Investment Fund. However, it is unclear what the potential revenues from resource-extraction licensing and royalties would amount to. For example, in 2023 the Ukrainian state received only approximately US$1.5 billion in revenue from the sectors relevant to the deal. Even in a post-war scenario, widely circulating estimates that Ukraine has subsoil mineral wealth in the tens of trillions of dollars have largely been debunked. Early exaggerated claims regarding Ukrainian reserves of rare earths and other critical minerals were based on opaque calculations and speculation, and relied on outdated Soviet-era prospecting data.
Claims about the value of Ukraine’s natural resources have also often confused resources or deposits—that is, the minerals that are geologically available—with reserves—the minerals it would be economically viable to extract. For instance, an early US claim that Ukraine had $500 billion worth of rare earths seems to have been plucked out of thin air: Ukraine has no proven rare earth reserves at all. Moreover, the global market for all the key minerals considered critical to the green energy transition—cobalt, copper, graphite, lithium and nickel as well as rare earths—amounts to less than $500 billion annually. In fact, the bulk of the value that Ukraine has to offer the fund seems to lie in hydrocarbons, or mineral fuels. Of the revenue the Ukrainian state receives currently from the minerals sector, the vast majority comes from royalties from production of natural gas.
Nevertheless, Ukraine certainly has deposits of many of the minerals deemed critical by the USA and the European Union (EU). Ukraine reportedly has one of Europe’s largest deposits of lithium, for example, but its reserves are much less substantial than those of several other European states—and those states already struggle to get to the extraction stage, even without an ongoing war on their territory. Ukrainian production of graphite, manganese and titanium are and will continue to be important for mitigating the vulnerability of Western supply chains—as could other Ukrainian critical minerals developed in new mining projects. This importance does not necessarily correlate to revenue, however; the demand and markets for more niche critical minerals tend to be extremely small.
Both the USA and Russia also have much larger reserves than Ukraine of many categories of critical minerals of global interest—including rare earths. The USA, like many other advanced economies, struggles to find sources of direct investment for extraction projects at home. The Trump administration’s priorities of onshoring supply chains and ramping up domestic production sit oddly with the idea of encouraging capital to go offshore, even if to a putative strategic partner. Whether and how much private-sector actors in the USA and elsewhere will be incentivized to invest in the much more unstable economic, political and physical environment of Ukraine is another question. Ukrainian government bonds are currently trading at distressed levels on international capital markets, reflecting investors’ concern over repayment risks and the country’s wartime economic challenges. Meanwhile, the main battleground in the global competition for critical minerals is not so much raw materials as midstream processing, an area where China dominates—and where Ukraine presently has little to offer.
Further reducing the prospect of any immediate payouts, the average lead time for mining projects is in the decades, even in non-conflict settings. In Ukraine, new extraction projects will in many areas have to wait for basic demining to take place. While the sale of licences can bring in revenue earlier, governments tend to lower not raise licence fees in order to incentivize investors. In other words, for all the talk of a windfall from the minerals deal for either the USA or Ukraine, the economics seem far from clear.
War spoils: Better terms for the Russian aggressor
The minerals deal also has no provisions addressing the fate of valuable assets already appropriated by Russia. Many of Ukraine’s most potentially lucrative mineral resources are in territories currently occupied by Russia. They include, for instance, two of Ukraine’s four lithium deposits and some titanium and rare earth deposits, as well as highly significant hydrocarbon resources—the bulk of Ukraine’s coal reserves, which are in the east, and coastal gas fields around Crimea. In fact, the Dnieper–Donetsk region—mostly occupied by Russia—accounts for 80 per cent of Ukraine’s proven hydrocarbon reserves and 90 per cent of gas production. As the USA has been pressuring Ukraine to cede these territories to Russia, they are presumably not a part of the USA’s vision for revenue generation; they are, however, a key part of Russia’s vision. Since 2014, Russia has been actively incorporating mineral industries in occupied territories into its own production and export networks.
Russia’s 2024 Minerals Development Strategy refers to the need to complete ‘the integration of the mineral-resource complexes of the Donetsk People’s Republic, Luhansk People’s Republic, Zaporizhzhia oblast and Kherson oblast into the Russian economy’. The strategy further mentions the occupied territories’ deposits of ‘coal, iron and manganese ores and rare metals, as well as various non-metallic minerals, including those used in construction’. Such economic integration is a key modus operandi in Russia’s annexation of Ukrainian territories, directly incorporating them into state-led industrial development strategies not only in critical-mineral supply chains but also in the energy and agricultural sectors. This serves explicit import-substitution as well as export goals. The Russian-occupied port of Mariupol is already being used by Russia to export grain and chemical, metallurgical and other products from occupied territories, including coal and copper.
But even without the occupied territories, Russia, as a competitor to Ukraine, has a vested interest in denying Ukraine access to resources and global markets. Russia has some of the greatest domestic mineral wealth of any country, whether in hydrocarbons or critical minerals. The development of its domestic minerals sector is bottlenecked by a lack of capital, technology and foreign investment, and this must partly explain recent Russian efforts to attract US interest in joint exploration of Russian rare earth resources.
Russia could be considered the ‘elephant in the room’ in the minerals deal—featuring minimally in the text despite its hugely consequential presence on Ukraine’s territory and in Ukraine’s minerals sector. Wording in the deal’s preamble that Russia would not be allowed to benefit economically from reconstruction ignores the reality that Russia has already been benefiting economically from war at Ukraine’s expense. The USA has even reportedly discussed easing sanctions on Russia as part of negotiations towards a possible peace deal—perversely extracting from the victim while offering incentives to the aggressor. In other words, the minerals deal essentially leaves a political economy of war and occupation largely intact.
Recipe for an unsustainable recovery
The deal includes revenues from uranium and from ‘oil, natural gas (including liquefied natural gas) and . . . other hydrocarbons’ among the sources for the reconstruction fund. As noted above, hydrocarbon royalties constituted the vast majority of state revenue from mineral resources in 2023; they are thus likely to feature as a large source of Ukraine’s contributions to the new fund.
Less than half a year ago, further investment and production in these sectors would have been considered a poor long-term bet, considering that both the USA and the EU were committed to phasing out fossil fuels entirely. Ukraine’s own recovery plans were predicated on commitments to a green transition. Clean energy transition was, and remains, an important element of Ukraine’s path to EU accession and integration into the European single market. Furthermore, the projected high global demand for many of the minerals Ukraine possesses depends in part on demand for clean energy technologies. But the green transition is no longer a priority for the current US administration and presumably will not be for the next few years. The US Energy Secretary, Chris Wright, has been explicit that the administration will push for increased use of fossil fuels at home and globally, including via a newly established National Energy Dominance Council. Given its current anti-green agenda, and as the likely majority shareholder in the fund, the USA may very well discourage renewable energy investment and production.
Hydrocarbons can contribute—even if unsustainably—to Ukraine’s development and recovery in purely economic terms. However, Ukraine’s plan to shift to renewable energy, including phasing out coal by 2035, was not only about meeting climate goals but also about achieving greater energy independence and resilience. Oddly enough, however, the development and production of Ukrainian hydrocarbons would increase competition for both the USA and Russia. Both countries are focused on increasing production and export of hydrocarbons, and Ukraine could become a regional if not global competitor. Indeed, the USA has been pressuring the EU—the main potential buyer of Ukrainian hydrocarbons—to import more US oil and gas. Meanwhile, Russia’s more destructive agenda of resource denial is playing out in the ongoing targeting and bombing of Ukrainian gas production facilities.
Although Ukraine’s metallurgical industries are advanced, many are focused on processing basic industrial minerals, such as iron ore for steel production, rather than on the critical minerals of interest to the USA. Moreover, Ukrainian iron ore and steel exports have decreased since the start of the full-scale invasion. The decline is attributable to several factors, including the destruction of key steel plants, energy shortages and the loss of critical coking coal supplies due to ongoing conflict. Furthermore, falling global steel consumption also undercuts Ukraine’s ability to climb, or even maintain its position on, the value-added production chain. In fact, instead of moving up the chain by producing finished or semi-finished steel goods, Ukraine has been moving downward, becoming more dependent on low-margin raw material exports—a trend that poses long-term challenges for industrial development and socio-economic and environmental resilience.
Even if the focus of investments under the minerals deal were to stay on Ukraine’s transition-related critical minerals, deep risks would remain. It is important to remember that Western industrialized countries first started offshoring mineral extraction and processing in part due to their significant negative environmental impacts. Without the right governance and sustainability frameworks in place, the negative environmental and even social externalities of the minerals rush will inevitably be borne by Ukraine.
Conclusion
The minerals deal between the USA and Ukraine is partly premised on the idea that US economic interests in Ukraine will translate into US commitment to Ukraine’s security and stability. The deal’s implementation will, of course, be shaped by many more factors than have been addressed here—not least an end to war itself. But even if the logic of that premise holds, it will play out in ways that prove complicated at best. Not least, the deal creates no structural solutions to a political economy of war. Ukraine’s economic interdependence and ties with Russia were not sufficient to prevent the invasion; Russia benefited from Ukraine’s production and trade, even in sensitive military-related industries, before 2014, and continued to do so even after its full-scale invasion in 2022. There was little economic logic to Russia’s invasion of Ukraine then. And an end to its war in Ukraine will be likewise contingent on issues that go far beyond market supply and demand. Left unaddressed is also the question of whether Russia would be on board with a sovereign Ukraine’s recovery and economic development; this seems implausible so long as it can instead reap the benefits of continuing the war or at least furthering Ukraine’s subjugation and destruction in other ways.
Also problematic is the way negotiations towards the deal have played out over the past few months, indicative of a wider dynamic of great powers pressuring, if not coercing, smaller states. Another remaining question, therefore, is whether and how others will step up or step in to temper the worst excesses of Russian and US dealmaking—for example the EU, its member states or the United Kingdom, which are keen to remain minerals partners with Ukraine on a more equal basis, and have committed to support a recovery that is economically, environmentally and socially sustainable. Such partners are, however, potentially as limited in their policy options as Ukraine is.
Again, the minerals deal remains only one component of a longer process of ending this war and rebuilding Ukraine. As it is currently formulated, however, it may only further the idea that might makes right. In this respect, it is a woefully inadequate foundation for a sustainable recovery, let alone a durable peace.
