Could the Ukraine minerals deal actually be win-win?
Ukrainian President Volodymyr Zelensky and US President Donald Trump during the Oval Office meeting 28 February 2025. Source: Wikimedia Commons.
BOTTOM LINE UP FRONT
Welcome to our 38th newsletter! In this issue, we look at how President Donald Trump’s insistence on making Ukraine sign a deal for its mineral resources could be turned into something for the long-term benefit of Ukraine’s people. Emphasis on the conditional. But Congress and the American people have the duty to force oversight of the deal, including due diligence of the players from both sides, as well as the building of the needed infrastructure to bring the products from deposits mostly found in the country’s southeastern portion to the market. It’s about turning a deal that feels very much like the imposition of demands from the worst days of European colonialism and turning it into something approaching a win-win for both sides that, among other things, allows neighboring European countries to wean themselves from dependence on Russian raw materials and gives Ukraine a downpayment on its half-trillion dollar reconstruction needs (much of the balance should be coming from the interest and principle of seized Russian financial assets in Europe and the US, but that’s a whole different story, that, happily, we’ve already written about…).
IN-DEPTH
COULD THE UKRAINE MINERALS DEAL ACTUALLY BE WIN-WIN?
For President Donald Trump, the cost he wants to charge Ukraine for our support is a deal to create a US-controlled fund to control the exploitation of that country’s minerals. Of course Ukraine is paying in blood to protect US treaty allies in Central and Eastern Europe and prevent a direct confrontation between Russia and NATO, and humiliating Putin in the process, while bringing democracy to a corner of Europe benighted by oppression and genocide for centuries – that should be enough. But it’s not. The exacted price is a high one – half of Ukraine’s revenues from the future monetization of natural resources and associated infrastructure, according to reports. Experience in Ukraine and discussions with local and foreign investors and watchdogs suggests that this deal could be made into something that benefits both countries and further hobbles Russia by offering European and Asian buyers competitive deals on minerals. It only works, however, if the president’s friends don’t turn it into a feeding frenzy of questionable deals that revisit Ukraine’s troubled history. Avoiding such an outcome demands intense scrutiny and the requirement that Congress and Ukraine’s parliament approve any deal.
As we wrote in our Substack a few days ago, both the optics and the substance of the current peace process – such as it is – have been dismal, which doesn’t bode well for the minerals deal either. And the president has held Ukraine and Russia to very different standards in recent days: he told his Ukrainian counterpart that the US could take over its power plants, while ignoring that Russia followed its pledge to limit strikes by promptly bombing a hospital. Ukrainian media published a full text of the initial draft of the deal in late February, although reporting by the New York Times and the BBC suggest that the parameters could change. In brief, it envisages setting up a fund that Kyiv and Washington jointly manage. It says the US government will “maintain a long-term financial commitment to the development of a stable and economically prosperous Ukraine” while the US will own the “maximum percentage” allowed under US law. In short, the minerals deal falls somewhere on the spectrum between the British demands in the Opium War and the American Marshall Plan.
Despite the president’s rocky track record with Ukraine – from his attempt to strong-arm Volodymyr Zelensky to conjure up evidence against then-candidate Joe Biden, which led to his first impeachment in December 2018, to the Oval Office blowup last month – the proposed deal is not without its merits. Last November, while visiting Kyiv, DKP met with local non-governmental organization partners (people, including Trump, who call Ukraine a dictatorship, should be aware that it has many impressive watchdog groups and a vibrant online media). Two separate organizations had raised deep concerns about the privatization the previous month of Ukraine’s state-owned United Mining and Chemical Company (USMCC), one of the world’s largest producers of titanium raw materials. NEQSOL, owned by Azeri businessman Nasib Hasanov, was the buyer. As Oleksandr Liemienov, the head of watchdog group Statewatch, wrote on ZN.ua after the auction, the auction put an asset that is strategically vital – especially in wartime – in the hands of a business group with demonstrated links to Russia. Also writing in ZN.ua, before the auction, the founders of the Center for Countering Hybrid Threats, Serhii Savchenko and Anna Borshchevska, talked about “corrosive investments” made by an “aggressive state” with the political goal of undermining or controlling the economy of a “victim country”, rather than pursuing genuine economic benefits. They cited historical data indicating that from 1995 to 2021, around 42% of more than 1,500 strategic enterprises privatized in Ukraine were liquidated or faced bankruptcy, significantly impacting the processing and mining industries. And they noted that, in the case of Ukrainian titanium, it had likely made its way into Russian missiles.
America as partner
As Savchenko and Borshchevska point out, Ukraine should not be a mere raw materials exporter, like Russia. It has extensively developed technical universities and manufacturing capacity and a skilled and low-cost workforce, which should attract much-needed investors from around the world. Yet privatization in wartime – understandable given Ukraine’s desperate need for cash to fight for its survival – brings poor returns, with the USMCC deal netting just US$96 million, an amount generally seen as well below its market value in peacetime. And US and European companies have been loath to invest in wartime, amid a lack of guarantees and insurance mechanisms, with the US Development Finance Corporation finally committing US$357 for political risk insurance at the end of last year, following previous commitments by the Multilateral Investment Guarantee Agency. Putting aside the risks of Russian missiles (which NATO could rapidly solve by deploying its own powerful air defense capabilities within Ukraine itself if it mustered the political will), Ukraine poses other well-known risks: poor road infrastructure, power supply issues (due to Russian attacks), overwhelmed rail links to Poland and Romania (made worse by the wider Soviet rail gauge and need for transloading), and, yes, corruption.
The US could address all these factors in the minerals deal, moving it further down the line from Opium War to Marshall Plan territory. This should be covered in the draft deal’s mention that the US seeks “a stable and economically prosperous Ukraine”. For example, if US companies are going to mine lithium in Kirovohrad region, they will need to move their products to Odesa port or out by rail to Poland, depending on where the customers are. This requires capacity upgrades as well as protecting shipping – despite Ukraine’s heroic reopening of Black Sea navigation in late 2023 despite not having a single large naval vessel, Russian attacks remain a continuing threat. Lithium mining is also notoriously polluting and energy consuming and Ukraine has generally strong environmental laws – investment in green power, including distributed networks that are resilient to Russian attacks, can solve part of this equation. And Ukraine and the US can look to Chile for leadership on how to make lithium mining cleaner.
Regarding corruption, both ZN.ua articles call for a privatization process that is more open and where the state commissions independent due diligence. This should be the same for any party, US or Ukrainian, taking part in the bilateral minerals fund. The draft minerals text describes the fund’s function as to “invest in projects in Ukraine and attract investments to increase the development, processing and monetization of all public and private Ukrainian assets including, but not limited to, deposits of minerals, hydrocarbons, oil, natural gas, and other extractable materials, infrastructure, ports, and state-owned enterprises.” This shouldn’t be a barrier but a mark of diligence attracting high-quality investors. It is long forgotten now, but ExxonMobil led a consortium that was preparing in 2014 to launch a production sharing agreement to develop Ukraine’s largest gas field, a potential US$12 billion investment for up to US$30 billion or more in returns. Russia stole this and countless billions more when it seized Crimea and the surrounding waters.
A poor precedent
The early signs, however, are that the Trump administration isn’t wasting its time on due diligence or environmental impact surveys. According to the Financial Times, one deal that is already on the table is US-backed TechMet’s interest in the Dobra lithium deposit in Krivohrad region, an interest that the company’s CEO says pre-dates the minerals deal but could be wrapped into it. One of Tech-Met’s investment partners is Ron Lauder, the cosmetics billionaire and supposed progenitor of Trump’s Putin-lite project to purchase Greenland. He has donated over US$1 billion to Trump organizations, which makes his role in any flagship minerals deals reminiscent of the cronyism that Ukrainians have paid in blood to remove, from the Maidan uprising in 2013 and 2014 through the 11 years of war since.
The history of the Dobra project is a colorful one, too. In 2021, before the full-scale invasion, media reported that European Lithium Limited (ELL), an Australian company, had agreed to buy Petro-Consulting “to obtain special permits for lithium mining and processing in Ukraine”. However, to complete the deal, the Ukrainian company needed local courts to unblock permits for two fields linked to Petro-Consulting, Dobra and Shevchenkivske (Russia overran the latter earlier this year). It appears a special permit for Shevchenkivske was issued in 2018 without an otherwise required auction because it was for “testing”, according to Bihus, an investigative media site. The owners of the company, according to the 2018 report, included Taras Ignashchenko, the son of Ihor Nasalyk, minister of energy under President Petro Poroshenko, whom the authorities reportedly charged with abuse of office in 2023. Crucially, and ironically, Nasalyk was also a central figure under pro-Russian President Viktor Yanukovych as adviser to one of his predecessors, Mykola Zlochevsky. The latter is famous as Hunter Biden’s business partner is gas company Burisma, which GOP members of congress have been writing about for a decade, and who fled to Russia in 2014. In any case, Ukrainian records show that Petro-Consulting, now called European Lithium Ukraine, is now under the 100% control of ELL and is still talking to Ukrainian authorities about a license. According to the Australian Financial Review, writing within the last week, ELL’s boss Tony Sage has put in calls to the US State Department to ensure Dobra does not get swept up in the ambit of the minerals deal at all.
That preceding paragraph underlines that the first hyped project of the minerals deal has a complex background relating to two previous government administrations and that the deposit today appears to be under the control of an Australian company with Australian, UK and French shareholders that are ensuring that it keeps a good distance. And that does not include due diligence of ELL, which mines the Wolfsberg Lithium Project in Austria, among others. Multiply that by ten or 20 times, and the scale of the challenge is clear. But voters – and, you know, Congress – have to fight for Congressional oversight of this minerals deal and require its formal ratification in both countries. The suspension of enforcement of the Foreign Corrupt Practices Act will make punishing malfeasance harder, which is why Congress needs to specify an oversight body as part of the pact. None of this is easy. But condemning a deal that the president will never back down from is futile. Unlike many of the administration’s moves, however, this is a project that has the potential to direct billions of dollars into Ukraine’s post-war economy, which will need half a trillion dollars to rebuild, according to the latest multilateral assessment. Even the most ardent free-marketeer US mining investor will need to move his product, and rebuilding and expanding Ukraine’s infrastructure will not only enable that, but benefit the entire economy and boost neighboring countries, including Hungary, Moldova, Poland, Romania and Slovakia. It could wean Europe off of Russian rare Earth metals and lessen its dependence on China. It’ll be a hell of a fight, but it’s one worth having.