The US-Ukraine critical minerals agreement, reportedly agreed to on February 25, marks a pivotal moment in economic cooperation between the two states. At its core, the deal aims to unlock Ukraine’s vast mineral reserves and help the United States diversify its critical minerals supply chain, reducing dependence on China. Central to this agreement is the establishment of a joint Reconstruction Investment Fund, designed to funnel revenues from Ukraine’s state-owned mineral resources into economic rebuilding efforts. Yet despite its promising scope, the deal faces significant economic, logistical, and security hurdles that could hinder its impact.
Outdated Data on Mineral Reserves
One of the most pressing issues is the lack of up-to-date assessments of Ukraine’s rare earth and critical mineral reserves. Most current estimates rely on Soviet-era geological surveys conducted between 30 and 60 years ago. Since then, there has been little modern exploration, leaving significant uncertainty regarding the actual volume and commercial viability of these deposits. Modern mining operations require high-resolution geological mapping, advanced remote sensing technology, and up-to-date resource estimates to attract investors and ensure profitability. Furthermore, due to the ongoing war, some critical mineral data remains classified, limiting accessibility to comprehensive evaluations. This information gap presents a major obstacle for investors who require reliable geological data before committing substantial capital to mining projects.
Challenges Ahead
Damaged Infrastructure and Energy Shortages
Years of armed conflict have taken a heavy toll on Ukraine’s industrial and energy infrastructure. Russian attacks have severely damaged key power generation facilities, and the Zaporizhzhia Nuclear Power Plant—the largest in Europe—remains under Russian control. The country’s coal production has also plummeted due to the destruction and flooding of numerous mines. These energy shortages make large-scale mining operations nearly impossible without extensive infrastructure rebuilding. Moreover, the damage extends beyond just power generation: railways, roads, and ports crucial for transporting minerals have also been significantly affected, making logistics an additional concern. Even if mining projects were launched, ensuring a stable electricity supply for refining and processing would be another major challenge.
Security and Access Issues
Another major hurdle is access to Ukraine’s mineral-rich areas. Currently, more than 50% of the country’s mineral deposits are under Russian control. Beyond this, Ukraine is now considered the most heavily mined country in the world, with an estimated 25% of its land at risk from unexploded ordnance. These security threats pose serious risks for both domestic and foreign investors looking to engage in mineral extraction and transportation. Landmine contamination, in particular, presents operational hazards that require extensive demining efforts before safe extraction can take place. The costs of securing mining sites and transport routes could significantly increase operational expenses, making investment in these regions less attractive. Without a definitive resolution to Ukraine war and significant demining efforts, safe and efficient operations are anything but assured.
Steep Costs and Long Payback Periods
Mining is an incredibly capital-intensive industry, and Ukraine is no exception. Developing a single mine can cost up to $4 million, while larger projects, such as coking coal plants, can require investments upwards of $10 billion. These costs include geological surveys, obtaining permits, construction of mining infrastructure, procurement of specialized equipment, and workforce training. Additionally, mining projects take a long time to generate returns. According to Ernst & Young, the average timeline from securing a mining license to achieving full-scale production is around 18 years. Factors such as fluctuating global commodity prices, regulatory challenges, and geopolitical risk further complicate the investment landscape. In a country facing ongoing conflict and economic instability, securing long-term investor confidence will be a challenge.
Processing and Refining Bottlenecks
Even if Ukraine successfully extracts its critical minerals, processing them remains a major issue. Currently, China dominates global mineral refining, particularly for rare earth elements. The refining process involves complex chemical treatments, requiring highly specialized facilities and strict environmental regulations. Without sufficient domestic refining capacity, Ukraine (and by extension, the United States) may still need to rely on China for processing, undermining the strategic intent of the agreement. Establishing local refining capacity would demand billions in additional investment, long-term infrastructure development, and access to advanced technology. Additionally, skilled labor shortages and regulatory challenges could further delay efforts to expand domestic refining capabilities. Even with significant investment, it could take years, if not decades, for Ukraine to build a self-sufficient mineral refining industry capable of competing with global players.
Limited Immediate Financial Returns
Given the logistical, security, and economic constraints, the US-Ukraine minerals deal is unlikely to yield significant financial returns in the near future. The deal is more of a diplomatic and political maneuver than an immediate economic windfall. The agreement primarily aims to influence negotiations with the Kremlin by outlining the United States’ long-term plans for Ukraine, potentially strengthening Washington’s leverage while also reassuring Americans that involvement in Ukraine yields tangible benefits. However, substantial production and revenue generation are unlikely in the short or medium term. While the long-term prospects appear promising, the agreement remains more symbolic than practical at this stage.
Geopolitical Implications
Impact on US-Russia Relations
Russia could well perceive increased US economic involvement in Ukraine as a direct challenge. By securing mineral rights and establishing financial footholds, the U.S. signals a long-term commitment, potentially complicating negotiations with Moscow. Washington is giving the impression that it is ready to continue supporting Ukraine and hold out for better terms, potentially pressuring the Kremlin into making greater concessions. Yet Russia may persist in its aggression, unwilling to accept anything less than its original demands, convinced that time and the balance of power are in its favor.
On the other hand, the minerals deal could shape a future in which Russia, through negotiations with the U.S., ultimately acknowledges that Ukraine lies partly outside its sphere of influence, as long as it does not significantly remilitarize or join NATO. Russia has already taken steps to tighten its grip on mineral-rich areas in occupied Ukrainian territories, integrating them into its own industrial and economic networks. Likewise, the United States is leveraging the minerals deal to bind Kyiv into a subordinate position, without extending Washington’s security guarantees. This could be seen as, if not a de jure, then at least a de facto division of Ukraine between the two great powers, with Kyiv clearly at a disadvantage.
European Security and the US Role
While Ukraine has actively sought security guarantees from its Western allies, this deal does not include direct military commitments from the United States. Instead, European nations, particularly France and the UK, have proposed deploying peacekeeping forces after the war. However, Russia has firmly opposed any NATO-aligned military presence in Ukraine, making this proposal highly contentious.
The lack of firm security assurances in the minerals deal means Ukraine will still need to seek additional military support through separate agreements. The European Union has expressed interest in further integrating Ukraine into its economic and security frameworks, but concrete defense commitments remain limited. NATO members have offered military aid and training but have stopped short of guaranteeing direct military intervention, leaving Ukraine in a precarious security position.
Despite the rhetoric and potential economic benefits, Europe remains cautious about direct military involvement in Ukraine. Even if Russia allows European peacekeepers, planning and deploying them would be a daunting task. If that alone sparks disagreements among member states, extending substantial security guarantees without US participation would be even more challenging. Thus, the security environment in which the minerals agreement takes effect may be less than ideal.
Ukraine’s Economic Future: Boom or Bind?
Reconstruction Investment Fund and US Economic Role
A key feature of the deal is the establishment of a joint Reconstruction Investment Fund, in which Ukraine will allocate 50% of future revenues from state-owned natural resources. This fund is intended to attract Western investors and support economic recovery by providing a structured mechanism for reinvestment into infrastructure, industrial development, and energy projects. Additionally, it is expected to facilitate partnerships between Ukrainian enterprises and international firms, ensuring long-term economic sustainability. However, it also ties Ukraine into a long-term financial arrangement with the United States, potentially limiting its flexibility in future negotiations with other global partners.
Ukraine’s Limited Bargaining Power
Ukraine remains highly dependent on Western financial and military assistance, limiting its ability to negotiate on equal footing. While its critical minerals offer valuable economic potential, they do not provide enough leverage to dictate favorable terms. The complexities of post-war reconstruction require Ukraine to navigate a delicate balance between attracting foreign investment and maintaining national autonomy. Given the current geopolitical climate, there is growing concern that Ukraine may be forced into economic agreements that primarily benefit its allies rather than ensuring equitable growth and self-sufficiency in the long term.
