US-Ukraine sign crucial minerals deal: What will be the impact, how will it work and why it matters
After months of tense back-and-forth, the United States and Ukraine have finally signed a new agreement that will give Washington access to critical minerals and other untapped natural resources in Ukraine.Kyiv believes that the move will help lock in long-term military and financial support as it continues to resist Russian aggression.
The deal, signed on Wednesday, still needs to be ratified by Ukraine’s parliament, but is already seen as much beneficial to the country as compared to earlier proposals that the officials had criticised as one-sided. In the previous drafts, they said, Ukraine was treated as a junior partner and would have handed the US overly broad rights to exploit its natural assets. The deal would also establish a reconstruction fund for Ukraine.
“This is an agreement in which the United States notes its commitment to promoting long-term peace in Ukraine and recognizes the contribution that Ukraine has made to global security by giving up its nuclear arsenal,” Ukrainian economy minister Yulia Svyrydenko said in a Facebook post.
“We have formed a version of the agreement that provides mutually beneficial conditions for both countries.”
What are rare earth elements?
A group of 17 elements that are crucial for many kinds of consumer technology, including cellphones, hard drives and electric and hybrid vehicles. These elements include lanthanum, cerium and scandium, which are also included in the deal. At present, China is the largest producer of rare earth elements. Ukraine holds deposits of 22 out of the 34 minerals classified as critical by the European Union, according to Ukrainian data cited by Reuters.These include a mix of industrial and construction materials, ferroalloys, precious and non-ferrous metals, as well as select rare earth elements. According to the state geological service, Ukraine holds one of the largest confirmed lithium reserves in Europe, estimated at 500,000 metric tons. Lithium is essential for producing batteries, ceramics, and glass.
Key elements of the deal:
- At present the deal has 55 minerals, but more can be agreed to in the future. Some of the critical minerals in the deal are titanium, lithium and uranium.
- The US and Ukraine are setting up a new reconstruction investment fund together and will have equal say in its management. It will help the US continue its support, including military aid like air defence systems, and also aims to bring in investments from European allies.
- Ukraine retains full ownership and control over its natural resources, including rare earth elements, oil and gas and the deal only applies to new discoveries and ventures, not to existing state-run operations.
- Importantly, Ukraine won’t owe any debt to the US through this fund. All profits will be put back into rebuilding Ukraine’s infrastructure, energy, and mining sectors, and no money can be taken out for the first ten years.
- The United States, through its international development finance corporation, will contribute funds and technology to the scheme, while Ukraine is to allocate 50% of future profits from new government-owned resource projects into the fund.
Ukraine’s mineral industry
Ukraine’s rare earth industry remains largely undeveloped due to restrictive state policies, limited geological data, and the ongoing war. Mineral reserves are scattered and poorly studied, making the industry’s potential uncertain. Still, Ukraine holds some of Europe’s largest reserves of titanium and lithium. In 2021, the mineral sector contributed 6.1% to GDP and 30% of exports. However, 40% of metallic resources lie in Russian-occupied areas, prompting calls to exploit remaining reserves swiftly.
Earlier, Trump administration officials had floated a deal that would have seen Washington collect $500 billion in mineral profits as repayment for its wartime support. However, it was rejected by the Ukrainian President Volodymyr Zelenskyy, reportedly telling US negotiators he would not sign off on a deal “that will be paid off by 10 generations of Ukrainians.”
US secretary of state Marco Rubio called the agreement “a very critical step” in what he described as a pivotal week for American-led diplomatic efforts in the region.
The deal highlights a growing effort by Washington to reduce reliance on China for rare earth elements.
