The importance of the Ukraine minerals deal has improved the tone of U.S.-Ukraine relations, but will not be a financial windfall for either country.
The United States and Ukraine finally signed off on their mineral resources agreement on May 1, after more than two months of negotiations. The main observations that can be made about it are regarding what is not in the document. There is no U.S. security guarantee for Ukraine, which Kyiv had wanted. The deal also does not apply to U.S. assistance to Ukraine prior to its signing, nor to the existing production of minerals and fossil fuels. The latter is much more favorable to Ukraine than what President Trump was talking about two months ago – where Ukraine would essentially be paying the United States back for previous aid.
So what is in the deal? The substance is basically preferential treatment for the United States in future projects concerning natural resources, which are very broadly defined. That includes not just rare earths, which Ukraine seems to have little potential to produce, but also base and precious metals and fossil fuels. Future U.S. aid would count as a contribution to a joint investment fund, with Ukraine still holding the title to the subsoil mineral rights.
The latter might see some opportunities. Ukraine produces only a small amount of crude oil – about 55,000 bpd – but a more significant amount of natural gas – about nineteen billion cubic meters (Bcm) per year. Imports from Russia ended at the end of 2024, when Ukraine decided not to renew the gas transit agreement that allowed the last trickle of natural gas to cross its territory from Russia to Europe. Consumption has fallen by about one-third as a result of the economic dislocations of the war with Russia and the lack of availability of imports, which implies the presence of a potential pool of latent demand to be satisfied if things returned to normal.
Major European companies like BP and Shell have been active in Ukraine before, but have exited as a result of perceived risks due to the conflict with Russia since the seizure of Crimea in 2014. Shell had signed a deal in 2013 worth a notional $10 billion to develop shale gas in Ukraine, but the project never got off the ground. The company divested its last holdings in Ukraine – retail filling stations – in late 2024.
Outside of natural gas, though, there has been relatively little interest in large-scale foreign investment in Ukrainian extractive industries. The mines that exist are mostly owned by state-linked entities dating from Soviet times. Part of this, of course, is due to the perception of risks around Ukraine. Even if there is a negotiated ceasefire and an end to the current war, there will still be a perceived Russian threat hanging over Ukraine into the future.
Companies that invest in fossil fuels and mining make their decisions on a wide range of factors, but they are looking for the best risk-adjusted returns on capital. With the level of risk, an opportunity in Ukraine would probably need to be unusually lucrative in terms of production costs to look at all attractive. The agreement with Washington does add a bit on that front, with U.S. investments being tax-free and any development projects exempt from any tariffs. But it still looks like an awfully hard sell for potential investors, given the risks.
The irony of all this is that the discussion of a preferential agreement on extractive industries between Ukraine and the United States began with Ukrainian officials bringing up a Soviet-era assessment of potential rare earth deposits. This involved essentially dangling a bright shiny object in front of President Trump which could be relevant to U.S.-China competition. The potential for major development, however, is actually quite low – most countries have rare earth deposits, but few have circumstances that make them commercially viable. The discussion it started between the United States and Ukraine ultimately led to an agreement that probably has very limited commercial or financial significance.
What it did achieve, however, is to improve the tone of United States-Ukraine dialogue a bit after the disastrous Oval Office meeting between Presidents Trump and Zelensky. The language in the agreement places blame for the war on Russia and sets “a peaceful, sovereign, and resilient Ukraine” as a goal. By creating at least the perception of a vested American economic interest in Ukraine, perhaps it will influence President Trump’s approach a bit, even if that perception is mostly a mirage.
About the Author: Greg Priddy
Greg Priddy is a Senior Fellow at the Center for the National Interest and does consulting work related to political risk for the energy sector and financial clients. Previously, he was director of global oil at Eurasia Group and worked at the U.S. Department of Energy.
Image: Shutterstock/Mykhailo Repuzhynskyi
