Legal risks tied to Ukraine’s nationalized assets could complicate U.S. investment and stall reconstruction efforts under the new critical minerals deal.
As U.S.-China global competition escalates, particularly concerning rare earth elements, the United States has shown its readiness to engage even in war-torn areas to secure a supply and refinement chain for critical minerals free from Chinese dominance. Clearly, the Trump administration views a secure U.S. pipeline of critical minerals as a strategic imperative, and with good reason. These elements are vital for high-tech industries and products in the defense, automotive, communications, and healthcare sectors.
From Diplomacy to Deals
In mid-April, the White House announced that it would fast-track ten mining projects across the United States, with more to come. The global supply is just as important: the framework agreement between Ukraine, resisting Russian aggression, and the United States establishing a partnership for exploring and developing Ukrainian minerals, oil, and gas was signed on April 30. Then May 1 brought reports of the United States working on a peace accord between the Democratic Republic of the Congo and Rwanda to be signed at the White House in about two months, immediately followed by mineral deals between both countries and the United States.
Given how speedily the Administration has engaged in the key task of resetting the global critical minerals picture, governments and corporations must be vigilant concerning potential risks. The agreement signed with Ukraine will promote U.S. investment in its mining and energy sectors and all associated infrastructure. The clear geopolitical risk of Russian aggression should hopefully be mitigated by a combination of American investment in Ukraine, which fosters a strong American interest in regional security, along with European nations contributing promptly and significantly to establish a credible deterrent and maintain the line.
Tainted Assets Could Undermine Confidence
However, a more subtle risk has emerged. Ukraine is poised to contribute “government-owned natural resource assets” to the Reconstruction Investment Fund that will be started under the terms of the agreement. This could involve the assets of companies that the Ukrainian government nationalized before or during the war. However, that could trip the deal up on a legal and financial landmine that needs to be deftly defused.
The agreement establishes that Kyiv retains the authority to make extraction decisions and is considered an equal partner in the Reconstruction Fund. The government of Ukraine must ensure that the assets of illegally nationalized companies are not involved, as this could taint the assets designated for American investors, leading to legal complications. Claims by original asset owners may eventually need to be adjudicated in international courts, including those in the United States. This, in turn, could jeopardize the U.S.-Ukraine agreement’s viability.
Legal Uncertainty Threatens Reconstruction Ambitions
Since the invasion by Russia in 2022, the Ukrainian government has seized ownership of energy companies such as Ukrnafta and Ukrnaftoburinnya (UNB) and suspended the production license of Enwell Energy, artificially inflating Kyiv’s ledger of oil and gas assets while at the same time triggering the closure of operations by some of these energy companies in the midst of Ukraine’s existential war with Russia. Until legal recourse is exhausted, seized assets could be returned to their original owners.
The willingness of the Ukrainian government to confiscate a publicly traded company on a foreign stock exchange, such as Enwell Energy, could entangle American efforts in ongoing legal battles. JKX Oil and Gas Group is a British company and a minority stakeholder in UNB. In my interview with Andriy Pasishnyk, CEO of JKX, I asked if he would pursue the return of his company’s property in American courts prior to the signing of the U.S.-Ukraine deal. He responded:
It is too early to make any plans and instruct US lawyers before we know specific details of the deal. But I think it is very likely that we will take the matter to the US courts if the opportunity presents itself. We will have much better chances for justice there than in Ukraine.
This signals a risk that could deter potential American investors from entering Ukraine’s energy sector, despite the incentives created by the agreement, and could have wide-reaching consequences.
UNB was one of the top three privately held oil and gas producers in Ukraine. Then came a complicated set of moves, summarized on UNB’s website. First, the corporate rights of UNB were seized as material evidence in a dormant criminal case, unrelated to the company, its shareholders, or management. Following this court decision, UNB and its assets were “transferred to the national Asset Recovery and Management Agency (ARMA). Then, by the government’s decision, they were transferred to the management of PJSC Ukrnafta, which, in turn, also came under state control under martial law at the end of 2022.”
“We insist that every step of this process violated the law and our ownership rights. This is not a matter of state policy—it is outright plunder, disguised under lofty slogans,” Pasishnyk adds.
To date, UNB’s shareholders have filed some twenty court cases, addressing complaints regarding the seizure of the company’s stock, the state’s actions surrounding the court cases that justified this measure, and board decisions made by PJSC Ukrnafta regarding UNB management and assets. Some of the original UNB shareholders have filed suits seeking $1 billion in compensation.
In the meantime, a criminal investigation has been initiated against Pasishnyk’s company, JKX Oil & Gas. JKX management believes that this is a retribution for filing legal claims against the state agencies and officials and attempting to claw back UNB.
Securing the Deal’s Future
Ukraine’s assumption of ownership of these natural resource companies and interference with gas and oil production amidst the fog of war introduce a risk element to participation in the country’s economy. At a time when Kyiv needs foreign companies to invest in exploring and extracting Ukraine’s resources and rebuilding its infrastructure, the assets seized by the state pose the danger of litigation reaching European and American courts.
To truly realize the potential for increased security and robust rebuilding efforts offered by the United States under the newly signed agreement framework, the government of Ukraine must ensure it does not utilize tainted “nationalized” assets seized from private companies in the Reconstruction Fund. For its part, Washington needs to “trust, but verify” Ukrainian actions. To maintain a commitment to attracting investment, Ukraine’s legal and political environment must be transparent to investors eager to develop resources without unforeseen and avoidable government-induced risk.
About the Author: Wesley Alexander Hill
Wesley Alexander Hill is the Assistant Director of the Energy, Growth, and Security Program at the International Tax and Investment Center. Wesley is an expert on grand strategy, geoeconomics, and international relations with a regional specialization in China, Eurasia, and Sub-Saharan Africa. Wesley has unique expertise concerning Chinese influence in Central Asia and Sub-Saharan Africa, Chinese macroeconomic policy, and Sino-American energy competition.
Prior to his current position, Wesley was a professor at Tulane University and a CLFP fellow at the National Bureau of Asian Research. He began his career as a congressional foreign policy analyst.
Image: Joshua Sukoff/Shutterstock
