Ukraine Agrees to Critical Minerals Deal with US
A Deal to Keep US Involvement in Ukraine
A bilateral agreement was reached between the United States and Ukraine to establish a Reconstruction Investment Fund aimed at fostering economic development and ensuring long-term partnerships following the conflict with Russia. The fund will focus on the joint development of natural resources, including rare earths and critical minerals, while helping to fund Ukraine’s rebuilding effort estimated to be more than $500 Billion. By tying in an economic benefit for the US, Ukraine is hoping to keep the US interested in Ukraine. This is crucial since without US involvement, the likelihood of Russia attacking again is high.
This deal sould not be seen in isolation. Trump is resetting ties with Russia as part of a grand bargain. The Europeans and Ukraine were not invited to the first meeting between the US and Russia held in Saudi Arabia. However, both these parties will need to be involved at some point. Trump has refrained from criticizing Russia for the war at the UN recently. Thus, it looks increasing likely that a reset of relations between the US and Russia is underway.
The Europeans will sholder most of the post-war burden by sending troops to Ukraine. The UK and France have already indicated they would but both leaders have flown to Washington to get Trump to agree to a US backstop of the troops. Our guess is that Trump will probably agree to some type of limited US involvement in air and transport support once a deal with with Ukraine and Russia is agreed to end the war.
The question is why would Trump change policy to allow Russia back? The main reason seems to be break the increasing collaboration among Russia and China. For Russia this is an opportunity since after Biden isolated the country on the world stage, they were being pulled in closer as the junior partner under China. We can look at this as a ‘reverse Nixon’ strategy when the US opened up to China in the 1970s to split the Soviet Union and China.
Some expert are sceptical but we think that Russia has enough reasons to take this ‘opportunity’ being offered by the US to reset relations. This will allow Putin to not fall under the thumb of Xi. In addition, it will mean that Russia will not need to transfer its advanced military technology to China. For these reasons and others, we belive that Putin will be more flexible on his position in Ukraine since what he gains in elsewhere is larger. Some academics and strategists in China are already worried about the implications.
Key Points
Bilateral Agreement: Establishes terms for a Reconstruction Investment Fund to support Ukraine post-conflict.
Joint Ownership: The fund will be jointly managed by representatives from both governments, with each having a stake based on contributions.
Revenue Sharing: Ukraine will contribute 50% of revenues from future monetization of its natural resources to the fund.
Investment Focus: Aims to attract investments in various sectors including minerals, hydrocarbons, and infrastructure.
Governance and Compliance: The fund’s operations will adhere to U.S. laws and ensure that sanctions are respected.
This agreement is seen as a key step towards lasting peace and economic resilience in Ukraine.
Next Steps
Following the establishment of the Reconstruction Investment Fund, several immediate actions are planned to ensure successful implementation. Of course, we need to wait for a peace deal first between Russia and Ukraine.
Framework Development: Both nations will need to work closely to develop a robust legal and operational framework for the fund, defining the roles and responsibilities of all stakeholders involved. This might be a challange in Ukraine giving the levels of corruption.
Investment Strategy: A detailed investment strategy will need to be formulated, identifying priority sectors that require urgent funding and development, particularly those that can significantly contribute to Ukraine’s economic recovery.
Stakeholder Engagement: Engaging with private investors, international financial institutions, and non-governmental organizations will be crucial. This engagement aims to raise awareness about investment opportunities in Ukraine and attract diversified funding sources. Key to all of this will be involvment of mining companies.
Monitoring and Evaluation: Establishing a transparent monitoring and evaluation mechanism to assess the fund’s performance will be essential. Regular reports on financial progress and development outcomes will be shared with stakeholders to maintain accountability.
Capacity Building: Part of the funds will be allocated towards capacity-building initiatives within Ukraine to enhance local governance, improve project management skills, and ensure sustainable practices in resource management.
Public Awareness Campaigns: Running public awareness campaigns to inform citizens about the fund and its objectives will help foster a sense of ownership and participation in the reconstruction efforts.
Conclusion
The establishment of the Reconstruction Investment Fund marks a significant milestone in U.S.-Ukraine relations. By prioritizing economic development and resource management, both nations are taking proactive steps towards a prosperous future for Ukraine. For the US, they will have access to critical resources. For Ukraine, US involvement will mean reason for the US to stay providing a ‘backstop’ economically but possibly a military one once a deal with the Russians is finalized.
