Introduction
The US-Ukraine minerals deal, properly known as the “Bilateral Agreement Establishing Terms and Conditions for a Reconstruction Investment Fund”, was reported by the FT on 26 February 2025 and represents a significant step towards resolving the Russia-Ukraine conflict. However, just two days later, on 28 February 2025, a row that broke out between Presidents Trump and Zelensky at the White House shows just how fragile the relations between Ukraine and the US can be. Another two days later, on 2 March 2025, a host of European nations, Canada, and Turkey, the 11th largest arms exporter in the world, gathered in London to pledge their support for Ukraine whilst highlighting the need for strong US backing. But despite a whole suite of new developments, the minerals deal remains the centrepiece capable of shaping the global power dynamic and carries significant implications on the agenda of the US and Ukraine.
Summary of the minerals deal
The eleven-sections long deal, subject to further elaboration in the fund agreement, establishes a fund that is jointly owned and managed by representatives from the US and Ukrainian governments to collect and reinvest 50% of all revenues arising from the future monetisation of natural resources owned by the Ukrainian government for the purpose of Ukraine’s security and prosperity (Sections 1-3). Any surplus will be reinvested into the fund and into Ukraine on an annual basis (Sections 2-3). The US also promises long-term financial commitment to Ukraine and has not precluded further funding (Section 4). Crucially, the deal stipulates that Ukraine’s revenue contributions and assets which give rise to such contributions shall not be encumbered by other obligations, present or future (Section 6). But the substantive mechanisms for investment and monetisation will be further outlined in the fund agreement (Section 5).
Implications for “America First” and US-China relations
“WHEREAS the United States of America and Ukraine wish to ensure that those States and other persons that have acted adversely to Ukraine in the conflict do not benefit from the reconstruction of Ukraine following a lasting peace”
On initial inspection, preventing states who have acted against Ukraine in the conflict from benefitting from the fund seems a far cry from the “America First” policy and US-China relations. However, depending on how “acted adversely” is interpreted, this seemingly neutral preamble can quickly turn into a political statement. This is especially the case as tensions between the US and China have earned the latter an explicit mention as a foreign adversary in Section 1 of the America First Investment Policy Memorandum. If the US is at the helm of drafting the fund agreement, which is likely the case given Ukraine’s reliance on US funding and military equipment, such as the Javelin and Stinger missiles, there is no telling whether the US would seek to tie Ukraine’s interests with their own and define “acted adversely” in a way that advances their “America First” steer; an emphasis of which is on China.
One clear avenue of determining adversity is the provision of military equipment, as China stands accused of supplying Russia with attack drones used in Ukraine. By contrast, more ambiguous avenues include the supply of critical components, such as machinery and electronics, which have both civilian and military application. But proving these allegations is no easy feat. An avenue that is undisputed, no less ambiguous, yet equally potent are UN resolutions, capable of issuing sanctions and sending peacekeeping forces. The question then follows – would how a state votes at the UN determine whether she is adverse to Ukraine?
Compiling the voting records on all thirteen UN resolutions concerning renewed Russian aggression since 24 February 2022, most if not all of which are Ukraine-leaning, China has voted “abstain” in seven, “no” in five, and “yes” in one. Instances where China voted “no” include resolutions suspending Russia’s Human Rights Council membership and those concerning the human rights situation in occupied Ukraine. Whereas, on the latest resolution imploring a swift end to the conflict, China voted “yes” alongside the US and Russia, whilst the UK abstained. You can view the complete table we compiled here.
There are, of course, political and moral arguments against disadvantaging a state simply because of how she has voted at the international level. One of which is that exercising the right to vote, often seen as sacrosanct, should not be burdened by the threat of malice or negative consequences. But how Ukraine, or by de facto influence, the US, define a state as adverse to the interests of Ukraine remains a wild unknown, particularly given President Trump’s ecstatic foreign policy and tariff impositions. There is therefore little predictability on how “acted adversely” may be defined, or whether it may, if at all, be utilised as a tool to further geopolitical agendas. Nonetheless, it would be unwise to preclude the possibility.
Ukraine is losing more than 50 per cent
Section 3: “The Government of Ukraine will contribute to the Fund 50 percent of all revenues earned from the future monetization of all relevant Ukrainian Government-owned natural resource assets…defined as deposits…and other infrastructure relevant to natural resource assets…”
As one of the most operative parts of the minerals deal, Section 3 provides for Ukraine to contribute 50 per cent of all future revenue arising from the monetisation of government-owned natural resources and related infrastructure to the fund. Apart from the eye-catching percentage point, though, due attention should also be paid to the phrasing of “future” and “deposits”. That said, Section 3 does provide some comfort for Ukraine’s short term finances and budgeting:
“…For the avoidance of doubt, such future sources of revenues do not include the current sources of revenues which are already part of the general budget revenues of Ukraine…”
But another focus of Section 3 should be on the words “deposits” of natural resources. As opposed to “reserves”, which refers to resources that are economically feasible to extract, “deposits” include future, potential resources yet to be explored and assessed; according to the British Stainless Steel Association in the context of nickel and metals. The scope of resources which the minerals deal covers thus extends beyond what is known to be viable for extraction, but rather refers to all natural resources that are owned or may come into ownership of the Ukrainian government, known or not. In other words, everything beneath Ukrainian soil. And as of 2021, World Bank data shows that natural resources generate a substantial 7.5 per cent of Ukraine GDP. The combined effect is that the financial comfort in contributing only “future” revenue is counteracted by the wide scope of natural resource “deposits” subject to the minerals deal. This would entail long term budgeting difficulty and all-rounded unpredictability in deploying Ukraine’s revenues; an obstacle to securing prosperity beyond the immediacy.
No sovereign financing with natural resources
Section 6: “The Fund Agreement will include appropriate representations and warranties, including those necessary to ensure that any obligations the Government of Ukraine may have to third parties, or such obligations that it may undertake in the future, do not sell, convey, transfer pledge, or otherwise encumber the Government of Ukraine’s contributions to the Fund or the assets from which such contributions are derived, or the Fund’s disposition of funds…”
Covering both “contributions” and “assets from which” those contributions derive, Section 6 provides that neither aspect as purposed for the fund should be encumbered at present or future. The practical implication is that revenue streams and their underlying assets cannot be put up as security for, notably, sovereign financing by the Ukrainian government. Since by doing so, the lender has a right to those assets if the borrower defaults on its debt obligations, creating an encumbrance on them. There is, however, more legal nuance to which creditor is at the front of the queue when exercising their rights to takeover security assets, and there may be a technical solution by placing a corporate entity wholly owned by the fund at the absolute forefront of the queue which amasses investments to, in turn, lend to Ukraine. That way, even if a default does occur, the fund will have the highest recourse to those assets regardless of how many other creditors there are.
However, there are two hurdles to this supposed solution. Firstly, creditors who are at the back of the queue, and therefore have lesser rights to security assets, are less inclined to finance Ukraine in larger amounts. The risk they undertake in the event of default is simply too significant without a sufficient remedy over the security assets. Not to mention, unsecured debts often come with much higher interest rates than secured debts, increasing the total repayment amount substantially. Secondly, the minerals deal, on a plain reading, appears to make clear that no encumbrance whatsoever is to land upon Ukraine’s natural resources revenue and assets apart from being directly channelled into the fund. To do otherwise would go against a purposive understanding of what the fund intends to achieve. That is, maximising the collection and reinvestment of revenue from and into Ukraine’s natural resources and reconstruction. It is therefore improbable that Ukraine will be able to, even on a technical basis, leverage its natural resources for sovereign financing.
That said, natural resources are not commonplace securities or currencies used in exchange for credit. There is often controversy in natural resources-backed financing, especially given the price volatility of commodities; see the example of Venezuela in a loan-for-oil deal which nearly collapsed in 2016 due to plummeting oil prices. Instead, typical assurances provided for sovereign financing include government creditworthiness and tax revenues. However, according to last available World Bank data, Ukraine’s tax revenues have witnessed a steady decline from 20.5 per cent of GDP in 2015 to 19.1 per cent in 2021, and a plunge to 16.7 per cent in 2022 – the year Russian aggression was renewed. Sadly, neither is Ukraine’s credit rating healthy. As of December 2024, Fitch has rated Ukraine’s respective long and short term issuer default at “Restricted Default” and “C” levels, meaning Ukraine has already defaulted on certain commitments and her repayment capacity irrevocably impaired, though insolvency proceedings have not been entered into.
But regardless of how controversial natural resources-backed financing may be, it is worth noting that Ukraine has a wide range and wealth of natural resources. According to data from the International Energy Agency, CEIC, and Reuters, Ukraine has an estimated reserve of oil at 850Mt [i], natural gas at 5.4Tcm [ii], hydrocarbons at 9Btoe [iii], and an annual production of minerals at 107.7Mt as of 2021. When read together with the broad scope of natural resources subject to the minerals deal, therefore, Section 6 further restricts Ukraine’s ability to independently finance its own survival. And as a result, causes her interests to be irreversibly intertwined with the US on a long term basis.
Ambiguities subject to further elaboration
After dissecting its details, this is an opportune time to remind ourselves that the minerals deal, as outlined in Section 1, remains subject to further elaboration in the fund agreement. As the deal pertains to the procedure of monetisation and flow of finances, how the fund agreement is fleshed out has just as much ramifications for the US and Ukraine. Ambiguities can be identified in Sections 3 and 5:
Section 3: “…The Fund, in its sole discretion, may credit or return to the Government of Ukraine actual expenses incurred by the newly developed projects from which the Fund receives revenues…”
A point of contention in Section 3 is defining the scope of “expenses incurred” for reimbursement purposes. Unlike more straightforward sectors such as manufacturing, the monetisation of natural resources involves multiple steps, each of which may entail significant costs. Oil and gas extraction, for example, involves the exploration, appraisal, production, and land remediation of drilling sites; according to Natural Resources Wales. The question of where the line is drawn thus follows: would only essential services pertaining to the production process be reimbursed, or would services preceding or succeeding, such as transportation to the buyer, be included? By extension, suppose the scope of reimbursable expenses is limited to essential services, upon who would the financial burden of other expenses fall? This is a question that warrants serious thought, since if the Ukrainian government bears the brunt of costs beyond the reimbursement scope, but has little to no other means of reconstruction apart from investment from the fund, the package as a whole will put further pressure on Ukraine’s budgeting while also limiting how her natural resources can be utilised for sovereign financing.
Section 5: “The Fund’s investment process will be designed so as to invest in projects in Ukraine and attract investments to increase the development, processing and monetization of all public and private Ukrainian assets…[the governments of the US and Ukraine] intend that the investment process will lead to opportunities for distribution of additional funds and greater reinvestment, to ensure the sufficient supply of capital for the reconstruction of Ukraine as set out in the Fund Agreement.”
Despite firmly establishing an intention to reconstruct Ukraine, ambiguities persist regarding the investment process’s details, which is left to be set out in the fund agreement. In respect of the attraction of investments and monetisation, a prominent question is what bidding process (assumedly) will take place and, by extension, whether limitations may be placed on who may participate in the monetisation process given states adverse to Ukraine’s interests shall not benefit from the fund, as set out in the preamble. Aligning with the theme of “America First”, possible outcomes include preferential treatment for US energy companies in the monetisation process and an entitlement for US entities to purchase Ukraine’s natural resources at a discount. Such propositions are not unfounded, as President Trump has displayed strong support for the US energy sector in calling upon the EU to purchase American oil and gas in order to avoid tariffs. And whilst it is difficult to predict how the fund agreement will be shaped, it is, again, unwise to preclude the possibility.
Conclusion – a game of balance
A broader point of contention has been President Zelensky’s demands for a US security guarantee to be etched into the minerals deal itself, which was not granted. But by intertwining Ukraine’s natural resources with the US’s financial interests, the minerals deal can be said to create a de facto security guarantee without explicitly creating one, which could otherwise provoke a Russian reaction. However, this comes at the expense of Ukraine’s fiscal position and ability to independently finance her own survival through leveraging its natural resources. And whilst the deal gives short term breathing room for Ukraine, its long term consequences – greatly dependent on how the fund agreement is ultimately shaped – will determine whether the deal is empowering or constraining.
[i] Million tonnes
[ii] Trillion cubic metres
[iii] Billion tonnes of oil equivalent
