Donald Trump and Vladimir Putin have recently engaged in peace talks without involving Ukraine. Photo / Getty Images
Donald Trump and Vladimir Putin have recently engaged in peace talks without involving Ukraine. Photo / Getty Images
Analysis by Ambrose Evans-Pritchard
THREE KEY FACTS
Donald Trump is demanding a US$500 billion “payback” from Ukraine, covering resources like minerals, oil and gas.
The contract implies US economic control over Ukraine, causing panic in Kyiv.
Ukrainian President Volodymyr Zelenskyy proposed US involvement to deter Russia, but the terms are seen as coercive.
US President Donald Trump’s demand for a US$500 billion “payback” from Ukraine goes far beyond US control over the country’s critical minerals. It covers everything from ports and infrastructure to oil and gas, and the larger resource base of the country.
The terms of the contract that landed at Ukrainian President Volodymyr Zelenskyy’s office a week ago amount to the US economic colonisation of Ukraine, in legal perpetuity. It implies a burden of reparations that cannot possibly be achieved. The document has caused consternation and panic in Kyiv.
The agreement covers the “economic value associated with resources of Ukraine”, including “mineral resources, oil and gas resources, ports, other infrastructure (as agreed)”, leaving it unclear what else might be encompassed. “This agreement shall be governed by New York law, without regard to conflict of laws principles,” it states.
Ukrainian President Volodymyr Zelenskyy proposed the idea of giving the US a direct stake in Ukraine’s rare earth elements. Photo / Getty Images
The US will take 50% of recurring revenues received by Ukraine from extraction of resources, and 50% of the financial value of “all new licences issued to third parties” for the future monetisation of resources. There will be “a lien on such revenues” in favour of the US. “That clause means ‘pay us first, and then feed your children’,” said one source close to the negotiations.
It states that “for all future licences, the US will have a right of first refusal for the purchase of exportable minerals”. Washington will have sovereign immunity and acquire near-total control over most of Ukraine’s commodity and resource economy. The fund “shall have the exclusive right to establish the method, selection criteria, terms, and conditions” of all future licences and projects. And so forth, in this vein. It seems to have been written by private lawyers, not the US departments of state or commerce.
Zelenskyy himself proposed the idea of giving the US a direct stake in Ukraine’s rare earth elements and critical minerals during a visit to Trump Tower in September, hoping to smooth the way for continued arms deliveries.
He calculated that it would lead to US companies setting operations on the ground, creating a political tripwire that would deter Russian President Vladimir Putin from attacking again.
Some mineral basins are near the front line in eastern Ukraine, or in Russian-occupied areas. He has played up the dangers of letting strategic reserves of titanium, tungsten, uranium, graphite and rare earths fall into Russian hands. “If we are talking about a deal, then let’s do a deal, we are only for it,” he said.
He probably did not expect to be confronted with terms normally imposed on aggressor states defeated in war. They are worse than the financial penalties imposed on Germany and Japan after their defeat in 1945. Both countries were ultimately net recipients of funds from the victorious allies.
A new Versailles
If this draft were accepted, Trump’s demands would amount to a higher share of Ukrainian GDP than reparations imposed on Germany at the Versailles Treaty, later whittled down at the London Conference in 1921, and by the Dawes Plan in 1924. At the same time, he seems willing to let Russia off the hook entirely.
Trump told Fox News Ukraine had “essentially agreed” to hand over US$500b. “They have tremendously valuable land in terms of rare earths, in terms of oil and gas, in terms of other things,” he said.
He warned Ukraine would be handed to Putin on a plate if it rejected the terms. “They may make a deal. They may not make a deal. They may be Russian someday, or they may not be Russian someday. But I want this money back,” he said.
Trump said the US had spent US$300b on the war so far, adding it would be “stupid” to hand over any more. In fact, the five packages agreed by Congress total US$175b, of which US$70b was spent in the US on weapons production. Some of it is in the form of humanitarian grants, but much of it is lend-lease money that must be repaid.
Republican Senator Lindsey Graham suggested at the Munich Security Conference over the weekend Trump’s demand was a clever ploy to bolster declining popular support for the Ukrainian cause. “He can go to the American people and say, ‘Ukraine is not a burden, it is a benefit’,” he said.
Graham told the Europeans to root hard for the idea because it locks Washington into defending a future settlement. “If we sign this minerals agreement, Putin is screwed, because Trump will defend the deal,” he said.
Ukrainian officials had to tiptoe through this minefield at the Munich forum, trying to smile gamely and talking up hopes of a resource deal while at the same pleading that the current text breaches Ukrainian law and needs redrafting. Well, indeed.
Talk of Ukraine’s resource wealth has become surreal. A figure of US$26 trillion is being cast around for combined mineral reserves and hydrocarbons reserves. The sums are make-believe.
Ukraine probably has the largest lithium basin in Europe. But lithium prices have crashed by 88% since the bubble burst in 2022. Large reserves are being discovered all over the world. The McDermitt Caldera in Nevada is thought to be the biggest lithium deposit on the planet with 40 million metric tonnes, alone enough to catapult the US ahead of China.
The Thacker Pass project will be operational by next year. The value of lithium is in the processing and the downstream industries. Unprocessed rock deposits sitting in Ukraine are all but useless to the US.
It is a similar story for rare earths. They are not rare. Mining companies in the US abandoned the business in the 1990s because profit margins were then too low. The US government was asleep at the wheel and let this happen, waking up to discover China had acquired a strategic stranglehold over supplies of critical elements needed for high-tech and advanced weapons. That problem is being resolved.
Ukraine has cobalt but most EV batteries now use lithium ferrous phosphate and no longer need cobalt. Furthermore, sodium-ion and sulphur-based batteries will limit the future demand growth for lithium. So will recycling. One could go on. The mineral scarcity story is wildly exaggerated.
As for Ukraine’s shale gas, a) some of the Yuzivska field lies under Putin’s control, and b) the western Carpathian reserves are in complex geology with high drilling costs, causing Chevron to pull out, just as it did in Poland. Ukraine has more potential as an exporter of electricity to Europe from renewables and nuclear expansion, but that is not what is on Trump’s mind.
Ukraine cannot possibly meet his US$500b demand in any meaningful timeframe, leaving aside the larger matter of whether it is honourable to treat a victim nation in this fashion after it has held the battle line for the liberal democracies at enormous sacrifice for three years. Who really has a debt to whom, may one ask?
“My style of deal-making is quite simple and straightforward,” says Trump in his book The Art of the Deal. “I aim very high, and then I just keep pushing and pushing and pushing to get what I’m after.” In genuine commerce, the other side can usually walk away. Trump’s demand is iron-fist coercion by a neo-imperial power against a weaker nation with its back to the wall, and all for a commodity bonanza that exists chiefly in Trump’s head.
“Oftentimes the best deal you make is the deal you don’t make,” said Trump, offering another of his pearls.
Zelenskyy does not have that luxury. He has to pick between the military violation of Ukraine by Putin, and the economic violation of Ukraine by his own ally.
