In the Ukraine war, a battle for the nation’s mineral and energy wealth: WP
Thursday, 11 August, 2022, 22:30
Less than 100 miles east, artillery salvos pound Ukrainian defensive positions as Russian forces inch forward. But below the surface of this sprawling Donbas coal field, a dwindling number of miners are still working, extracting a fuel that is emblematic of one of Ukraine’s biggest challenges. The Kremlin is robbing this nation of the building blocks of its economy — its natural resources. After nearly six months of fighting, Moscow’s sloppy war has yielded at least one big reward: expanded control over some of the most mineral-rich lands in Europe. Ukraine harbors some of the world’s largest reserves of titanium and iron ore, fields of untapped lithium and massive deposits of coal. Collectively, they are worth tens of trillions of dollars.
The lion’s share of those coal deposits, which for decades have powered Ukraine’s critical steel industry, are concentrated in the east, where Moscow has made the most inroads. That’s put them in Russian hands, along with significant amounts of other valuable energy and mineral deposits used for everything from aircraft parts to smartphones, according to an analysis for The Washington Post by the Canadian geopolitical risk firm SecDev. Russia possesses vast amounts of natural resources. But denying Ukraine its own has strategically undermined the country’s economy, forcing Kyiv to import coal to keep the lights on in cities and towns. Should the Kremlin succeed in annexing the Ukrainian territory it has seized — as U.S. officials believe it will try to do in coming months — Kyiv would permanently lose access to almost two-thirds of its deposits. Ukraine would also lose myriad other reserves, including stores of natural gas, oil and rare earth minerals — essential for certain high-tech components — that could hamper Western Europe’s search for alternatives to imports from Russia and China. “The worst scenario is that Ukraine loses land, no longer has a strong commodity economy and becomes more like one of the Baltic states, a nation unable to sustain its industrial economy,” said Stanislav Zinchenko, chief executive of GMK, a Kyiv-based economic think tank. “This is what Russia wants. To weaken us.” Late last month, 1,200 feet underground in the Donbas region mine, soot-caked workers clawed at the black coal seams with a sense of urgency. The coal hewed from the walls fuels a nearby power plant, part of an energy grid strained and weakened by the war. “Those that left to fight at the front are fighting for us down here,” said Yuri, a 29-year-old excavator operator. “We need to get as much coal as we can. The country needs it.”
$12.4 trillion in lost wealth Ukraine is widely known as an agricultural powerhouse. But as a raw-material mother lode, it’s home to 117 of the 120 most widely used minerals and metals, and a major source of fossil fuels. Official websites no longer show geolocations of these deposits; the government, citing national security, took them down in early spring. Yet SecDev’s analysis indicates that at least $12.4 trillion worth of Ukraine’s energy deposits, metals and minerals are now under Russian control. That figure accounts for nearly half the dollar value of the 2,209 deposits reviewed by the company. In addition to 63 percent of the country’s coal deposits, Moscow has seized 11 percent of its oil deposits, 20 percent of its natural gas deposits, 42 percent of its metals and 33 percent of its deposits of rare earth and other critical minerals including lithium.
Some of those deposits are hard to reach or require exploration to assess their viability. Some were overtaken during either Moscow’s 2014 annexation of Crimea or the Ukrainian government’s eight-year war with Russian-backed separatists in the east. Since the invasion began in February, however, the Kremlin has steadily expanded its holdings. According to SecDev and Ukrainian mining and steel industry executives, it has seized: 41 coal fields, 27 natural gas sites, 14 propane sites, nine oil fields, six iron ore deposits, two titanium ore sites, two zirconium ore sites, one strontium site, one lithium site, one uranium site, one gold deposit and a significant quarry of limestone previously used for Ukrainian steel production.
Roman Opimakh, director general of the Ukrainian Geological Survey, said the government is still assessing the war’s impact on its mineral resources. But given how much of Ukraine’s raw materials are in the east and south, he suggested that the value of lost reserves exceeds the total calculated in the independent analysis. “There is a negative asset, which we’ve lost — resources which we use right now to support our industrial activities and to generate power,” he noted. “But there’s another dimension of minerals of the future which are still under the ground. Unfortunately, there is a risk that the Ukrainian people will not get the benefits of the development of those materials.” The bulk of the country’s oil and gas reserves remain under its control. But for Western Europe, Russia’s expanded land grab in Ukraine amounts to a tactical setback. “Russian occupation of Ukrainian territory has direct implications for Western energy security,” said Robert Muggah, SecDev co-founder. “Unless the Europeans can rapidly diversify oil and gas sources, they will remain highly dependent on Russian hydrocarbons.”The greatest threat is to Ukraine’s future. During the 2014 Russian invasion, in which Ukraine lost roughly 7 percent of its land mass, critical Western investment in the energy and mining sector was scared away. The current war has had the same impact. Polish-Ukrainian investment company Millstone & Co, for instance, struck a 2021 deal with an Australian mining company for active exploration at two untouched lithium sites. Once the war started, the companies froze those plans, said Millstone managing partner Mykhailo Zhernov. One site — a deposit covered by farmland — now is so close to the front lines that Zhernov remains uncertain whether it is under Ukrainian or Russian control. Initial plans to build a lithium battery factory there have also been shelved.