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Natural Wealth and the Invasion of Ukraine

🕑 4 min

By Petyo Rakov

1. Introduction

On 24 February 2022,Vladimir Putin initiated a ‘special military operation’ against Ukraine, justified as a virtuous effort to defend the Russian minority through the ‘demilitarization and denazification’ of Ukraine. The credibility of these vague objectives has been rejected by most analysts, who frame these as a propagandist casus belli. An objective evaluation of the massive natural wealth in Ukraine can provide a more pragmatic perspective on the motivations for the Russian invasion. Furthermore, an analysis of the natural wealth of Russia provides insights on the initial reluctance of the EU to get directly involved into the crisis. Mineral and energy wealth is certainly not the sole precursor for the conflict. Its importance is, however, frequently overlooked. This is insupportable during a European energy crisis, caused by overreliance on Russian gas. As such, the war in Ukraine poses a geo-economic incentive for the EU.

2. Overview

Ukraine harbors some of the world’s largest reserves of titanium, coal and lithium, worth trillions of dollars. The majority of these deposits are located in the far-eastern, south-eastern, and north-eastern parts of the country, in immediate proximity to the frontline and the annexed oblasts of Donetsk, Luhansk, Kherson and Zaporizhzhia. A Canadian analysis indicates that at least 12.4 trillion dollars’ worth (12.42 trillion euros) of energy deposits, metals and minerals are or have been under Russian control in the near past. This entails that it could account to 63 per cent of Ukraine’s coal, 11 per cent of its oil, 20 per cent of its natural gas, 42 per cent of its metals, and 33 per cent of its deposits of rare earth minerals.

Figure 1: Major resources distribution in Ukraine.

Coal is the most abundant of the deposits in the Russian-occupied part of Ukraine with approximately 30 billion tons of hard coal available. The estimated commercial value of this is 11.9 trillion dollars (11.92 trillion euros). Moreover, many of the Soviet-era steel plants still operate on coal. Thus, the seizure of these deposits is crippling the Ukrainian steel industry and by extension the Ukrainian economy. The resulting stagnation highlights a costly but needed area for post-war development – gradual shift to greener and more geographically-diversified energy sources.

Ukraine has 1.09 trillion cubic meters of largely-unexploited natural gas reserves, the second-biggest in Europe after Norway. This figure does not include the 165.3 billion cubic meters of gas, already lost due to the annexation of Crimea in 2014. According to the Ukrainian Energy Ministry, the annexation cost Ukraine 80 per cent of its gas deposits in the Black Sea. Russia appropriated billions of dollars’ worth of equipment and delivered it to Gazprom, effectively terminating Ukraine’s offshore oil and gas operations.

Figure 2: Deepwater License Areas in the Ukrainian Exclusive Economic Zone

In addition, estimates state that up to 20 per cent of the world’s known reserves of titanium, used in the construction of aircrafts, are located in Ukraine. During the first quarter of 2022, mining companies reduced exports of titanium ores by 43.7 per cent compared to the same period in 2021.

Moreover, the Donbass region is rich in lithium, used to produce lithium-ion batteries for electric vehicles and mobile devices. Prior to the invasion, promising deposits of lithium in the breakaway region of Donetsk attracted foreign investment from Australian, Chinese, and Polish enterprises.

Last but not least, Ukraine is a major exporter of food products. For example, the country exports 4.77 billion dollars’ worth (4.78 billion euros) of corn. In Europe, disruptions in the frequency of food deliveries led to increased prices, product scarcity, and occasional stock-outs. For food-deprived regions like Western Africa, the conflict in Ukraine may have catastrophic and long-lasting implications.

3. Importance of natural wealth in geopolitics, such as EU intervention

Figure 3: Impact of sanctions on the Russian economy

Historically, natural wealth has had a significant influence on global geopolitics. The abundant presence of resources in Ukraine might have been one of the motivators for the initialization of the Russo-Ukrainian War from the Russian perspective. Furthermore, the rich presence of oil- and gas reserves in Russia dominates the European response to the invasion.

In 2021, the EU depended on Russian gas for 45 per cent of its imports and around 40 per cent of its consumption. During the same year, the EU imported 142 billion cubic meters of Russian gas. On average, 70 per cent of the energy used by European households is utilized for heating and roughly 50 per cent of European households rely on natural gas for heating. The increasing gas prices, accompanied by the prospects for gas shortages during the winter limited the interference capabilities of the EU countries. The West imposed a series of economic sanctions on Russia such as travel bans, asset freezes, and import- and export restrictions but was not directly militarily involved in the conflict.

However, by using its gas exports as a political weapon, Russia has severed relations with its European clients, who diversified their energy sources away from Russia. Hence, the short-term gains from increased gas prices will most likely be nullified at the expense of long-term diplomatic and economic isolation and a possible intervention of the West as diversification is being achieved.

Sources: BBC, Washington Post, Reuters, Forbes, European Council

Written by Petyo Rakov

November 2022

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