Is the invasion of Ukraine profitable for Putin and his oligarchs?

1, Mar 2024 | Geopolitical Challenges, Geopolitische Herausforderungen, Les défis géopolitiques

Oligarchs, like the robber barons of the Middle Ages, pay themselves by the spoils of war they find underground. Destruction of the earth’s surface not only does not matter, it is actually useful for unhindered access in chaos and in a situation without neither rule nor law. This score in the Wagner Concerto cannot be dismissed out of hand.

Given the fact that Poutine  is surrounded and supported by oligarchs, can the impression that this is primarily an act of piracy really be dismissed? (https://treaties.un.org/…/Part/volume-3007-I-52241.pdf ) Indeed Oligarchs, like the robber barons of the Middle Ages, pay themselves by the spoils of war or corruption they find underground. 

For most observers of the invasion of Ukraine by her Russian neighbours, the question is what the Russian president is trying to achieve.

His reasons, merely pretexts of threatening NATO’s expansion to the East, show how caught up he is in the perspective of the Soviet Union’s disregard for state sovereignty vis-à-vis the Baltic states, Ukraine and Georgia.

He does not care about the Budapest Memorandum (https://treaties.un.org/…/Part/volume-3007-I-52241.pdf ), which guarantees Ukraine’s renunciation of nuclear weapons and in exchange Russia’s recognition of its borders.

So what is the goal of this former senior KGB officer whose biggest mistake was that his interlocutors underestimated him? Fiona Hill and Clifford G. Gaddy, describe very well, what made him what he has become and what drives him (“Mr. Putin: operational in the Kremlin” / Fiona Hill and Clifford G. Gaddy. Brookings 2013; 2-2015.)

When a man calculating to the smallest details, starts a war against a neighbouring country in 2014, first in Crimea, then in the Donbas and finally against the entire rest of Ukraine, when he accepts very expensive sanctions against his country as well as the death of more than 200.000 of his soldiers, when he indiscriminately kills Russian-speaking Ukrainian citizens in and around Odesa by air strikes on residential buildings, when he permanently destroys the electricity, heat and water supply of the civilian population (also and especially in the majority Russian-speaking Donbas) in the middle of winter, then there must be a reason that weighs heavier for him and his oligarchic gang advisors.

The historian in me may be forgiven for paying particular attention to the hypothesis of a connection between interests and temporal processes:

After Ukraine had decisively set out on the path to the European Union with the Euromaidan in 2013-2014, Russia occupied significant parts of Ukraine in the east of the country as well as the Crimean peninsula in 2014 after only a few months. The European Union, which is currently often forgotten due to the turmoil of war, concluded an Association Agreement with Ukraine in 2014 https://eur-lex.europa.eu/legal-content/DE/TXT/PDF/?uri=CELEX:22014A0529(01)&from=EN

Partnership to implement the EU’s Critical Commodities Action Plan of September 2020.

Experts have known for a long time that large quantities of coal, oil and natural gas are stored in the Russian-occupied territories.

As is well known, the European Union and Ukraine launched a strategic partnership on raw materials and batteries in mid-July 2021. This new partnership – in line with the objectives of the EU Action Plan on Critical Raw Materials – aims to help strengthen and secure both sides’ supplies of critical raw materials and batteries.

In September 2020, the EU published a Critical Raw Materials Action Plan to support Europe’s transition to a green and digital economy. The EU Action Plan builds on the first initiatives of the European Commission and the European Parliament (Bütighofer Report) in 2014, which took on particular importance following China’s reduction of rare earth exports.

Against this background, the strategic partnership with Ukraine signed in 2021 aims to develop three key areas of work: Aligning the legal framework for mining and applying the principles of sustainable mining; better integrating the value chains for critical raw materials and batteries; and developing joint venture projects and other business opportunities. In addition, the new partnership will promote closer cooperation on research and innovation along the raw materials and battery value chains through the Horizon Europe framework program.

The aim is to develop a strategy and roadmap for the decarbonization of raw material extraction, production and processing in Ukraine and to strengthen the sustainable and responsible sourcing and processing of raw materials and batteries in Ukraine, to improve the management of data on Ukrainian mineral resources and reserves, to use earth observation and remote sensing programmes for resource exploration, and to identify and implement joint venture projects for industrial actors and investors from the EU and Ukraine.

Against this backdrop, it is not surprising that Putin and his oligarchic partners sought to overthrow the Ukrainian government after the occupation of Crimea and the Donbass in 2014 and then in February 2022 in order to regain or secure their access to Ukraine’s natural resources.

Ukraine is currently one of the largest producers of the following minerals:

Metal minerals:

  • 7th in the world for iron extraction: 39 million tonnes and 2.4% of world production (after Australia, China, Brazil, India, Russia and the RSA).
  • 8th in the world for mining manganese: 651 thousand tonnes and 3.6% of world production (after Australia, China, Gabon, Brazil, Ghana and India).
  • 6th in the world for the mining of titanium: 431 thousand tonnes and 6.3 % of world production (after China, RSA, Australia, Canada і Mozambique).
  • 2nd place in the world for the extraction of gallium: 9 tonnes and 2.9 % of world production (after China).
  • 5th place in the world in the extraction of germanium: 1 tonne and 1 % of world production (after China, Russia, the USA and Japan).

 

Non-metallic minerals:

6th place worldwide in the extraction of kaolin: 2.4 million tonnes and 5.9% of world production (after China, the USA, Germany, India and the Czech Republic).

10th in the world for zirconium silicate: 26 000 tonnes and 1.9% of world production (after Australia, South Africa, China, Mozambique, Senegal, the USA, Kenya, India and Indonesia).

Ranked 8th in the world for graphite extraction: 13 000 tonnes and 1.3% of world production (after China, Brazil, North Korea, India, Russia, Canada and Madagascar).

Mineral fuels

  • Ranked 13th in the world for extraction of coal for power plants: 18.9 million tonnes and 0.4 % of world production (after China, India, USA, Indonesia, Australia, RSA, Russia, Colombia, Kazakhstan, Poland, Vietnam and Canada).
  • Ranked 12th in the world for coking coal mining: 5.2 million tonnes and 0.5 % of world production (after China, Australia, Russia, the USA, India, Canada, Mongolia, Kazakhstan, Poland, Mozambique and Colombia).
  • Ranked 10th in the world in uranium mining: 1 tonne and 1.4 % of world production (after Kazakhstan, Canada, Australia, Namibia, Niger, Uzbekistan, Russia, China and the USA).

After President Selensky took office, the Ukrainian government significantly improved and liberalised the system for issuing transparent permits for mineral extraction. In addition, the State Service for Geology and Mineral Resources of Ukraine has presented an investment atlas for mineral resource management, which includes over 140 fields for which electronic auctions are planned in the near future.

Гірничодобувна промисловість

https://www.geo.gov.ua/wp-content/uploads/presentations/en/investment-opportunities-in-exploration-production-strategic-and-critical-minerals.pdf

[:ua]В Україні з’явилась Карта інвестиційних можливостей в розрізі кожної області[:en]Investors can find opportunities on the Investment Map of Ukraine[:]

https://me.gov.ua/Documents/Detail?lang=en-GB&id=f83a87af-2f52-47d1-bf03-6f64376947a9&title=InvestmentsInUkraineAndEconomicReconstruction

It is obvious that Ukraine will continue to strengthen its position as a European hotspot for resource extraction after the war, as is the real, obvious reason for the invasion of Putin and his oligarchs.

Ukraine’s hydrocarbon wealth

Ukraine has perhaps the second largest natural gas deposit in Europe, some 1.2 trillion cubic metres of proven reserves and perhaps as much as 5.4 trillion cubic metres. Ukraine also has up to 37 billion tonnes of coal reserves and 148 coal mines, among the largest in the world.

Russia’s military advances into eastern and southern Ukraine since 2014 and most recently in 2022 mean that Moscow has taken control of two-thirds of the country’s maritime territory and about 80% of the oil and natural gas reserves in the Black Sea. It is estimated that there could be up to 2 trillion cubic metres of gas under the Black Sea and in Ukrainian waters. After the annexation of Crimea and before the invasion in 2022, the Ukrainian state energy company Naftogaz was preparing to explore 32 blocks. Russia apparently plans to integrate these blocks into the Russian supply chain, on which Europe is currently dependent.

Currently, Russian occupiers have access to the following mineral resources.

  • 63% of Ukraine’s coal reserves
  • 11% of Ukraine’s oil reserves
  • 20% of Ukraine’s natural gas reserves
  • 42% of Ukraine’s metal ore reserves
  • 31% of Ukraine’s gold ore reserves
  • 33% of Ukraine’s rare earth metal reserves
  • 21% of Ukraine’s radioactive element reserves
  • 21% of Ukraine’s deposits of precious stones.

Slowdown in agriculture

The war between Russia and Ukraine will have a fundamental impact on food production and exports worldwide, especially in vulnerable countries. In 2021, Ukraine supplied 12 per cent of the world’s wheat, 16 per cent of its maize and 18 per cent of its barley, and over 46 per cent of its sunflower seed and safflower oil production. The total value of exports in 2021 was USD 27 billion, of which over USD 7.6 billion went to the EU, USD 4.2 billion to China, USD 2 billion to India and USD 1.5 billion to Egypt and Turkey. Maize (USD 5.8 billion), sunflower seeds (USD 5.7 billion) and wheat (USD 5.1 billion) generated the highest revenues. The war has had an impact not only on plantings, but also on the types of crops harvested.

There are competing estimates of the extent of the war’s impact on Ukrainian production in 2022. Much will depend on how long the war lasts and which regions are affected. Some crops are likely to be more affected by the war than others. For example, about 30 % of maize production is concentrated in the Kyivska, Chernihivska, Sumska and Kharkivska regions, all of which were occupied during the war. About 30 % of wheat production is concentrated in the Donbas, Zaporizka, Khersonska and Odeska regions, all of which were affected by fighting with Russian forces in 2022. The Minister of Agriculture said that sown areas could be halved from 15 million hectares to 7 million hectares in 2021. Farmers could sow only 3.3 million hectares of maize, down from 5.4 million hectares in 2021.

Agriculture requires labour, assets and infrastructure that have been damaged by the war between Ukraine and Russia. Some reports even say that farmers are running out of fuel and have lost much of their equipment. Prices for fertilisers, many of which are bought in Russia, have also skyrocketed. The demand for food has driven up the share prices not only of producers but also of manufacturers of agricultural machinery. In addition, Russia has already begun to slow or ban exports of key inputs, including sunflower seeds. This could lead to a 40 % drop in Ukrainian oilseed production.

The Russian army also targeted and destroyed warehouses and agricultural machinery in Kiev, Chernihiv, Kherson, Kharkiv and Zaporizhzhya. A prominent example is Donetsk, where Harveat, one of Ukraine’s largest agribusinesses, lost control of 98,000 hectares and now has only 22,000 hectares in Kiev. The company had planted 38,000 hectares with winter wheat and had just fertilised 40 per cent of the land, but a harvest may not be possible. Agrogeneration, another producer, reported similar problems in Kharkiv. A number of large landowners report potential losses and are also signalling resistance to Russia by providing humanitarian and food aid.

Conclusions

It is also in the interest of the European Union to accept Ukraine as a member state. Ukraine already has a highly motivated population, with women and men making innovative contributions through modern research and development.

It is also in the interest of the European Union, and in particular EU industrialised countries, to help Ukraine shake off the yoke of occupation by Putin and his oligarchs as soon as possible and avoid further casualties.

Given the developments since the first publication of our article in the summer of 2022, we will report in an additional series on the Wagner group still active in Africa as well as on their actions to drive European forces from the African continent or at least make it so difficult for them to remain that it becomes impossible for democratic and electorally dependent forces to operate on an equal footing with mercenary groups that have pirate objectives.

Our thesis is: whether in Ukraine or in Central Africa and the Sahel, it is all about access to raw materials, which are indispensable for the most modern technologies. – It is and remains a competitive advantage to have access to these raw materials yourself (for the energy transition, information and communication technologies) or to exclude and keep out competitors. TH

Sources:

  • European Commission.
  • SecDev, Toronto, Canada
  • Academy of Sciences of Ukraine Dr Uliana Naumenko, PhD (Geology), Senior Scientist, Institute of Geological Sciences, NAS of Ukraine and Dr Svitlana Vassylenko, PhD (Geology), Senior Scientist, Institute of Geological Sciences, NAS of Ukraine.

 

 

 

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