- Hubert Walas
Deposits of hope.
This material was prepared before the war and intended for publication on the day the war broke out. For obvious reasons, its emission has been withheld, until today. However, we decided not to change the content of the material, because the presented correlations remain valid. A commentary taking into account the current situation is included at the end of the material.
This is Ukraine. Territorially, the largest country in Europe. And this is a map of Ukraine’s metallic deposits. Particularly noteworthy are these small brown areas in the center of the country. Why are they so important? These small patches of land contain the most uranium ore in all of Europe. But that's not all. These little purple fields are iron deposits. Again, the largest in Europe. The red ones? Titanium. The second-largest on the European continent. But let's leave the metals. Food prices are soaring as a result of economic stagnation caused by the pandemic and government money printing programs. However, the Kremlin-induced crisis is not insignificant either. Why? Because Russia is the largest wheat exporter in the world. 41% of these exports go to the EU. The third-largest wheat exporter in the world is none othe than… Ukraine. It is estimated that Ukraine’s fertile soil could feed 600 million people which is 150 million more than the population of the European Union. As the battle for the fate of the Ukrainian state rages on between Russia and the West, the incredible wealth of Ukraine's land adds yet another important but usually overlooked aspect to this rivalry.
The Breadbasket of Europe
The fact that Ukraine leads in cereal production in Europe should come as no surprise. After all, it is the largest country on the Old Continent being twice the size of Italy. However, a large territory in itself does not guarantee anything. Ukraine owes its favorable agricultural conditions to its location in the so-called Chernozem Belt which covers most of its territory. Chernozem, or Black Earth, is soil with a very high humus content which guarantees high yields. This makes Ukraine, once the breadbasket of the Soviet Union, the world's leading producer not only of wheat (#3), but also of barley (#2), sunflower oil (#1), corn (#4), and rapeseed (#3). An invasion could hit food supplies in many parts of the world where Kyiv exports its products. Analysts should pay special attention to the Middle East and North Africa which are significant importers of Ukrainian agricultural products. Interestingly, some point out that one of the triggers of the 2011 Arab Spring was a food supply crisis. The year before, Russia, a major exporter of grain to the region, halted its supplies.
As the EU is a net exporter of food, and Ukraine only accounts for 5% of EU agricultural imports, the Union is relatively secure in this respect. Nevertheless, there will be some disruptions in specific niches, such as the supply of corn, an important animal feed ingredient. The largest importer of corn in Europe is Spain which makes for a good illustration of how a conflict in Eastern Europe can hit a country at the other end of the Old Continent.
The shockwave, however, would be felt even farther away, in fact, all the way across the landmass of Eurasia. In 2012, Ukraine shipped its corn to China for the first time. Two years later, it was already the largest supplier of this grain to the Middle Kingdom. Depending on the period, it accounted for up to 90% of China’s imports of this product. Overall, Ukrainian exports to China in 2020 increased by 98%. Thus, China has become Ukraine’s largest market.
Beijing's mute adherence to hostile Russian operations vis-à-vis Ukraine is, therefore, a strong signal of the durability of the Bear and Dragon partnership. Indeed, China is willing to allow its own interests with Ukraine to be damaged in order to allow Moscow to continue to pursue its policy of destabilization. Another example of this is the Russian military partly demilitarizing its Far Eastern flank, the units of which have been largely repositioned near Ukraine thus leaving Eastern Siberia defenseless and hypothetically open to Chinese invasion, or at least, encroachment. And so the Kremlin must be certain of Beijing's intentions.
Uranium Hope
In addition to grain import problems, Beijing would also suffer minor disruptions with the supply of iron ore, the nominal value of which accounts for the largest share of Ukraine’s exports to China. This is also a sign of the mining potential of this and other metals that Ukraine has and, in many cases, leads the world and, above all, leads Europe. In addition to iron ore, which the deposits in Ukraine exceed those in Canada and the USA. Kyiv also has the second-largest titanium and mercury deposits in Europe and the largest manganese and uranium deposits in Europe, and the latter element deserves special attention.
In times when energy prices in the world are skyrocketing Ukraine, unlike Germany, is strongly focused on nuclear energy. And if nothing gets in the way, Ukraine would be well on its way to achieving full energy autonomy in a relatively short time. Furthermore, this would be mostly clean energy, a very important factor these days. Ukraine is already a nuclear powerhouse. Its 4 nuclear power plants, consisting of 15 reactors, account for 54% of the country's electricity production, while the government in Kyiv is planning further investments in this sector with the aim of eventually achieving full energy independence.
Still, although Ukraine has large reserves of uranium, its production has so far failed to meet the needs of its nuclear power plants. As of today, domestic production reaches only 30% of demand. Therefore, earlier this year, Kyiv announced a plan to achieve full independence of uranium production by 2027, to be facilitated by new production units at Novokonstantinovskoye and Aprelskoye. Moreover, the Ukrainians want to build new nuclear reactors. The 15 currently operating are based on Soviet technical plans, however this time Kyiv would go with Western technologies. In November, the American nuclear company, Westinghouse Electric Company, and its Ukrainian counterpart, Energoatom, signed a contract for the delivery of the first AP1000 reactors for the Khmelnytsky nuclear power plant in western Ukraine.
Now, what about using uranium for less friendly purposes? Ukraine is probably one of the countries along with Japan, Korea, or Sweden that is said to be "one turn of the screw away" from having nuclear weapons. This means it wouldn't take long for the Ukrainians to domestically develop them. They have all the necessary ingredients: high technological expertise, the raw material, and a missile program. The Ukrainians voluntarily abandoned their nuclear weapons under the 1994 Budapest Memorandum, but given the continuing threat from the East, Kyiv is seriously considering resuming its nuclear weapons program. This has been suggested by, among others, the Ukrainian ambassador to Berlin, Andriy Melnyk who stated that if Ukraine is left on its own outside of NATO, it may resume its nuclear program. Interestingly, the Ukrainians suggest that they could do so without breaking international law. Although Kyiv is a party to the Nuclear Non-Proliferation Treaty, the Ukrainians may cite the fact that Russian aggression in Crimea and the Donbas has rendered the Budapest Memorandum to be no longer legally binding and thus Ukraine would return to its nuclear status.
Hidden in Plain Sight
Finally, old hydrocarbons: gas, oil, and coal. Black gold, as coal used to be called, has recently become a less popular energy resource due to its high emissions of harmful gasses. However, there are technologies that allow more ecological use, such as coal gasification. Ukraine has the largest coal deposits in Europe which can fulfill the country's needs for even the next several hundred years. Yet, it is natural gas that is now the apple of EU policymakers’ eyes. After all, it is natural gas that constitutes a significant motive in Germany's reluctance to react more sharply towards the Kremlin. Meanwhile, excluding Russian deposits in Asia, Ukraine has the second-largest gas reserves in Europe, second only to Norwegian deposits. Importantly, these deposits are mostly located in the east of the country and in the Black Sea shelf along the Crimean coast, and therefore in the areas most contested by Moscow and currently partially occupied by it.
What do all these riches have in common? Apart from the use of fertile Ukrainian lands, which requires the smallest capital investment, they are almost completely unused. For example, a closer look at gas shows that Ukraine currently has an annual reserve utilization rate of around 2 percent. In practice, Ukraine is one of the most resource-endowed countries in the world. Although the country covers only 0.4% of the Earth's surface, its estimated deposits amount to as much as 5% of Earth's total. In other words, a lot for one country.
Furthermore, the competitiveness of the European Union’s industry is being increasingly undermined, in particular by Far Eastern markets, thus having a raw material base in such close geographical proximity is a fundamental asset. Today, the EU’s two leaders - France and Germany - are looking in two different directions in their search for raw materials. Paris looks towards Africa where it still has significant influence, while Berlin looks towards Russia where Germany plays the role of brokering Russian riches in Europe. Meanwhile, the EU could have its raw material base much closer, on much more secure terms, and without fear of being regularly blackmailed due to a lack of supplies. Some steps in this direction were made in July 2021 when the EU and Ukraine initiated a strategic partnership in raw materials.
In theory, closer EU-Ukraine cooperation on raw materials would reduce Moscow's leverage over Europe and bring Kyiv closer to EU membership. Can it be ruled out that the Kremlin was looking at the European chessboard in precisely this way before massing troops at Ukraine’s border? No, in fact, it’s quite plausible and represents yet another motive for the Kremlin in reasserting its influence over Ukraine. If Moscow succeeds, the EU will lose a government that is sympathetic in a country that is a food powerhouse and a potentially major metal and energy resources exporter. If the Kremlin fails, Ukraine may become a wild card and a key supplier for EU industry in an era of Great Power rivalry. For this to happen however, Ukraine needs political and economic stability, and the lack of these is very much in the Kremlin's interest.
This material was written on February 23. A little over a month was enough to turn the whole strategic situation upside down. Now let's superimpose this analysis on the current events. The strength of China's trade relations with Ukraine proved not to be enough for Beijing to make a real stand against Russian aggression. The Chinese certainly expected a quick victory and continuation of close cooperation with Kyiv, only with another, now pro-Russian government. Whereas, the crisis on the grain market is growing, and North Africa is most vulnerable to its effects. Let us go further. The Ukrainian nuclear sector is a multi-faceted operational domain for the Russians, which demonstrates the strength of this resource in Kyiv's hands. First, two nuclear power plants - the inactive Chernobyl and, more importantly, Europe's largest nuclear power plant in Zaporizhzhya - have become key operational targets for Russian forces. Second, the Kremlin raised the argument of Kiev's potential development of nuclear weapons - mainly for its own people. This was to be another reason to attack and probably a real concern on Moscow's part. Had Kyiv been given another few years, things could have turned out differently in this regard. The war has also put the issue of nuclear power back on the track in many European capitals - Belgium dismisses the suspension of its nuclear plants, while Poland wants to build its first reactors. Only Germany is sticking to its plan to phase out nuclear energy. If the renaissance of atomic energy continues, Ukraine's uranium deposits will become a strategic resource for Europe.
Only a month was enough for the fall of current policy of Germany towards Russia, which for two decades was played out in a calculated manner at the expense of Ukraine, by Chancellor Angela Merkel. Berlin is, for now, declaratively breaking its close ties with Moscow. For the time being, hydrocarbons will flow, among others, from Qatar or possibly the USA. But as we pointed out in the material, in case of a stable situation in the country, these losses, to some extent, could be covered by Ukraine. However, many of these deposits are located in the east of Ukraine, in areas occupied by Russia - this may be another reason why the Kremlin is withdrawing troops from Kyiv to engage them more strongly in the Sumy, Kharkiv, Luhansk, Donetsk belt. These are areas of fundamental value to the future of Ukraine. It must be assumed that even when the war ends, the Russians will want the conflict to continue to smolder there and prevent European companies from investing in the east of the country. In this respect, a truce on Russian terms is not in the interest of either Ukraine or European industry. The main conclusion is that Ukraine's future is in its soil. The value of Ukrainian resources, with the support of Western industry, is easily enough to rebuild the country. For the EU, on the other hand, a Ukrainian victory is not only a morally desirable outcome but also a business one - and in geopolitics, that is a much more important motivation.
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