A New Resource War? Understanding the Role of Critical Minerals in Russia’s Invasion of Ukraine

For decades, a country's relative energy security was largely determined by its stock of hydrocarbon reserves, its potential for wind, solar, and hydropower generation, as well as the physical and commercial ties it maintained with foreign partners to secure supply and meet domestic energy demand. As environmental concerns have risen, governments have methodically shifted towards low-emission technologies that make efficient use of their countries' natural resources. Consequently, critical minerals like cobalt, titanium, palladium, and various rare earth metals – essential components for manufacturing these "green" technologies – have become integral to advanced economies transitioning away from fossil fuels.

While Russia's invasion of Ukraine likely contains an array of strategic, ideological, political, and economic motivations, one under-discussed factor is likely Ukraine's large reserves of critical metals. Their global strategic importance is undeniable in the context of a green energy transition. The current conflict has forced Western societies to reevaluate their reliance on Russian energy imports and to accelerate the shift to non-renewable energy sources. However, losing access to Ukrainian resources, coupled with the existing partnership between Moscow and Beijing - the world's largest supplier of critical minerals - potentially threatens the West's energy transition.

Does Russia's aggression in Ukraine extend to a quest for mineral resources?

The gradual phasing out of fossil fuel usage in Europe jeopardizes Russia's primary source of state revenue, prompting the Kremlin to focus on acquiring, in any possible way, a future-proof, high-value export – critical minerals.

Despite having the fourth-largest rare earth metals reserves in the world, Russia has consistently found it challenging to increase its output in this sector. Although Russia is a major global supplier of palladium, scandium, and titanium, and a significant seller of nickel and cobalt, it has remained overshadowed by China in global markets. In 2020, the Kremlin pledged $1.5 billion in investments in rare earth metals, aiming to become the second-largest producer after China by 2030. However, the returns on this investment remain to be seen.

Conversely, Ukraine is among the European countries richest in rare earth metals and lithium reserves, valued between $3 trillion to $11.5 trillion. In 2021, the European Union and Ukraine entered into a strategic partnership on raw materials, which stimulated a surge of interest from private companies. Given Ukraine's vast mineral resources and Russia's ambitions to expand its market influence, some experts have begun questioning whether Russia's aggression against Ukraine is partially driven by a desire to control these valuable reserves.

Russia’s incursions into the southern and eastern regions of Ukraine, where most of Ukraine’s critical materials reserves are located, may not be solely motivated by military calculations. This rationale may have also played a part in the annexation of Crimea in 2014, when Russian military actions targeted Ukrainian natural gas reserves off the peninsula's coast.

As CBC News senior defense writer Murray Brewster recently noted, the conclusion of the war “has the potential to secure either Ukraine or Russia’s economic future for the next century.” Should the Kremlin gain control over these critical mineral reserves, it would significantly increase Russia's influence over Western energy security. However, controlling these reserves does not equate to immediate commercialization. Extracting and refining these resources are complex tasks that present their own set of challenges.

The Geopolitical Quagmire of Critical Minerals: Navigating the Energy Transition Amid the Russia-Ukraine Crisis

Critical Minerals and Their Role in the Energy Transition

Critical minerals, as listed by the American Geosciences Institute, include rare earth metals and other elements like lithium, indium, tellurium, gallium, and platinum group elements. They hold immense significance as they form the backbone of various advanced technologies, including clean energy generation assets, battery systems, and digital technologies integral to the energy transition process and the broader global IT and communication sector.

Even before Russia's full-scale re-invasion of Ukraine, critical minerals markets had exhibited striking wholesale price increases. This surge resulted from several factors, including a sudden demand increase for critical metals following the easing of COVID-19 restrictions, a growing demand for green technologies due to mounting climate change concerns, and bullish trends induced by worldwide pledges for net-zero carbon emission targets.

The Geopolitical Landscape of Critical Minerals

Despite being called "rare" earth metals, these critical minerals are not necessarily scarce. However, their extraction and refining processes are complicated, especially considering environmental protection regulations in Western countries. Consequently, over 60% of rare earth metals are mined by Chinese entities, which also control more than 85% of the global market share for refining these elements.

Availability of critical minerals in Euro-Atlantic countries has always been low, primarily due to geographical distribution and environmental concerns. Thus, these regions have looked towards Australia's lithium reserves. However, China's lax environmental provisions and poor labor regulations have kept Chinese mining firms' costs low, making international competition difficult.

The Evolving Market of Rare Earth Metals Amid Present Circumstances

With Europe and the United States transitioning towards a low-carbon economy, demand for critical and rare earth metals will continue to rise. As Western societies attempt to decrease their dependence on Russia, they could inadvertently be establishing an even riskier partnership for critical and rare earth minerals with China.

If Russia gains control over Ukraine’s critical minerals, Western economic sanctions would extend to these resources, likely sustaining and potentially even increasing their global wholesale market prices.

The alternative for the West—developing new mining and processing facilities in Australia, Europe, and the United States—will require time and financial resources, possibly slowing the energy transition process. However, several options are currently under exploration.

Exploring Alternatives and New Frontiers

The European Union recently issued its “2022 Strategic Foresight Report: Twinning the Green and Digital Transitions in the New Geopolitical Context,” with a long-term aim to secure “sustainable access to raw materials.” However, environmental protests in countries like Spain and Serbia have surged against new mineral exploitations.

Conversely, the Norwegian Bjerkreim Exploration Project, aiming to access significant global deposits of vanadium, titanium, and phosphate, seems to garner more public support.

Turkey, claiming to have discovered the world’s second-largest reserves of rare earth metals, presents another possible alternative. If Ankara's claims are confirmed, Turkey could fundamentally alter its role as a NATO member and partner to the EU, becoming a critical supplier of minerals to the European bloc.

Besides discovering new supply sources, there are significant opportunities for a circular economy in the critical minerals sector. The "Global Rare Earth Metals Recycling Market Report 2022-2026" forecasts the rare earths recycling market nearly doubling by 2026. Another option limited primarily to the transportation sector is scaling up the manufacturing process for rare-earth-free electric drivetrains. However, increasing production will take years.

As NATO's "Climate Change & Security Impact Assessment" underscores, the energy transition process must account for the geopolitical dimensions of critical minerals. The interest Russia has shown in Ukraine's significant reserves of critical minerals threatens the very concepts of energy transition and climate neutrality pursued by the Western world. Therefore, it's crucial that allies develop no further dependencies on unreliable suppliers, including Russia and China.