{"id":94143,"date":"2025-05-02T04:58:13","date_gmt":"2025-05-02T04:58:13","guid":{"rendered":"https:\/\/neclink.com\/index.php\/2025\/05\/02\/us-ukraine-minerals-deal-has-trump-agreed-to-continue-military-support-even-if-not-will-he-fall-for-an-endowment-effect-trap\/"},"modified":"2025-05-02T04:58:13","modified_gmt":"2025-05-02T04:58:13","slug":"us-ukraine-minerals-deal-has-trump-agreed-to-continue-military-support-even-if-not-will-he-fall-for-an-endowment-effect-trap","status":"publish","type":"post","link":"https:\/\/neclink.com\/index.php\/2025\/05\/02\/us-ukraine-minerals-deal-has-trump-agreed-to-continue-military-support-even-if-not-will-he-fall-for-an-endowment-effect-trap\/","title":{"rendered":"US-Ukraine Minerals Deal: Has Trump Agreed to Continue Military Support? Even if Not, Will He Fall for an Endowment Effect Trap?"},"content":{"rendered":"


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The US and Ukraine have agreed to an outline of terms for their so-called minerals deal. We don\u2019t know if the parties have included the usual caveat in US letters of intent, that the agreement is not binding or whether any durable commitment, whether now or in a definitive agreement, requires the approval of Ukraine\u2019s parliament, the Rada, which would give Ukraine the ability to walk away from the scheme or force an improvement in its provisions. The fact that the main provisions are now much more Ukraine favorable than at the outset means the Rada may well bless the agreement, particularly since the press has reported that the US will continue to provide military support for Ukraine, in the form of air defenses. <\/p>\n

As we\u2019ll explain below, our prediction that this deal would be a spoiler as far as normalization of US-Russia relations look every bit as operative as we predicted from the get-go. <\/p>\n

We had warned from the outset that the so-called Ukraine \u201craw earths\u201d deal conflicted with the US agreeing to a settlement of the Ukraine conflict by creating an economic incentive for the US to support Ukraine in retaining as much territory as possible. <\/p>\n

Even with the development opportunities not all that juicy, neocon pot-stirrers eager to add to the list of purported Russian dirty deeds will argue otherwise. The fact that the most valuable resources, such as shale gas reserves and lithium deposits, sit disproportionately in parts of Ukraine currently or predictably soon to be under Russian control would become another bloody flag. The fact that the most attractive assets are already being exploited (and as we\u2019ll see below, are excluded from the current scheme) would not be mentioned in polite company. <\/p>\n

And even those on the Trump team who are more Russia-favorable will have their view of what this \u201cdeal\u201d is worth tainted by the cognitive bias called the endowment effect.1<\/sup> Humans have an odd tendency to value things they have as worth more than the same item not in their possession. <\/p>\n

And the \u201cnot Russia hostile\u201d camp is also running into the headwinds of US public opinion. As John Helmer pointed out:<\/p>\n

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\u2026 follow the seven charts. Take note of the last one \u2013 this shows that despite growing disapproval by US voters of the President\u2019s performance in office, most Americans think Trump\u2019s policy towards Russia is \u201ctoo friendly\u201d. This sentiment is holding strong at all education levels, for blacks and Hispanics, and across all age groups, except for the middle-aged (50-64). The most anti-Russian Americans <\/a>recorded in this new poll appear to be Harris voters and black protestants. <\/p>\n

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Another factor that will tend to poison Trump\u2019s relationship with Russia is his failure to deliver on his loud and much-repeated pledge to settle the Ukraine conflict in 24 hours. Trump\u2019s bluster and bullying were no match for the non-negotiable Putin or even the conniver Zelensky. The minerals deal is thus a timely distraction from this embarrassment. It may serve to bolster the barmy claim that somehow Trump won.<\/p>\n

From our February post, Trump Will End His Option of Walking Away from Project Ukraine with His Minerals Deal<\/a>:<\/p>\n

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WE TOLD YOU SO. From a February 15 post<\/a>:<\/p>\n

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Most commentators took the Trump talk of owning or getting rights to Ukraine\u2019s minerals to be bluster. Yours truly remarked otherwise, that this looked like a way for Trump to justify and get funding for a continued US participation, even if at a lower level than under Biden, by presenting it as a loan. This would make it the bastard cousin of the Ursuala von der Leyen plan to issue bonds against Russian frozen assets to which it does not have good title.<\/p>\n<\/blockquote>\n

Admittedly, the sketchy-seeming minerals agreement between the US and Ukraine, widely reported in Western media, has yet to be consummated (more on that soon). But as its contours emerge, other commentators are reaching the same conclusion that we did from the get-go: that it would not just provide Trump with a pretext to continue funding the war, but having an economic interest in Ukraine\u2019s survival would give the Administration a reason to keep Ukraine fighting. Crudely speaking, the more territory the Ukraine state can hold, the more the US can loot<\/strike> develop\u2026<\/p>\n

In keeping, notice the title on the Financial Times map below<\/a>. As we\u2019ll see, the related article makes clear the pact does not include a formal military commitment, but Trump\u2019s patter and the change in US incentives, make it hard to think that the US will stop supplying Ukraine with arms and funds.<\/p>\n

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Regardless, we were not alone in noticing Boris Johnson\u2019s unseemly enthusiasm for this agreement:<\/p>\n

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Boris Johnson endorses the Trump\/Ukraine minerals deal, comparing it to lend-lease for Britain in WWII. He says it will ensure long-term US funding of Ukraine, and contains provisions Putin will never accept. Why do the most hardcore Ukraine war supporters love this deal so much? pic.twitter.com\/xXcEywqfe6<\/a><\/p>\n

\u2014 Michael Tracey (@mtracey) February 25, 2025<\/a><\/p>\n<\/blockquote>\n<\/blockquote>\n

Before you think our take that a \u201craw earths\u201d deal would give the US reason to protect its interest, even if it was more PR\/vaporware than real, consider this section from the initial (and deemed to be outrageously one-sided) outline of terms:<\/p>\n

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The Government of the United States of America supports Ukraine\u2019s efforts to obtain security guarantees needed to establish lasting peace. Participants will seek to identify any necessary steps to protect mutual investments, as defined in the Fund Agreement.<\/p>\n<\/blockquote>\n

As we pointed out in February:<\/p>\n

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Now in fairness, this document is so loosey-goosey that Trump could later make all sorts of excuses why he walked away, not that Trump has ever been big on consistency. But he made so much noise about what a great deal this agreement was that he is pretty certain to show commitment to it for at least a while\u2026.which means more arms and money, which mean the Ukraine war has now become Trump\u2019s war.<\/p>\n<\/blockquote>\n

Fast forward to the current state of play. A Ukraine source posted a purported summary of key terms. The text of Radu Hossu\u2019s tweet<\/a>:<\/p>\n

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The agreement on rare minerals between Ukraine and the USA has been signed. It is an agreement of net benefit to Ukraine compared to all previous iterations: <\/p>\n

\u2013 Ukraine will have full ownership of the resources; <\/p>\n

\u2013 The agreement only covers future exploration, exploitation and refining projects, not existing ones already in Ukraine\u2019s operation; <\/p>\n

\u2013 Ukraine will decide what these will be; <\/p>\n

\u2013 A fund (called the Ukrainian Reconstruction Investment Fund for Reconstruction of Ukraine) will be set up in which Ukraine and the US have 50-50 participation without US veto power from the initial agreement projects; <\/p>\n

\u2013 All Ukrainian companies that are responsible for energy resources remain 100% Ukrainian state-owned (Ukrnafta or Energoatom); <\/p>\n

\u2013 It was agreed that Ukraine owes no financial debt for wartime economic aid to the US; <\/p>\n

\u2013 The agreement is within the limits of Ukrainian law and in no way infringes on Ukraine\u2019s economic sovereignty, indeed Bessent stated that the US strongly supports Ukraine\u2019s accession to the European Union; <\/p>\n

\u2013 It was agreed that the US will provide not only technological transfer for the development of the new projects, but also financial support on the basis of 50% of their value, but (ATTENTION!!!) also their protection, through anti-aircraft defense systems; <\/p>\n

\u2013 Ukraine will also invest 50% from the state budget; <\/p>\n

\u2013 ALL funds will be in the first years invested only in the reconstruction of Ukraine (over a period of 10 years); <\/p>\n

\u2014-
I was skeptical that this would happen, but an extremely professional and incredibly well-sourced and connected lady told me two months ago thus: \u201cRadu, trust me when I tell you, it will be good for Ukraine\u201d. It was hard for me to believe her. Madam, thank you for giving me hope. <\/p>\n

Officially, if this agreement will be implemented, which I expect it will, it turns Ukraine into a strategic partner of the US. I can\u2019t help but think in these moments as I read this extraordinary news of that meeting between Zelenskyy and Trump in St. Peter\u2019s Basilica. <\/p>\n

Pope Francis, wherever you are, thank you.<\/p>\n<\/blockquote>\n

The Financial Times account validates the notion (albeit in a much more hedged manner) that the Ukraine side sees the agreement as including air defense support:<\/a><\/p>\n

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Both sides cheered the deal. Scott Bessent, the US Treasury secretary, said in a statement that the US was \u201ccommitted to helping facilitate the end of this cruel and senseless war\u201d.<\/p>\n

He added the deal \u201csignals clearly to Russia that the Trump Administration is committed to a peace process centred on a free, sovereign, and prosperous Ukraine over the long term\u201d.<\/p>\n

Ukraine\u2019s first deputy prime minister, Yulia Svyrydenko, celebrated the deal in a post on X, saying: \u201cOn behalf of the Government of Ukraine, I signed the Agreement on the Establishment of a United States-Ukraine Reconstruction Investment Fund\u2026<\/p>\n

\tSvyrydenko said the US, in addition to making financial contributions to the fund, might offer further support, including air defence systems\u2026<\/p>\n

After concerns in Kyiv over whether the deal would violate Ukraine\u2019s sovereignty and disrupt its path towards EU membership, Svyrydenko said her negotiators ensured the language complied with her country\u2019s constitution \u201cand maintains Ukraine\u2019s European integration course\u201d.<\/p>\n<\/blockquote>\n

John Helmer, in the aforementioned interview with Nima of Dialogue Works, confirmed our concerns, based on an earlier edition of the Financial Times story cited above. Starting at 17:45:<\/p>\n

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And in the last couple of hours, we\u2019ve seen a new propaganda line from the Ukrainians. They\u2019ve said, they\u2019ve told the FT, the Financial Times in London, the Japanese-owned propaganda outlet, very hostile to Russia, the Ukrainians have said they are sending their deputy prime minister to Washington to sign the so-called minerals agreement but it may not be signed because they\u2019ve hit a significant difference. The US wants the Ukraine to repay, Trump\u2019s words, Trump\u2019s concept, the $100 billion to $300 billion number that counts to being the value of US assistance to the war so far. The Ukrainians have said we are taking that out, and that the US capital investment in mining rare earths and other minerals and energy in Ukraine, this capital contribution should be counted forward, to the future, for US military aid. Which means that the Ukrainians have gotten an undertaking that there will be ongoing US military assistance to the Ukraine. That\u2019s really important. It\u2019s not noticed by the FT, but the Ukrainians have been led to believe by Trump that he will go on supporting the Ukraine with military aid. But the Ukrainians say we\u2019ll count that future against what we will concede to be the US right to dig minerals and mining energy out of the Ukraine. <\/p>\n

Now that\u2019s not just a little disagreement between the Ukrainians and the Americans. It\u2019s a big one because of what it reveals. The US has promised to continue military aid, intelligence sharing, all the elements of the war against Russia. But they can\u2019t agree on how it will be offset by the payback mechanism Trump is using. <\/p>\n<\/blockquote>\n

Mind you, the US is fabulously agreement incapable and Trump has managed to be even more so. The Trump side may have made this commitment, or insinuation, in bad faith. Or it may intend to take its chances with getting Congressional approval for what it will present as a limited arms package to protect its investment in Ukraine. Or it could resort to gimmickry, like guaranteeing a bond issue. If the Administration can\u2019t get the spending authorized, it can tell Ukraine it tried.<\/p>\n

The pink paper in the story we quoted also said:<\/p>\n

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Under the agreement, the Ukrainian state determines what natural resources are extracted, with Svyrydenko saying it outlined an \u201cequal partnership\u201d, with the fund \u201cstructured on a 50\/50 basis\u201d. <\/p>\n<\/blockquote>\n

Now anyone who has worked on investments knows that the amount invested by each party does not have to equate to their level of control. Private equity and hedge fund limited partnerships are classic examples, with institutional investors providing nearly all the money yet legally relegated to a passive status, save for limited veto rights.2<\/sup> <\/p>\n

However, based on having repeatedly advised financial institutions and investors on joint ventures, a true 50\/50 deal is the kiss of death. One party has to be in charge from a governance perspective.<\/p>\n

Let\u2019s consider another way that this deal looks set to become what Putin has called3<\/sup> an apple of discord. There will be no negotiated settlement of the war between Russia and Ukraine. That means Russia continues to prosecute the war and take more territory until it sees fit to stop. For the sake of this thought experiment, assume Russia prostrates Ukraine, takes control of a big swathe of Ukraine in the south and east that includes Odessa, Mykolaiv, Dnipropetrovsk, Sumy, and Kharkiv oblasts, and installs a puppet government in western Ukraine with a neutral status and a limited degree of autonomy once denazification has been completed. <\/p>\n

Many commentators have argued the Ukraine minerals deal was worthless because no development could happen until the war was over, there was no assurance as to what territory would remain in Ukraine\u2019s hands, and even if the country retained a fair bit of terrain, development would also depend on other basic infrastructure being in place, which was not a given (consider for starters electricity).<\/p>\n

But that is not how a legalistic finance person would think. They believe they hold valuable development rights. One could see the Trump administration seeking compensation, and using the failure of Russia to oblige as a justification to seize the $67 billion in dollar-denominated Russian frozen assets as liquidated damages. <\/p>\n

To put it another way, the minerals pact was certain to be a source of conflict with Russia were it ever to get done. The fact that the Administration pursued the deal so aggressively said it valued a splashy but low to no value win over normalizing relations with Russia. The US foot-dragging over simple steps to restore routine diplomatic operations, like returning seized embassy properties and setting up bank accounts for the payment of US expenses, indicated the US was unserious about the exercise independent of a Ukraine settlement. Or alternatively, this episode is yet another instance of Trump being all tactics and no strategy, pursing opportunities and options with no consideration of whether they are taking Trump and the US to an attractive destination. <\/p>\n

____<\/p>\n

1<\/sup> From Investopedia<\/a>:<\/p>\n

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In behavioral finance, the endowment effect, or divestiture aversion as it is sometimes called, describes a circumstance in which an individual places a higher value on an object that they already own than the value they would place on that same object if they did not own it.<\/p>\n

This type of behavior is typically triggered with items that have an emotional or symbolic significance to the individual. However, it can also occur merely because the individual possesses the object in question.<\/p>\n

Let\u2019s look at an example. An individual obtained a case of wine that was relatively modest in terms of price. If an offer were made at a later date to acquire that wine for its current market value, which is marginally higher than the price that the individual paid for it, the endowment effect might compel the owner to refuse this offer, despite the monetary gains that would be realized by accepting the offer.<\/p>\n

So, rather than take payment for the wine, the owner may choose to wait for an offer that meets their expectation or drink it themselves. The actual ownership has resulted in the individual overvaluing the wine. Similar reactions, driven by the endowment effect, can influence the owners of collectible items, or even companies, who perceive their possession to be more important than any market valuation. <\/p>\n<\/blockquote>\n

2<\/sup> And those are virtually entirely for show. The right to trigger them is in the hands of an advisory committee\u2026.which the general partner stacks so that investors friendly to them hold a majority of votes. <\/p>\n

3<\/sup> With respect to the prospect of Russia taking control of Odessa. <\/p>\n

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