Sticks and stones
A minerals deal between the U.S. and Ukraine is in jeopardy
Hello from the Bear Market Brief.
This week in the news:
A minerals agreement between the U.S. and Ukraine fell through after an explosive meeting at the White House.
Three years after the war in Ukraine began, the Russian economy is still struggling with labor shortages and high inflation.
István Tiborcz, son-in-law of Hungarian Prime Minister Viktor Orbán, is reportedly negotiating to buy the Russian assets of Raiffeisenbank.
— Sara Ashbaugh, Editor in Chief
U.S.-Ukraine minerals deal
On Wednesday, Ukrainian Prime Minister Denys Shmyhal announced that the government approved a draft of the so-called minerals agreement between Ukraine and the United States, which has been a source of tension between Washington and Kyiv for the past few weeks. Initially, the Trump Administration pushed for an agreement that would tie Ukraine’s repayment of U.S. aid to the minerals deal, suggesting that Ukraine should “repay” the assistance it received during the three years of full-scale war. President Trump repeatedly cited figures such as $500 billion or $350 billion as the alleged amount the U.S. had provided to Ukraine. However, none of the draft agreements included such sums. Early American proposals did suggest that Ukraine should repay past U.S. aid through mineral concessions, but Ukrainian President Volodymyr Zelenskyy firmly rejected this approach. While Ukraine did receive less assistance from the U.S. than Trump claimed, the amount itself was not the issue. “I won’t recognize even 10 cents of debt, because that would set a dangerous precedent and open a Pandora’s box,” Zelenskyy explained.
The agreed-upon document, titled the Bilateral Agreement Establishing Terms and Conditions for a Reconstruction Investment Fund, is a legally binding agreement that obligates both Ukraine and the U.S. to initiate intergovernmental negotiations for a subsequent agreement on the Reconstruction Investment Fund. This fund will be jointly owned and managed by the U.S. and Ukrainian governments. It will be financed through royalties from resource extraction, including oil and gas. Ukraine will contribute 50% of these revenues to the fund. The future agreement on the fund will require ratification by Ukraine’s parliament, providing an additional safeguard to ensure that no unacceptable provisions are included.
President Zelenskyy has also repeatedly emphasized that any minerals deal must include security guarantees for Ukraine. Currently, the document includes only a brief reference to its connection with the broader security framework. “The Government of the United States of America supports Ukraine’s efforts to obtain the security guarantees needed to establish lasting peace,” the document states. It remains to be seen whether Kyiv will be able to secure any meaningful security guarantees from Washington.
According to Ukrainian officials familiar with the negotiation process, the final version of the deal is significantly more favorable to Ukraine than the initial drafts. For example, the first draft presented by U.S. Secretary of the Treasury Scott Bessent on February 12 granted exclusive rights to U.S. companies to develop new mineral deposits in Ukraine. European and Ukrainian companies would only have been able to access sites that American investors were not interested in. Another draft, proposed late last week, included a provision stating that the Ukrainian government would not be allowed to sell or transfer any government-owned natural resources without the consent of the fund’s managers. The final agreement does not include these provisions.
Additionally, the initial U.S. proposal sought to include state-owned infrastructure in the deal. Ultimately, the wording was revised to cover only “infrastructure relevant to natural resource assets,” such as liquefied natural gas terminals and port infrastructure. Most importantly, the agreement will not affect “current sources of revenue that are already part of Ukraine’s general budget,” thus applying only to new projects. Finally, the funds collected in the joint fund will not be directed into the U.S. budget, as initially proposed. Instead, the primary purpose of the fund will be to reinvest in Ukrainian mineral resource development and defense.
President Zelenskyy visited Washington on Friday, where he was expected to sign the minerals agreement following a meeting with President Trump. Instead, the Oval Office meeting devolved into a heated argument in front of the media, after which the Ukrainian delegation was asked to leave. While the first half an hour of discussion was cordial, the meeting became tense after Vice President JD Vance accused Zelenskyy of being “disrespectful” and not sufficiently grateful for U.S. aid. When Zelenskyy pushed back, reminding those present that he had expressed gratitude to the U.S. multiple times, Trump doubled down, accusing Zelenskyy of “gambling with World War III” and being “very disrespectful to the country, this country.” Trump later posted about the exchange on Truth Social, writing, “He disrespected the United States of America in its cherished Oval Office. He can come back when he is ready for Peace.”
On the same day, it became known that the U.S. State Department terminated aid for the restoration of Ukraine’s energy grid, which has faced a barrage of attacks by Russia. It is unclear if negotiations on the minerals agreement will continue at a later date, or at all. The exchange, similar to Trump’s earlier social media posts (in which he questioned Zelenskyy’s legitimacy as President of Ukraine), suggests that the U.S. President now sees his Ukrainian counterpart as an obstacle to an agreement that he is planning to sign with the Russian government. The meeting also reflected Vice President Vance’s derisive views of U.S. cooperation with Ukraine, which he had expressed earlier.
— Lisa Noskova, Sara Ashbaugh & Andras Toth-Czifra
President Zelenskyy visited Washington, D.C. on Friday to meet with President Trump and seek additional security guarantees for Ukraine. During an explosive meeting in the Oval Office, the pair engaged in a heated argument in front of the press. During the argument, Trump and Vance berated Zelenskyy for not expressing more gratitude for American aid. The minerals agreement between the two countries, which Zelenskyy was expected to sign today, is now on hold. It is unclear when (or if) the deal may move forward. “This is going to make great television,” Trump quipped as he ended the meeting. (photo: AP Photo / Mstyslav Chernov)
Three years of full-scale war
On the third anniversary of the start of Russia’s full-scale invasion of Ukraine, the Russian economy is struggling with a series of structural issues: a labor market crunch (exacerbated by at least 95,000 Russian soldiers verifiably dead and many more injured), stubborn inflation, high interest rates, expensive imports, looming sectoral crises in timber and coal production (and potentially the metallurgical industry), and infrastructure bottlenecks. While these problems have not impeded the Russian budget’s ability to finance the war, as long as the war remains a political priority, the trade-offs are getting worse.
Apart from war-related expenditures, the government is becoming cautious with increasing fiscal spending. As of this week, instead of direct subsidies, it will first try to solve the coal sector’s troubles with increasing transit quotas for coal producers. To keep the liquid part of the National Welfare Fund from being spent this year, the government also recently moved to reduce spending on National Projects from the Fund. Meanwhile, the Ministry of Economy predicts inflation to remain high at 7-8% this year, a far cry from its estimate of 4.5% published in October. This will prevent the Central Bank from loosening credit policy in the near future. At the same time, analysts consulted by the Central Bank are expecting the wage growth that has characterized the Russian labor market to slow down considerably this year, and the government has warned of signs of cooling in various sectors of the economy. This is happening even as several regions have recently bumped contract bonuses for the army, with regional payments exceeding 2 million rubles in at least 29 regions according to the BBC, suggesting increasing difficulties with recruitment.
Recent developments in the field of foreign policy, however, have spurred optimism in Russia. Shortly following the talks between the representatives of the U.S. and Russia in Riyadh, which raised the chances of the removal of sanctions, a growing number of political and business leaders started talking about the potential return of Western companies to Russia. On February 21, Putin instructed the government to work out regulations that are in line with WTO rules but also help domestic companies to keep their advantage over foreign competitors. This confident tone was echoed by others: the Finance Ministry later specified that as far as companies registered in “unfriendly countries” are concerned, the government’s commission overseeing foreign investment would still have to approve any deal. The head of the AvtoVAZ carmaker demanded 112.5 billion rubles as “compensation for losses” from Renault, in case the French company were ever to return.
Putin also spoke about potentially including U.S. companies in the development of aluminum and rare earth mineral deposits not only in Russia, but also in the Russian-occupied regions of Ukraine. This is likely an attempt to nudge the Trump Administration towards a deal with the Kremlin, to move the United States government closer to de facto recognizing Russia’s claims over these territories, and to undermine recently-adopted EU sanctions that ban the import of Russian aluminum.
In spite of Putin’s overtures—and the apparent confidence of the Russian government that the companies that divested from their Russian assets will soon return (with the Russian government designing stricter rules for them)—it remains very doubtful whether Russia will see a major influx of Western capital, even in the case of a ceasefire. Wartime governance—which has led to asset seizures, nationalization, and other kinds of hostile takeovers—has significantly eroded property rights in Russia. This process is unlikely to improve even in the event of a ceasefire, especially as long as Russia remains on war footing with the West in a broader sense.
— Andras Toth-Czifra
This week marked the tenth anniversary of the assassination of Boris Nemtsov, a prominent Russian opposition politician and vocal Kremlin critic. Nemtsov was shot in the back while walking across the Bolshoi Moskvoretsky Bridge near the Kremlin on February 27, 2015. On Thursday, Muscovites laid flowers on that spot in a makeshift memorial to Nemtsov, while police patrolled closely nearby. Several foreign diplomats visited the site to pay tribute to Nemtsov as well, including German Ambassador Alexander Graf Lambsdorff and British Ambassador Nigel Casey. (photo: Pavel Bednyakov / AP / TASS)
Orban’s son-in-law reportedly looks for a deal
Der Standard, an Austrian daily newspaper, reported on February 21 that—according to “rumors” circulating in the Austrian banking sector—István Tiborcz, the son-in-law of Hungarian Prime Minister Viktor Orbán, is negotiating with Russian President Vladimir Putin about buying the Russian assets of Raiffeisenbank, the last major European bank still present on the Russian market in 2025. The sources of Der Standards implied that it was the Russian Central Bank that tipped Tiborcz as a potential buyer. While Tiborcz immediately denied the reports, the Austrian bank simply put out a short communique that did not confirm or deny that it was in talks with the Russian government about an eventual sale. It simply stated that at the moment, it cannot sell the assets. (A Russian court prohibited Raiffeisen Bank International from selling the assets last year, effectively creating legal grounds for the Russian state to dictate the terms of any eventual sale.)
Tiborcz, who married Orbán’s oldest daughter, has become one of Hungary’s richest and most influential businessmen over the past decade. He is currently mostly active in the hospitality and construction industries, but the EU’s anti-fraud office previously found evidence suggesting serious irregularities around public tenders related to the modernization of streetlights, which greatly benefited Tiborcz in the early 2010s. His rapidly growing wealth (along with the rest of Orbán’s family) has recently been the subject of a hit investigative documentary. He has reportedly participated in a real estate deal with the family of Megdet Rahimkulov, a Russian businessman with links to Gazprom. While there is no clear evidence supporting Der Standard’s claims, for years Orbán’s government has been accused by allies of helping the Russian government enforce its interests in Europe in exchange for unclear benefits. Before 2023, the Russia-based International Investment Bank had a headquarters in Budapest. Prior to Russia’s full-scale invasion of Ukraine, Kristof Szalay-Bobrovniczky, who was appointed Defense Minister by Orban in 2022, had a joint business venture with the Russian Transmashholding, whose Russian owners were sanctioned by the U.S. Treasury. Members of the Russian elite, including relatives of Sergey Naryshkin, the head of Russia’s Foreign Intelligence Service, benefited from an in-transparent golden visa program launched by the Hungarian government. Hungarian diplomats have routinely argued against the extension of sanctions on Russia and have tried to have the EU take Russian citizens off the list. According to RFE/RL, the Hungarian government is currently trying to remove sanctions on several individuals, including Sports Minister Mikhail Degtyaryov, businessmen Alisher Usmanov, Mikhail Fridman, Pyotr Aven, Dmitry Mazepin, and others.
— Andras Toth-Czifra
New Report | The Kremlin’s Balancing Act: The War’s Impact on Regional Power Dynamics
Following Russia’s full-scale invasion of Ukraine, the Russian government accelerated the preexisting trend of centralizing control over regional power and economic assets. This shift created winners and losers, resulting in friction and resistance from threatened regional elites. As a result, the sustainability of the Kremlin's centralization strategy is fragile and uncertain.
Eurasia Program Fellow and Bear Market Brief contributor András Tóth-Czifra argues that understanding these dynamics in the context of the political and economic conflict between Russia and the West and the eventual transition following Putin's rule is increasingly important. An exposé on Russia’s internal power battle, this report is a must-read.
Quickfire: Regions
The ongoing conflict of Georgy Filimonov, the ultraconservative governor of the Vologda Region, with the representatives of the region’s local elite (especially with officials linked to Severstal, the region’s largest employer) took another turn this week. The Federal Security Service detained Denis Alekseyev, Filimonov’s Deputy Governor, as well as Kirill Bocharov, the head of the region’s representative office in Moscow, accusing them of requesting a bribe from a timber company. The arrest came just days after more than 20,000 people signed a petition addressed to Putin complaining about Filimonov’s activities in the region, which have included erecting a Stalin statue and “attacks on business representatives” and officials. Last week, Vadim Germanov, the mayor of Cherepovets (where Severstal is based), resigned, likely under pressure from the regional government. The conflict between Filimonov and Severstal started shortly after the governor came into office in 2023; the governor has so far seemed to be acting with the tacit support of the Kremlin, suggesting that the federal government is eager to bring Severstal’s owner, Alexey Mordashov, to heel.
In the Irkutsk Region, where locals were particularly hard hit by the government’s decision to introduce differentiated electricity tariffs earlier this year, several hundreds of residents held a protest against the move and requested that Putin annul the decision (the plans had previously prompted the region’s governor to try and negotiate exceptions in Moscow, but this did not satisfy local users). Residents of the Far Eastern Maritime Region also called for protests due to a significant increase in the price of electricity. In Karelia, protesters called for the resignation of the region’s governor. Following increased discontent with utility breakdowns and tariff increases in the regions over the past two years, deputy head of the State Duma’s Control Committee Dmitry Gusev said that deputies were “demanding an explanation” about tariff hikes, which, on average, are likely to be well over 10% this year.
The State Duma adopted, in the second reading, a long-contested bill on reorganizing municipal self-government units, with the final reading scheduled for next week. The law, whose first reading took place more than three years ago, would scrap the two-tier system of municipal self-governance and disband thousands of currently legally self-standing settlements, which would be folded into municipal districts. It would also increase the influence of regional governments over municipalities and mayors. The bill received significant criticism from several regions, including, most notably, Tatarstan and Bashkortostan, which forced the adoption of substantial amendments in the second reading. According to these, in regions “with socio-economic, historical, national and other characteristics,” the two-tier system may be preserved. Already 38 (of 83) regions have started folding local self-governance units into municipal districts in the past years, and, once the law is adopted, the implementation of the reform in most regions will likely gather speed.
— Andras Toth-Czifra