Russian Uranium Ban Is In… Here’s Why It May Not Be Worth the Paper It’s Written On

Loophole After Loophole & the Kazakh Connection

Earlier this month, Joe Biden signed into law a bipartisan bill that bans the import of uranium from Russia.

The ban targets unirradiated low-enriched uranium (LEU) – the type used to make nuclear fuel – that is produced in Russia. It's slated to take effect in about 90 days and will remain in force until the end of 2040.

With this, the government aims to hit two birds with one stone: punishing Russia for Ukraine while also boosting domestic uranium production and enrichment in the U.S.

Keep in mind, Russia currently holds about 44% of the world’s enrichment capacity and provides roughly 35% of U.S. imports.

The big question is: will it actually work?

Now, it goes without saying that we're not fans of any government intervention – it almost always causes more harm than any potential good intended. But it’s a perfectly legitimate question to ask since uranium is one of the most exciting investments right now, and we own U companies in our official Crisis Investing portfolio.

So, let’s dig in…

Loophole After Loophole

The first thing to understand is that the U.S. isn't exactly going cold turkey on this. The Department of Energy (DoE) estimates that U.S. utilities have about three years' worth of LEU available through existing inventory or preexisting contracts. That's one thing to consider.

Second, the law doesn’t ban all uranium imports from Russia. Russia will still be able to import unenriched uranium until 2027, though there will be annual caps.

Third, and most importantly, the law allows the DoE to issue waivers in case of supply concerns. Granted, the idea is to only do this until 2028, but Congress can always extend through amendments and other regulatory actions.

A waiver system like this could basically neuter the effectiveness of this ban right from the get-go.

That's because utilities with contracts for enriched uranium from Russia will probably want to keep getting their supply (maybe even at better prices), so they'll be incentivized to show they lack other good fuel options or that maintaining the deliveries is crucial for the country.

Keep in mind the U.S. still hardly produces any uranium. In fact, a staggering 95% of the uranium bought by American nuclear power plants comes from overseas. And, aside from Russia, a big chunk of it comes from... you (probably) guessed it... Kazakhstan. That brings me to my next point.

The Kazakh Connection

The problem is that the Central Asian nation is buddy of Russia, with some of the closest economic and political ties among all former Soviet states.

One reason for this is the current Kazakh president, Kassym-Jomart Tokayev, whose continued rule relies heavily on Russia's support. Russia's firm grip on this relationship was evident during the January 2022 political unrest in Kazakhstan, when President Tokayev called on Russian troops to help quell civil unrest. Plus, Russia played a pivotal role in signaling to the Kazakh military to obey Tokayev.

Despite Western hopes that Kazakhstan might distance itself from Russia after Tokayev's refusal to recognize Russia-occupied territories in Ukraine, the reality on the ground is different. Kazakhstan has been attempting to evade secondary sanctions while maintaining close ties with Russia, which it has every incentive to do.

So, even though European Union (EU) countries have toyed with the idea of relying on Kazakhstan to bypass Russia, they too are gradually realizing that this approach is about as effective as relying on Russia to bypass Russia.

That’s because much of Kazakhstan’s processed uranium passes through Russian conversion plants before being exported to global markets. This makes it easy to picture how some Russian uranium could potentially be blended or swapped with Kazakhstani uranium and then exported to the U.S. Sure, the U.S. ban has provisions prohibiting this, but enforcing it will be nearly impossible given the complexities of tracking and verifying the origins of uranium once it has entered international supply chains.

The Takeaway

So, when you look at it all, this seems like a bit of a losing bet for the U.S. government. I just don't see how they can implement this ban.

On the flip side, I totally understand why they're attempting to boost domestic uranium production.

With a projected nearly 50% increase in global energy use by 2050, there's just no way America, the world's number one economy, can keep humming without seriously ramping up its nuclear power generation.

In fact, they've already admitted that much. Last December, the U.S., along with countries like the U.K., France, Japan, the United Arab Emirates, and South Korea, pledged to triple its nuclear energy capacity by 2050.

As electricity demand keeps climbing and more nuclear reactors are going up worldwide, nuclear power generation is expected to grow by almost 3% each year. That's a crazy growth rate, putting nuclear power generation on track to double by 2050.

In fact, as I write this, there are already 59 nuclear power plants currently being built around the world. Plus, there are another 110 in the pipeline and over 300 more proposed.

All this means one thing: a whole lot more demand for uranium.

And frankly, the entire Russian uranium ban story now gives us a wildcard angle that could cause a significant supply crunch in the U.S. market. Russia could decide to retaliate by freezing exports to the U.S. completely... and with its strong grip on Kazakhstan, it has the means to involve that country in this too. Admittedly, this isn't an extremely likely scenario, but given all the geopolitical hostilities today, nothing can be ruled out.

This would be catastrophic for U.S. domestic power generation but great for uranium prices and a handful of uranium companies positioned to take advantage of the situation.

Regards,

Lau Vegys

P.S. Even if Russia doesn’t retaliate, certain U.S. companies could still cash in on Uncle Sam's efforts to amp up domestic uranium production. You see, besides the half-baked idea of banning Russian uranium, the government is also planning to pour some serious money into the U.S. uranium industry. In fact, as early as next month, they'll be inviting companies to bid on contracts for $3.4 billion worth of domestically produced nuclear reactor fuel. That's why the bill's signing was met with cheers from the U.S. uranium fuel industry, sending many stocks soaring. One of our top U.S. Uranium picks in our Crisis Investing portfolio got a nice boost too, and we expect more gains to follow soon.