“As they jostle for supremacy in semiconductor chips and green technology, America and China have been locked into an increasingly disruptive game of tit-for-tat trade warfare. They have unleashed a panoply of export controls, tariffs, and blacklisting against one another, and their allies.”
The Battle to Secure Economically Critical Metals, The Financial Times, 8th September 2024
In today's global economy, critical minerals have become the foundation of technological advancement, with nations locked in an increasingly fierce competition to secure their supply. The struggle between the U.S. and China over semiconductors and green technologies, highlighted in the Financial Times piece above, is a prime example of how access to these minerals is reshaping geopolitics.
These minerals – essential for electric vehicles (EVs), defence systems, renewable energy infrastructure, and more – are pivotal to maintaining a competitive edge in the global market. The ability to control supply chains, especially for rare earth elements (REEs), lithium, cobalt, and other critical resources, is quickly becoming a new axis of global power.
What Are Critical Minerals and Why Are They Important?
Critical minerals are a category of resources that underpin modern industries, from renewable energy to defence technologies.
REEs, for example, are key in manufacturing military hardware such as jet engines, missile guidance systems, and communications equipment. Lithium and cobalt power the electric vehicle revolution, while nickel is indispensable in producing batteries and electronics. As the global economy shifts towards a more sustainable, low-carbon future, demand for these minerals is surging.
Solar PV plants, wind farms and electric vehicles generally require more critical minerals to build than their fossil fuel-based counterparts. A typical electric car requires six times the mineral inputs of a conventional car and an offshore wind plant requires 13 times more mineral resources than a similarly sized gas-fired plant. Since 2010, the average amount of mineral resources needed for a new unit of power generation capacity has increased by 50% as the share of renewables in new investment has risen.
According to the International Energy Agency (IEA), global demand for minerals like lithium, cobalt, and nickel could increase by as much as 400-600% by 2040, depending on the speed of the energy transition. This surge will place immense pressure on supply chains and is expected to significantly drive-up prices, creating financial volatility for industries reliant on these materials. As companies and countries scramble to secure access to these essential minerals, the financial implications will be felt across multiple sectors – from automotive and electronics to defence and renewable energy – leading to increased costs for production, potential supply shortages, and heightened geopolitical competition.
However, the geographic concentration of critical mineral deposits in regions like the Democratic Republic of Congo (DRC), Chile, and China creates vulnerabilities. The DRC holds over 60% of the world’s cobalt reserves, China currently controls between 60-90% of the world's processing capacity for critical minerals required for defence, technology, and the energy transition. Russia’s economy and its ability to fund its war in Ukraine is based on natural resources.
This concentration in politically unstable or geopolitically contentious areas puts supply chains at risk, and the world won’t quickly forget the fragility of global supply chains revealed by Covid-19. The ability of nations to access these minerals without disruption is crucial not only for economic security but also for defence and technological superiority.
Strategic Planning – learning the lesson from China
China's dominance in the critical minerals sector is a direct result of its long-term strategic planning, a lesson that other nations must heed.
Over the past few decades, China has invested heavily in acquiring and processing critical minerals, positioning itself as a global leader. While many Western countries shifted away from the environmentally challenging task of processing rare earth elements REEs due to concerns over pollution, China embraced this role, securing control over more than 70% of the world's REE processing. This foresight has given China a significant geopolitical and economic advantage, as it now holds the key to many global supply chains in defence, technology, and renewable energy.
Other nations are beginning to recognize the importance of building similar strategic capabilities. While China acted early to secure both mining and processing infrastructure, countries like the U.S. and members of the European Union are now scrambling to catch up, investing in domestic production and recycling technologies.
However, if these nations are to succeed in reducing their dependence on China, they must emulate the long-term planning and investment strategies that China executed so effectively decades ago.
Key Hotspots for Critical Mineral-Related Tensions
As the global race for critical minerals accelerates, several regions stand out as potential hotspots where tensions could flare due to resource competition, trade disputes, and strategic rivalries. Key regions of concern include:
(1) Africa’s Cobalt and Lithium Conflicts
Africa remains a focal point in the critical minerals race, particularly due to the DRC's vast cobalt reserves. Chinese dominance in the region has led to concerns among Western nations about supply chain security. For example, China's purchase of cobalt mines in the DRC has tightened its grip on the global EV battery supply chain, posing a strategic risk to economies seeking to decarbonize. Western nations are working to reduce their dependence on China by seeking alternative sources and investing in projects that promote governance reforms and local partnerships.
(2) South China Sea and Rare Earth Elements
The South China Sea, home to significant untapped mineral reserves, is another potential flashpoint. China’s dominance in REE production is coupled with territorial claims in this region, further complicating international relations. Any escalation in tensions – such as the U.S. sending naval forces to challenge China’s claims – could lead to restrictions on rare earth exports. These elements are critical for both civilian and military technologies, making any disruption a serious national security threat for the U.S. and its allies.
(3) South America’s Lithium Triangle
The "Lithium Triangle" in Argentina, Bolivia, and Chile holds more than half of the world’s lithium reserves, which are essential for EVs and energy storage. This region has become a focal point of competition between Chinese, U.S., and European companies, creating potential for geopolitical friction. Recent environmental concerns and local opposition to lithium mining have added another layer of complexity, as governments must balance global demand with domestic pressures.
(4) Arctic’s Untapped Critical Mineral Reserves
The melting Arctic is unlocking vast deposits of critical minerals, sparking interest from global powers such as Russia, Canada, and the U.S. As these nations stake claims in the Arctic, the region is becoming another theatre for geopolitical competition, with the potential for conflict over access to resources like nickel and rare earths. Russia's military buildup in the Arctic further raises the stakes, especially given its growing importance as a critical mineral supplier.
How These Tensions Could Manifest
The competition for critical minerals is already reshaping global trade and security policies, and tensions could manifest in several ways:
(1) Trade Wars and Export Controls
Recent events, like China's imposition of export restrictions on antimony in 2024, signal how resource control can be wielded as a geopolitical tool. If China or another major supplier restricts exports of critical minerals, global industries could face significant disruptions. For instance, China previously halted REE exports to Japan during a diplomatic dispute in 2010, which led to a global price surge and ripples across the electronics industry.
(2) Localized Military Conflicts
Resource-rich but politically unstable regions, such as the DRC, are ripe for conflict. The scramble to control mining operations and trade routes could escalate into local skirmishes or even proxy wars involving major powers seeking to secure supply lines. The UN has accused Rwanda of supporting a rebellion against the government in Eastern Congo and of profiting as vast amounts of minerals like coltan and gold are smuggled from the Democratic Republic of the Congo to Rwanda, where they enter global supply chains.
(3) Strategic Alliances
Countries are already forming alliances to secure mineral supplies. The U.S.-led Mineral Security Partnership (MSP) brings together countries like Canada, Australia, and Japan to collaborate on the sourcing, production, and recycling of critical minerals. Similarly, the European Union has introduced the European Raw Materials Alliance to reduce dependency on third world countries and foster innovation in resource extraction and recycling.
Meanwhile, the Turkish Energy Ministry announced in October 2024 that it has signed an agreement with China to advance cooperation in the mining sector, particularly focusing on rare earth elements.
The creation of such alliances could lead to new economic and security blocs, further polarizing the global order.
How Countries Are Securing Their Critical Mineral Supply
To mitigate the risks associated with concentrated supply chains, countries are adopting several strategies:
Diversifying Supply Chains
One of the most common approaches is supply chain diversification. The United States, for instance, is encouraging greater investment in domestic mining operations and processing facilities to reduce its reliance on Chinese REE and other CMs. Similarly, the European Union is pushing for greater investment in critical mineral extraction within its own borders and is working with countries like Canada and Australia to secure alternative supply sources.
Recycling and Substitution
Recycling critical minerals, particularly from lithium-ion batteries, is emerging as a key strategy to reduce reliance on new mining operations. With the rapid expansion of electric vehicles and energy storage technologies, reclaiming valuable materials like lithium, cobalt, and nickel from used batteries helps mitigate supply chain vulnerabilities. Leading economies such as the U.S., EU, and China are investing in recycling infrastructure to recover these minerals, which not only reduces the environmental impact of mining but also extends the life cycle of these critical resources.
In addition to recycling, research into substitutes for REEs and other critical minerals is advancing. Innovations in materials science are exploring alternatives for REEs in electric motors, wind turbines, and defence technologies, aiming to reduce dependency on geopolitically sensitive suppliers. Together, these efforts to recycle and substitute critical minerals offer a more sustainable and resilient approach to meeting the growing demand for essential resources.
Strategic Stockpiling
Several countries are stockpiling critical minerals to protect against future supply chain disruptions. For example, the U.S. has revived its National Defense Stockpile program, which aims to secure a reserve of essential minerals for military and industrial use. China has also built up its own stockpiles, further entrenching its dominance in the critical minerals market.
International Cooperation
International cooperation has become increasingly important as countries seek to reduce their reliance on any single supplier. The Mineral Security Partnership (MSP) and European Raw Materials Alliance bring together countries to collaborate on the sourcing, production, and recycling of critical minerals.
Conclusion
The global race for critical minerals is not merely an economic competition but a geopolitical struggle that will shape the balance of power in the 21st century. For business executives in the defence and security sectors, understanding and preparing for the risks associated with critical mineral supply chains is imperative.
Geopolitical tensions could disrupt access to these resources, leading to trade wars, supply shortages, and even military conflict. As nations vie for control, businesses must diversify supply chains, invest in sustainable resource extraction, and collaborate with governments to ensure long-term resilience. In this new era of resource-driven geopolitics, foresight and adaptability will be key to securing strategic advantage.
