Critical Minerals: Growing Demands, Rising Tensions
The following commentary is reprinted with permission from International Relations & Security Network (ISN), Center for Security Studies, Zurich.
Critical Minerals: Growing Demands, Rising Tensions
© Christine Pathemore
January 3 2011
Looking back at the major headlines of 2010, one story stands out as truly unexpected: The sudden concern with a little-known class of minerals – rare earth elements – that had previously served a key but quiet role in the global economy. These minerals serve as a foundation for modern technologies – from television screens to missile guidance systems – making this newfound interest warranted.
It seems an historical abberation that concern over mineral supplies critical to weapons systems and energy production did not deeply permeate industrial policies, trade and geopolitical planning in the past two decades.
Throughout history, battles have been fought over control of natural resources. During World War II, the U.S., its European allies, Germany and Japan all relied on imported supplies of many raw materials critical to their war efforts, including steel and petroleum and the minerals used to process those materials. Both sides also developed extensive operations to cut off their opponents’ supply lines.
After World War II and during the Cold War, the Soviet Union’s expanding sphere of influence included many of the world’s most important minerals suppliers. Economists and defense planners in all industrial countries sounded alarms that import dependence on minerals from Southern Africa and Eastern Europe created intolerable strategic vulnerabilities. This concern extended to common imports such as steel and petroleum, but also to lesser-known minerals, such as cobalt and minerals of tailored use in strategic weapons, such as uranium required for stockpiling nuclear weapons. As the Cold War drew to a close, however, worries about minerals supplies waned.
The modern challenges of minerals
Today, the resurgence in concern over minerals is no longer characterized by great power competition, but by globalized markets and booming economic growth in the world’s most populous developing countries. Demand for many minerals is growing at a scale that few would have predicted a decade ago.
Though India, Brazil and other countries are rapidly becoming modern industrial powers and driving a surge in demand for minerals, China is at the heart of these concerns. China has a distinct strategy for its economic development that makes certain minerals central to its growth, including rare earth elements such as neodymium and europium. In addition to its ongoing space exploration and extensive military expansion, economic growth plans include “advanced manufacturing, new energy, new material and new-energy automobiles” – all areas of technological development that depend heavily on rare earth elements. Moreover, China’s economic, diplomatic, and military tactics to create a robust international supply system that meets its rapidly growing mineral demands is seen as a potential strategic concern by many analysts.
The renewed wave of interest in minerals has been several years in the making. An early incident, a disruption in supplies of rhenium, a mineral used to produce specialty alloys for the aerospace industry, caused prices to spike from $1,000 to $6,000 per kilogram. In 2007, China threatened to withhold exports of certain rare earth minerals used as catalysts in petroleum refining for long enough that American refiners warned of gasoline shortages; the U.S. State Department had to step in to help settle the tensions.
Most recently, rare earths have grabbed headlines and the U.S. Congress and Obama administration’s attention, in large part due to China’s regularly-changing export quotas for these minerals and its recent cessation of exports to Japan. Following a scuffle in the East China Sea in September, Chinese exporters halted shipments of rare earths to Japan for weeks, eventually resuming in late November. Although China’s leaders denied that they had imposed an official, government-sanctioned embargo, the move made clear China’s ability to leverage its current corner on the rare earths export market.
While this does not appear to have directly affected American companies, it served as a warning about the possible effects of over-reliance on China by the U.S. and other developed countries. For the U.S., more than 90 percent of its rare earth minerals imports could be at risk of supply disruptions of this kind. Beyond the direct economic costs of China changing rare earths export policies, its control of the vast majority of current world supplies allows it significant political power in relation to countries that have important military and civilian needs for these minerals.
What to do?
The U.S. must overcome several key challenges in order to better manage these minerals issues – which may in the future extend beyond rare earths, given the country’s complete reliance on imports for at least 19 different minerals.
First, the government and private sector should increase information sharing regarding mineral supply chains. The Japanese government, for example, has more open information sharing between the government and private sector, helping to mitigate potential problems. Second, governments of all industrialized countries should work to catalogue their dependencies on the most contentious minerals, such as rare earth elements and indium, for defense equipment needs and clean energy manufacturing goals. The U.S. government is in the early stages of taking on this task, but unfortunately it will take years to get even a general sense of the country’s true vulnerabilities. Finally, the government must improve its understanding of the kinds of economic and geopolitical risks that mineral import dependence could create when things go wrong. This will entail educating high-level policymakers and especially diplomats of the connections between the global minerals trade, defense industrial needs and international relations.
In the long term, experts project that supplies of rare earths (and most minerals on which the global economy relies today) will be sufficient to meet demand for decades – centuries in some cases. Unfortunately, this does not preclude the negative effects of short-term supply shortages, market share consolidation by only a few suppliers, and exporting countries flexing their geopolitical muscles by leveraging their control of important minerals. The growing recognition that assured access to minerals and raw materials is important for ensuring a reliable defense industrial base, developing a clean energy economy and managing geopolitical tensions is therefore a positive development.
Understanding these issues and mitigating potential problems will become vitally important in the future, as demand grows and tensions surrounding supply chains rise. The stakes are high. In the past three years, these issues have led to trade disputes, detracted attention from important diplomatic gains in the Asia-Pacific and renewed clashes over territory from the Arctic to the South China Sea. We should expect to see minerals make even more headlines in 2011 and beyond.
Christine Pathemore is a Fellow at the Center for a New American Security (CNAS), a non-profit, bipartisan national security think tank in Washington, D.C. She directs CNAS’s program that analyzes national security challenges related to natural resources.