How to Avoid a New Cold War Over Critical Minerals

Will the 21st century be the century of the green great game? In the early 20th century, then-First Lord of the Admiralty Winston Churchill oversaw the conversion of the United Kingdom’s Royal Navy from coal- to oil-powered ships. Oil was comparatively more energy-dense, easier to transport, and allowed ships to travel farther faster. But the transition to oil-fueled navies in the 20th century meant that, for the first time, projecting military might would require most major powers to rely on energy sources over which they were not sovereign. This put in motion a scramble by these countries to secure access to oil and later natural gas. This was the 20th century’s great game, with “the prize,” as author Daniel Yergin put it, being economic and military supremacy.

This great game shaped the world wars, the interwar period, and the Cold War to a remarkable degree. It led to antidemocratic meddling in the domestic affairs of oil-rich countries and extensive deployment of U.S. military assets in oil-rich regions like the Middle East, as well as allowed the Soviet Union to maintain the arms race much longer than it would have been able to otherwise. It shaped U.S. strategic doctrine, conferred considerable international influence on the members of the Organization of the Petroleum Exporting Countries (OPEC), and allowed oil-rich autocrats to stave off post-Cold War pressures to democratize. And it has created entrenched interests bent on defending the business-as-usual hydrocarbon-intensive energy systems that have slowed action on climate change.

Today, hydrocarbon energy is obviously still geopolitically important, but its relevance is waning as the world’s economies begin transitioning to more sustainable energy systems in earnest. Like oil, the minerals that will power these energy transitions, as well as technological innovation, are not just important industrial inputs; they are strategic resources, necessary for building, supplying, and deploying modern militaries and powering the economies that sustain them. Oil-fueled militaries are still central to that power projection, but increasingly, national and economic security are predicated on critical mineral-intensive advanced technologies such as the computing arrays that support artificial intelligence and quantum computing.

Maintaining access to and securing supply lines for strategic resources has shaped the foreign policies of major economies and military powers throughout history and will continue to do so into the future. The question is whether these resource imperatives will result in a return to the Cold War-esque dynamics of resource competition around critical minerals such as lithium, cobalt, rare-earth elements, nickel, graphite, and others. Three factors suggest the geopolitics of critical minerals will be less fraught than those around oil and gas—but three other factors paint a more ominous picture.

To prevent a return to the zero-sum logic of Cold War resource politics, critical mineral supply chains must be widened at every step, from mines to downstream processing and recycling. In doing so, mineral-rich developing and middle-income countries should look to both the United States and China—and beyond—to cultivate investment partners and embrace good governance initiatives. Moreover, the United States should not seek to displace China’s role as the world’s foundry but rather promote downstream capacity development in lower- and middle-income partners.

In contrast, any disruption to global oil and gas markets starts a ticking clock in economies dependent on oil imports as they begin drawing down their strategic reserves. Thus, there is a big difference between critical minerals and hydrocarbons with respect to the potential for using oil exports in the coercive fashion Russian President Vladimir Putin has been prone to even before the war in Ukraine.

Second, the ownership structures of critical minerals and hydrocarbons are quite different. Estimates vary, but anywhere from two-thirds to 80 percent of oil and gas reserves are controlled by national oil firms. These companies typically do not act like normal firms responding to market signals and also behave as extensions of their respective governments’ interests. The ownership structure of critical minerals is somewhat different. Much larger shares of resources are held and produced by private or publicly traded companies: None of the top six lithium producers (66 percent of global market) are state-owned, nor are the top five producers of cobalt (50 percent). Some of these companies are headquartered in China, where the line between state-owned enterprises and private firms can be blurry. But to date, the firms producing critical minerals are not, to as great an extent, extensions of the national interests of controlling governments.

Third, most critical minerals can be recycled. Some, such as copper, can be recycled indefinitely with no loss in functionality. With hydrocarbons, what burns never returns. Industrial-scale recycling can lessen dependence on mined ores and thus diminish the importance of control over mineral deposits themselves. Wars of conquest for oil resources have been less common than conventional wisdom would suggest, but wrangling over political control of mineral resources was one of the major factors leading to Cold War-era interventions in mineral-rich countries including Chile, Democratic Republic of the Congo, and Indonesia.

The preceding factors augur for less conflictual geopolitics around critical minerals. However, there are three other factors that point in the opposite direction.

Counterfactuals are of course difficult, but Cold War geopolitics may have been even more vicious had the Soviet Union not been self-sufficient in hydrocarbons. In the 21st century, the United States is on the precipice of hydrocarbon self-sufficiency, while China is deeply dependent on foreign oil. The United States is obviously not immune to dynamics in global oil and gas markets, but it is not nearly as dependent on them for satisfying domestic demand as China.

In contrast, both the United States and China are dependent on critical minerals sourced largely from outside their borders. China certainly dominates the supply chains for many critical minerals, with leading positions in global aluminum refining and smelting (66.6 percent of global capacity), lithium and cobalt refining (80 percent and 66 percent, respectively), and graphite production and refining (about 80 percent), along with many, many others. But this dominance is less a function of its natural resource endowments and more its strategic prioritization of owning foreign mineral assets and using industrial policy to become the world’s refinery. But both the United States and China are dependent on critical mineral resources over which they are not sovereign.

Second, markets for critical minerals are quite thin and thus more vulnerable to strategic manipulation. Total global cobalt exports in 2020 amounted to less than $5 billion. Nickel exports were $30 billion. In comparison, global exports of petroleum and liquefied natural gas were in excess of $2 trillion. Due to their much smaller overall markets and heavy reliance on relatively few exporting countries (more on that in a moment), critical minerals are subject to higher price volatility and potential market cornering. The London Metals Exchange had to halt nickel trading in March after prices temporarily doubled to more than $100,000 per metric ton on what was attributed to short covering by a major producer.

Relatedly, and finally, reserves for some critical minerals are highly concentrated in a few countries, many of which are small economies with comparatively unstable domestic politics. Congo is responsible for more than 60 percent of global cobalt production. But that is just one example. Calling Guinea, a small West African nation with 14 million inhabitants, “the Saudi Arabia of bauxite”—the raw material used to make aluminum—would be an insult to Guinea’s market share: It has nearly a quarter of global reserves and accounts for over half of global exports. In these cases, the possibility of controlling massive shares of global supplies through direct military intervention or use of extreme diplomatic leverage in a single country is high.

Widening these supply chains—both through investment in new productive capacity and recycling—is the answer. High prices and anticipated demand—three- to 42-fold increases in demand are projected for many critical minerals to meet the net-zero targets established by the Paris climate accords—are catalyzing a frenzy of exploration and efforts to convert resources into economically exploitable reserves. This is helping to resolve concerns about absolute scarcity, or the idea that the world will run out of these resources in the near future. But it doesn’t necessarily solve problems of market concentration or bottlenecks in refining capacity. Doing so will require expanding supplies and refining capacity in ways that diversify producers and make markets less dependent on particular mines or refineries.

The solution is not for the United States and other advanced economies simply to radically reshore mining and refining capacity. Doing so would contribute to perceptions that the West and China are inexorably locked into a budding Cold War dynamic, and perceptions matter a great deal. And despite wanting clean energy and needing the materials on which it is based, Western electorates are often hesitant to pay the environmental costs in their own backyards.

Rather, a better option would be to expand refining capacity in raw material-producing countries, many of which are poor and could benefit greatly from moving up the value chain and the industrial jobs that refining capacity would bring. As they seek investment capital, they would do well to adopt a balanced approach with respect to a mixture of Western and non-Western investors, including but not limited to China.

If multinational mining firms headquartered in a host of Western and non-Western countries operate simultaneously in a country, their presence dilutes the political influence of any individual investor country’s government by pitting its interests against those of other major economies. It is hard to imagine interventions like those against former Prime Minister Patrice Lumumba in Congo or former Prime Minister Mohammad Mossadegh in Iran occurring in a country hosting both Western and Chinese investments. This would simultaneously address concerns about concentrated refining capacity and the dangers of dependence on a single pivotal producer.

Finally, critical mineral-rich countries should embrace multilateral good governance initiatives like the Extractive Industries Transparency Initiative (EITI), a global multistakeholder effort to promote transparency around natural resource revenues and government expenditures. The ills of Cold War-era resource competition flowed not just from geopolitics and major power machinations but also from the corrosive impact of mineral wealth on economic and political institutions. Initiatives like the EITI are key to providing oversight of how resource funds are invested and spent. In doing so, they help marshal these resources toward broad, inclusive growth and prosperity.

Climate change is an unconventional security risk—but a dire one nonetheless. The world can ill afford needed energy transitions getting mired in a return to Cold War-esque resource geopolitics. With respect to the resources and renewable technologies dependent on them, there are good reasons to think that this time will be different. But to meet future resource demand and forestall zero-sum logic taking over, expanding supply chains and diversifying production and refining capacity are vital.