The New Oil? How China’s Rare Earth Dominance Is Reshaping Geopolitical Power

Rare earth dominance has become a new axis of geopolitical leverage, with China’s control over processing capacity exposing deep vulnerabilities in global supply chains. As states and firms attempt to diversify through fragmented national strategies, the result is not decoupling but a more contested and politicised investment landscape. The shift from market neutrality to geoeconomic statecraft is redefining how critical materials are governed and secured.

From Commodity to Chokepoint 

For much of the twentieth century, oil was synonymous with geopolitical power. States that controlled energy supplies could influence the economic and strategic calculations of states that depended on them. Today, a similar dynamic is emerging around a less visible but increasingly consequential group of commodities: rare earth elements. These 17 elements are essential to permanent magnets used in electric vehicles, wind turbines, advanced electronics, aerospace systems and precision guided weapons. Their importance is therefore not merely commercial. It is increasingly strategic.

China’s advantage is particularly significant because its dominance extends beyond mining into the processing stages that convert raw minerals into industrially usable materials. The International Energy Agency (IEA) identifies China as the dominant refiner for 19 of the 20 strategic minerals it examines, with an average refining share of around 70% (IEA, 2025). In rare-earth processing and permanent magnets, China’s position is considerably stronger. This means that even countries with domestic mineral deposits can remain dependent on Chinese industrial capacity.

The central geopolitical question is consequently no longer whether China has an advantage in rare earths. It is whether that advantage can be converted into economic and political leverage.

From Market Dominance to Strategic Leverage 

Beijing has already demonstrated that rare earths can be incorporated into its broader system of economic statecraft. In April 2025, China introduced export controls on several heavy rare-earth elements and permanent magnets, producing disruptions across international defence and industrial supply chains (CSIS, 2026). Further restrictions announced in October 2025 expanded controls to additional rare earth products, technologies and equipment, including provisions affecting foreign companies using Chinese origin materials and technologies (IEA, 2025).

This matters because economic coercion does not require a complete embargo. A government capable of controlling export licences can instead create uncertainty, selectively restrict particular companies or countries, and raise the costs of strategic decisions. Reuters reported in May 2026 that exports of some heavily controlled rare earths, including yttrium, dysprosium and terbium, remained approximately 50% below previous levels despite an overall recovery in Chinese rare earth exports (Reuters, 2026a). Such selective restrictions arguably provide Beijing with more political flexibility than a comprehensive ban.

This is what makes rare earths a political risk issue. The vulnerability lies not simply in physical scarcity but in asymmetric dependence.

The Mathematics of Dependency 

The scale of that dependence becomes clearer when concentration is considered alongside substitutability. According to the IEA, China accounts for around 90% of global refined rare earth output and approximately 94% of permanent magnet production (IEA, 2025). The problem is compounded by the time and capital required to establish alternative processing capacity.

The IEA estimates that if China’s rare earth export restrictions were implemented in full, the annual economic value of downstream production outside China potentially exposed to disruption could reach US$6.5 trillion (IEA, 2025). This figure does not mean that $6.5 trillion would disappear from the global economy. Rather, it illustrates the extraordinary scale of industrial activity potentially dependent on vulnerable supply chains.

This creates an important distinction between resource availability and strategic availability. A mineral may exist elsewhere in the world, but that does not mean it can be extracted, separated, refined and converted into usable components quickly enough to replace Chinese supply.

The OECD’s 2026 inventory reinforces the broader trend, export restrictions on critical raw materials have increased approximately fivefold since 2009 (OECD, 2026). The global economy is therefore entering an era in which states are increasingly treating minerals not simply as commodities but as instruments of economic security.

The United States, Europe and India: Diversification Is Harder Than Mining 

The United States illustrates the difficulty of reducing this vulnerability. Domestic mining can increase supply security, but mining alone does not create a complete supply chain. Separation, refining and permanent magnet production remain crucial bottlenecks. China’s advantage has developed over decades through an integrated industrial ecosystem, making rapid replication elsewhere difficult.

The United States and its allies are consequently attempting to build alternative supply chains. Australia’s Lynas Rare Earths, one of the largest rare earth producers outside China, announced in August 2026 that it was exploring additional deposits globally while supporting the development of a U.S.A. magnet manufacturing supply chain (Reuters, 2026b). These developments demonstrate that diversification is occurring, but they also reveal its structural difficulty: new mines and processing facilities require years of investment, permitting, infrastructure and technological development. Europe faces an equally difficult challenge. The European Union’s Critical Raw Materials Act seeks to increase domestic extraction, processing and recycling while reducing dependence on individual external suppliers (European Commission, 2026). Yet building alternative capacity while remaining economically competitive requires substantial state support.

India’s position is particularly important. Its ambitions in semiconductors, electric vehicles, renewable energy and defence manufacturing will increase demand for precisely the industrial inputs in which China possesses significant advantages. India’s private sector has consequently begun showing greater interest in rare earth processing and manufacturing, while New Delhi seeks to reduce strategic dependence on China.

For India, this creates a broader policy dilemma. Strategic autonomy cannot stop at the factory gate. If the raw materials and processing technologies underlying domestic manufacturing remain vulnerable to external disruption, manufacturing autonomy remains incomplete.

The Political Risk of Decoupling 

The answer, however, should not be complete economic decoupling. Attempting to eliminate all Chinese involvement in global rare earth supply chains would be economically costly and could simply replace one vulnerability with another. China’s dominance partly reflects decades of investment, accumulated expertise and economies of scale. Replicating this system simultaneously across multiple countries would be extraordinarily expensive. The more realistic objective is strategic resilience.

Governments should therefore identify the minerals for which supply disruption would produce the greatest national-security consequences and establish strategic reserves for those materials. Investment should then focus on the entire supply chain, from extraction and separation to refining, magnet manufacturing and recycling, rather than concentrating disproportionately on mining.

Recycling is particularly underused. Reuters reported in August 2026 that Europe effectively recycles less than 20% of its electronic waste, leaving potentially valuable critical materials unrecovered (Reuters, 2026c). Developing economically viable recycling systems could therefore reduce import dependence without requiring equivalent increases in mining.

The policy objective should also be multinational. The United States, European Union, Japan, Australia and India have complementary strengths: capital, technology, manufacturing, mineral resources and large consumer markets. Coordinated investment could create a diversified supply network capable of absorbing temporary Chinese restrictions without requiring permanent economic separation.

The New Geography of Power 

Rare earths will not literally become the new oil. Their markets are smaller and their effects are concentrated in particular industrial sectors. Their geopolitical significance, however, may be more subtle and potentially more useful as a coercive instrument. A government does not need to shut down the entire global economy to exercise leverage. It only needs to control a sufficiently important bottleneck that its competitors cannot rapidly replace.

China’s rare earth advantage therefore represents something larger than mineral wealth. It demonstrates a transformation in the nature of geopolitical power, control over production infrastructure can increasingly matter as much as control over territory or natural resources themselves.

The appropriate response is not panic or indiscriminate decoupling. It is the deliberate construction of redundancy. Governments should stockpile strategically important materials, subsidise alternative processing and magnet production, accelerate permitting for allied projects, develop recycling capacity and coordinate supply chain investment across trusted partners.

For India in particular, this means treating critical minerals as an extension of national-security and foreign policy rather than as a narrow mining issue. Partnerships with Australia, Japan, the United States and resource rich developing states should be accompanied by domestic investment in separation, processing, recycling and magnet manufacturing.

The strategic lesson is straightforward: diversify before a crisis, build processing capacity before confrontation, and create alternatives before dependence becomes coercion. In an era of geoeconomic competition, the most consequential weapon may not be a missile or a tariff. It may be an export licence for a material that nobody else can quickly replace.

References

Center for Strategic and International Studies (CSIS) (2026) ‘Rare Earth Export Restrictions One Year Later’. https://www.csis.org/analysis/rare-earth-export-restrictions-one-year-later 

European Commission (2026) ‘Critical Raw Materials Act’. https://single-market-economy.ec.europa.eu/sectors/raw-materials/areas-specific-interest/critical%20-raw-materials/critical-raw-materials-act_en

International Energy Agency (IEA) (2025) ‘Global Critical Minerals Outlook 2025’. Paris: IEA. https://www.iea.org/reports/global-critical-minerals-outlook-2025 

International Energy Agency (IEA) (2025) ‘With new export controls on critical minerals, supply concentration risks become reality’.  https://www.iea.org/commentaries/with-new-export-controls-on-critical-minerals-supply-concentr ation-risks-become-reality 

Organisation for Economic Co-operation and Development (OECD) (2026) ‘OECD Inventory of Export Restrictions on Critical Raw Materials’. Paris:  https://www.oecd.org/en/publications/oecd-inventory-of-export-restrictions-on-critical-raw-materi als-2026_d5ca8f62-en/full-report.html

Reuters (2026a) ‘Trump, Xi to weigh rare earth truce extension, but China’s curbs still bite’. https://www.reuters.com/business/aerospace-defense/trump-xi-weigh-rare-earth-truce-exte nsion-chinas-curbs-still-bite-2026-05-13/ 

Reuters (2026b) ‘Lynas expands global footprint, eyes new rare earths supply deals’, https://www.reuters.com/world/asia-pacific/lynas-expands-global-footprint-eyes-new-rare-earths supply-deals-2026-08-26/ 

Reuters (2026c) ‘Europe’s electronic waste crisis holds the key to supply security – if we act on it’. https://www.reuters.com/sustainability/society-equity/europes-electronic-waste-crisis-holds-ke y-supply-security-if-we-act-it–ecmii-2026-08-24/

Royal United Services Institute (RUSI) (2026) Sanderson, H., ‘China and Rare Earth Supply Chains’. https://www.rusi.org/explore-our-research/publications/research-papers/china-and-rare earth-supply-chains 

United States Geological Survey (USGS) (2026) Mineral Commodity Summaries 2026. Reston, VA: USGS. https://pubs.usgs.gov/periodicals/mcs2026/mcs2026.pdf