- Pakistan presents significant rare earth elements opportunity but needs sustainable development
The political economy of rare earth elements (REEs) is defined by their critical role as strategic commodities in modern technology and the highly concentrated nature of their supply chain, which is dominated by China. This dynamic creates significant geopolitical tension and drives global efforts toward supply chain diversification and security.
Economic Importance
Rare earth elements are vital for their unique magnetic, optical, and electrochemical properties, which are essential for high-performance, miniaturized technologies. Key applications driving demand include:
Renewable Energy: REEs are used in permanent magnets for highly efficient wind turbines and electric vehicles (EVs).
Electronics: They are found in smartphones, computers, hard drives, and displays, enabling smaller, more efficient components.
Defense and Aerospace: REEs are critical for military applications such as advanced radar systems, missile guidance, jet engines, and sonar. A single F-35 fighter jet, for example, requires about 400 kg of rare earth elements.
The global demand for REEs, particularly for magnets, is projected to increase significantly as the world transitions to cleaner energy technologies.
China’s Dominance and Geopolitical Implications
China has established a near-monopoly over the REE supply chain, accounting for over 60% of mine production and nearly 90% of the world’s refining capacity. This dominance provides China with considerable economic and political leverage, as demonstrated by the following:
Export Restrictions as a Tool: China has previously used export quotas and informal restrictions to manage domestic supply, protect the environment, and exert political pressure. In 2010, an alleged suspension of REE shipments to Japan during a maritime dispute highlighted the vulnerability of importing nations.
Supply Chain Vulnerability: Western countries, including the US and the EU, are heavily dependent on China for refined REEs and end products like permanent magnets. This over-reliance poses a national security and economic risk, as disruptions could halt production in critical industries.
Environmental Factors: China’s dominance was partly built on lower labor costs and less stringent environmental regulations, as REE extraction and refining are environmentally intensive processes involving toxic and radioactive waste. Stricter regulations in Western countries have historically made domestic production less competitive.
Global Responses and Future Outlook
In response to supply chain risks, other nations are implementing strategies to secure their own REE supplies:
Diversification and Domestic Production: The US, EU, Japan, and allies like Australia and Canada are investing in domestic mining, processing facilities, and strategic partnerships. Companies such as MP Materials (US) and Lynas Rare Earths (Australia/Malaysia) are central to these efforts.
Research and Innovation: R&D into alternative materials, more efficient use of REEs, and advanced recycling methods is a primary strategy to mitigate supply risks.
Government Intervention: Legislative acts (e.g., the US Inflation Reduction Act, the EU Critical Raw Materials Act) and government funding are being used to incentivize the creation of resilient and sustainable domestic supply chains.
The political economy of REEs is expected to remain a focal point of international relations as demand continues to surge. The struggle for control over these strategic materials is a key aspect of the ongoing technological and geopolitical competition between major global powers.
How Pakistan could benefit from it?
Pakistan is sitting on a goldmine of rare earth elements (REEs), with estimated reserves worth a staggering $50 trillion. These elements, including neodymium, cerium, lanthanum, and others, are crucial for high-tech applications like electric vehicles, wind turbines, and advanced defense systems. Pakistan has significant REE reserves in Gilgit Baltistan and Baluchistan province but exploration and extraction is still in early stages.
Challenges:
- Lack of technological expertise and infrastructure
- Inadequate regulatory frameworks and foreign investment
- Environmental concerns and sustainability issues
- Geopolitical tensions and competition from other countries
Opportunities:
- Strategic partnerships with countries like the US, EU, and Japan
- Investment in research and development, and local talent
- Development of sustainable mining and processing practices
- Potential to become a key player in the global REE market
Overall, Pakistan’s REE reserves present a significant opportunity for economic growth and strategic partnerships, but the country needs to address the challenges and invest in sustainable development to capitalize on this resource.