Paradigm shift: how geopolitics and state strategy are reshaping critical minerals

China’s supply chain dominance

China’s dominant role in critical mineral refining is viewed by other nations as a strategic vulnerability, a dominance that is neither new nor accidental. Rather, it is a direct result of strategic early-stage investments and supportive policies that have been in place for decades. Today, China processes, refines and manufactures most of the world’s critical minerals into end products. These critical minerals are used in energy transition-based technologies, with the world largely reliant on battery-grade graphite and lithium and rare earth elements (amongst many others). This supply chain concentration has given China significant leverage in its ability to influence both global trade negotiations and the supply chain. In the past, China has imposed export restrictions on supplies of inputs vital for electronics, EVs and defence systems. An example of such occurred when China, to advance its diplomatic position, halted rare earth exports to Japan in 2010. This illustrated the risks of single-source dependence, and lead to increased stockpiling of rare earth elements in Japan.

China’s capacity to implement export restrictions has increased amid recent shifting geopolitical and trade-related tensions. This has largely flowed from the heightened tensions between the US and China, fuelled by the US administration’s imposition of tariffs on China and its other major trading partners. The most pronounced example of this occurred in October of this year, where days before scheduled trade discussions between US and Chinese leaders, China imposed broad export restrictions on a large number of rare earth elements that are critical to both new energy related technologies and defence. While those export restrictions have temporarily been lifted, this has acted as a catalyst for an accelerated shift in the way that critical minerals supply chains are being viewed globally.

The global response

The response from the US and other major powers has been to rapidly intensify already existing efforts to secure reliable access to critical minerals. The response has been treated as a strategic imperative linked to energy transition, economic and geopolitical security. Allies like the US, Japan, Korea, Australia, Canada and Europe are accelerating their combined efforts to reduce reliance on existing suppliers and on building ‘resilient, allied’ supply chains for critical minerals. This geopolitical reframing is set to reshape how supply chains are structured: who mines and processes the materials, where they flow, and under whose influence.

Commercially driven investments

For much of the past decade, the private sector largely led the push to secure critical minerals due to an investment environment led by global corporate players based on anticipated shortfalls in demand for the end products they produce. The examples of this trend are numerous, with EV and battery manufacturers moving aggressively to invest in upstream supply chains. Such investments have taken the form of investing in the mines directly, taking offtake positions and forming joint ventures. This is often coupled with attractive project finance and equity positions, with some involving attractive export credit agency and policy bank backed funding, particularly from Japan and Korea. However, each investment, irrespective of structure, was designed for the purpose of locking in future supplies of the raw minerals used to produce lithium, nickel, cobalt, graphite, rare earth elements (amongst many others). As a result, Australia and other countries with key critical minerals projects have experienced significant direct investment from a new class of investor that was previously almost unseen in the upstream mining projects.

The move to state-backed critical minerals investment

A paradigm shift is underway: governments themselves are stepping directly into the critical minerals supply chain. State-backed entities and public financing arms outside of China are now competing alongside and often in partnership with private companies to secure critical minerals assets. This is not to suggest that this is unique to the current geopolitical environment in 2025. For decades, the Japan Oil, Gas, and Metals National Corporation (JOGMEC) has taken equity stakes in early-stage mining projects overseas. JOGMEC’s investment and funding of Australia’s Lynas Corporation during low commodity pricing environments to ensure a non-Chinese rare earth supply for Japan, being a prime example of this type of government investment. China, whose State-Owned Enterprises have long-running state support for their investments, is seeing its model emulated, with democratic governments now openly treating critical minerals as strategic economic and geopolitical security assets warranting public investment and oversight.

Western governments and allies are deploying public funds at an unprecedented scale to support critical mineral projects. In October 2025, the US and Australia signed a landmark Critical Minerals Framework Agreement committing each country to mobilise at least $1 billion in financing for new mining and processing projects within six months. In the same month, Japan and the US announced a critical minerals collaboration, pledging joint project selection and co-financing of mines and refineries that will supply both nations (and ‘like-minded’ partners) with inputs like EV batteries and magnet materials. This rapid injection of capital (via grants, loans, offtake agreements and guarantees) is aimed at fast-tracking projects that might otherwise stall or not be developed at a pace that will allow for supply chain diversification. What is most notable about these examples is that they were both announced just days after China’s export bans of rare earths elements was announced.

In short, the rules of engagement for critical minerals supply chains just became the subject of a more accelerated shift. Where market forces and the commercial viability of a project once defined its success, now non-Chinese states are placing themselves at the table, bringing large amounts of capital and strategic mandates with them.

Greater controls over FDI

With critical minerals elevated to this strategic status, governments have are increasingly focusing on the regulatory frameworks available to control critical minerals projects. One notable trend is the tightening of foreign direct investment (FDI) screening to protect domestic critical mineral assets from being incorporated within the existing concentrated supply chains.

Significant reforms in Australia’s foreign investment regime in 2021 is a key example of introducing a national security regime and enhancing powers. Additionally, there have been ongoing announcements since 2023 that Australia would become ‘more selective’ about who can invest in its critical minerals sector. That statement of policy quickly manifested itself into tangible action when the Australian Treasurer blocked China's Yuxiao Fund from increasing its interest in Northern Minerals (an Australian rare earths development company), citing national security grounds. In June of 2024, the Treasurer issued disposal orders directing five foreign investors, including PRC-based Indian Ocean, to divest of their shares to persons that were not their associates. By June of 2025, the Treasurer had instituted proceedings in the Federal Court against Indian Ocean for an alleged breach of foreign investment laws. This is the first case to be brought by the Treasurer before the Federal Court in such circumstances in Australia.

Other counties have taken a similar stance. In late 2022, Canada ordered three Chinese companies (Sinomine, Chengze Lithium and Zangge Mining) to sell off their interests in Canadian lithium explorers, citing national security concerns. The US, through the Committee on Foreign Investment in the United States (CFIUS), has likewise scrutinised or blocked Chinese investments in US mining assets (and even forced a divestment of a Chinese stake in Canada-based Lincoln Mining, which had lithium operations based in Nevada and California as early as 2013). The EU’s 2023 Critical Raw Materials Act gives the European Commission powers to screen investments or offtake deals in critical materials projects, and Japan’s Economic Security law of 2022 added provisions to safeguard supply chains (which implicitly covers strategic minerals).

The trend in the FDI regulation is clear. Foreign investment in critical minerals now faces increased scrutiny, especially if the investor is state-linked or from a country where supply chain concentration concerns arise. Deals that would have sailed through a decade ago may now be blocked or unwound if seen as compromising supply security. Law firms across jurisdictions are advising clients that any transaction involving critical mineral assets may trigger additional government scrutiny or investment conditions.

Export controls and trade agreements

Export controls are also tools governments, beyond China, are using to move further into the midstream processing supply chains for critical minerals. Indonesia’s ban on exports of unprocessed nickel ore, first introduced in 2014 and then fully enforced from 2020, to compel companies to build nickel smelters and battery material plants locally is a prime example. As a consequence of that ban, Indonesia went from a mere ore exporter to one of the world’s largest producers of battery-grade nickel in just a few years. While such moves have attracted successful legal challenges and international scrutiny, the Indonesian example serves to demonstrate that export controls can be a means of moving a resource rich nation further down the processing supply chain. However, the significant foreign investment raised in Indonesian refineries has largely come from Chinese entities with direct access to the offtake for the refined products. Accordingly, to date, this has done little to alleviate supply chain dominance in a more macro sense.

To date, Australia has not used export controls to facilitate downstream processing of critical minerals in country directly. Instead, the Australian Government has deployed significant amounts of public funding and other initiatives to move further into the downstream processing supply chain. For example, in 2022, a $1.25 billion loan was granted through the Critical Minerals Facility to Australian company Iluka Resources to develop Australia’s first integrated rare earths refinery. Additionally, earlier this year, the Western Australian Government launched a financial assistance program for companies operating lithium hydroxide refineries for a maximum period of two years, in the form of fee waivers for land, electricity and water costs associated with operating a refinery.

In tandem with these types of domestic initiatives, countries are also entering into a broad suite of new trade arrangements focused on critical minerals. The US and European Union have been negotiating a Critical Minerals Agreement to allow European-sourced minerals to count toward US EV tax credits (reducing reliance on Chinese material). The European Union has signed partnerships with Canada, Australia, Kazakhstan, Namibia and others to secure access to critical raw materials. Japan and the UK each signed separate critical minerals cooperation memorandums of understanding with countries such as Kazakhstan (for rare earths) and Australia. Trade agreements of this nature are looking to facilitate cooperation in respect of exploration, production, exchange of information on stockpiles and even collective technology sharing.

Alongside the increasing emphasis on securing critical minerals globally, there is growing recognition that how these resources are developed is just as important as how much is produced. The ESG standard for mining and mineral processing project is being raised globally. Regulators, investors, and customers are increasingly insisting that new critical mineral projects adhere to high standards of environmental protection, community consultation and governance. The IEA has warned that if the expansion of critical mineral supply is not managed responsibly, environmental and social backlash could slow the clean energy transition by hampering new projects. Issues such as deforestation, carbon intensity, water use, tailings management, labour conditions, and indigenous rights can all spark opposition that delays or even derails natural resources projects. This can be seen in some regions, where local protests and legal challenges over environmental and land rights issues have stalled mining or refining projects. This is a risk that looms large for mineral developments in ecologically sensitive locations or areas of indigenous significance.

Downstream industries and governments are also exerting pressure on the producers of critical minerals. Major automakers and technology companies are under intense consumer and regulatory scrutiny to ensure the battery metals and rare earths in their products are responsibly sourced. Adopted in 2023, the European Union’s new Battery Regulation requires battery suppliers to conduct due diligence on critical mineral supply chains, checking for environmental harm and human rights abuses. The US is now similarly factoring ESG into support for projects (for instance, Defense Production Act investments now evaluate sustainability and community impact). There are also emerging frameworks guiding this effort such as:

• The Responsible Minerals Initiative: which provides ESG standards and auditing for mineral supply chains.

• The ‘Battery Passport’ concept under the Global Battery Alliance:  which traces the provenance and footprint of battery materials.

• The multilateral Mineral Security Partnership: which explicitly includes a commitment to support only projects that meet high environmental and labour standards.

Large institutional investors have also publicly stated they will avoid miners with poor records on carbon or human rights. All of this means that companies pursuing critical mineral projects must ensure that robust ESG policies and practices are in place from the outset of a project’s development. Ignoring ESG is not only ethically fraught but can backfire commercially by triggering protests, regulatory actions or reputational damage that threaten project timelines. ESG compliance and best-in-class systems and practices have already become a key requirement for accessing government support in the critical minerals space, but so too have they become a major focal point for private commercial investors.

In parallel with the types of domestic regulatory policies and frameworks is an increasing recognition that no one country can ‘fix’ the supply concentration of critical minerals alone. Consequently, regional and multilateral cooperation frameworks have been, and are being, developed to secure critical mineral supply chains through collective action. A prime example is the Minerals Security Partnership (MSP), launched by the US in 2022, which now includes key players such as Australia, Japan, South Korea and India, together with several European Union countries. The MSP members have set up the institutional frameworks to coordinate to co-finance critical mineral projects in third-world countries and share information on resource development, with the goal of building diversified and resilient supplies outside of dominant control. In September 2024, the MSP initiated a new Minerals Security Finance Network, bringing together development finance institutions and export credit agencies across the partnership to jointly unlock capital into critical mineral projects worldwide.

Another significant multilateral initiative is the Quad Critical Minerals Partnership (the Quad), launched in July 2025 by the Quadrilateral Security Dialogue (Australia, India, Japan and the US). The Quad’s critical minerals initiative is predominantly aimed at diversifying supply chains to avoid over-reliance on any single dominant provider by pooling the four countries’ strengths: Australia’s resource endowment, Japan and the US’s technological and financial strength and India as a rapidly growing market. The Quad partners agreed to cooperate on securing and diversifying supply, including joint efforts in electronic waste recycling, minerals processing resource and development and skills development. Notably, the Quad is putting a strong emphasis on recycling and a circular economy for critical materials. This is a specific recognition that recovering minerals from used electronics, batteries and so forth, can supplement (in part) supply constraints and reduce the environmental impact of end-to-end critical minerals supply chains. For instance, Japan (largely because of China’s rare earth export restrictions in 2010 referred to above) has become a leader in recycling rare metals from scrap and is understood to be sharing that expertise within the Quad. India, similarly, has set up a National Critical Minerals Mission and through its Khanij Bidesh India Ltd.  joint venture, is investing in overseas mines (including in Australia) while also developing domestic recycling policies. The Quad framework, while still in its early days, underscores that trusted networks of like-minded nations are forming to support each other’s critical mineral needs through preferential trading arrangements, technology sharing and co-investment in new projects.

Bilateral cooperation between governments is also increasing. In addition to the deals the US, Australia and Japan announced in October, Australia has entered in collaboration memorandums of understanding with India, Japan, the European Union and others to develop its rich lithium, rare earth and cobalt reserves in exchange for secure offtake agreements. Japan and Kazakhstan, South Korea and Vietnam, and the European Union and Indonesia are also entering into multiple agreements to create connections between counties that have the underlying critical minerals resources with those who need them. Many of these agreements also contemplate stockpiling coordination (such as the US and Japan having discussed sharing or bolstering strategic mineral stockpiles) and information-sharing on threats like supply chain and pricing manipulations. This emerging patchwork of alliances resembles a new supply chain architecture, under which critical minerals are sourced and traded preferentially among trusted partners, rather than on an open market dominated by any one major player.