Redrawing the lithium geopolitical map is harder than it looks | Hotter on metals

Lithium has become one of the world's most coveted commodities in the drive to the energy transition, with governments working to align around its production just as they have traditionally aligned around oil

But redrawing the geopolitical map for lithium is harder than it might at first appear.

Petropolitics have long placed the Middle East and the western world, particularly the United States, front and center of its supply-demand dynamics. In contrast, the current structure of the lithium industry places South America and Asia at its heart, with China leading the way.

This continued reliance on external sources for their future energy security is the opposite of what nations like the United States are trying to achieve with lithium.

China’s leading position in the energy transition has been in progress since the turn of the millennium. The country decided long before many other economies to set its sights on the production of electric vehicles (EV) and the associated supply chain, and its strategy has been a resounding success.

Chinese companies are active throughout the entire lithium battery production line, from resource development, refining and processing to battery manufacturing and recycling. Major producers such as Ganfeng Lithium and Tianqi Lithium operate assets in countries around the world, including in joint ventures with companies from Australia, the United States and South America at some of the globe’s biggest deposits.

The country accounts for the majority of the world’s lithium chemicals production, cell capacity and battery component manufacturing, and has supply deals with automotive companies across the globe. Chinese government policies have also long encouraged consumer and fleet adoption of EVs.

It’s a model China has replicated in other critical minerals like cobalt, nickel and graphite, which – like lithium – are all essential in batteries for EV as well as energy storage.

The result is that the rest of the world could be years, if not decades, away from catching up.


Efforts to close the gap have stepped up of late.

The push for energy security and decarbonization has led to a desire for increased re-shoring or near-shoring, something that became increasingly important when Covid-19 exacerbated strains on global supply chains.

The regulatory pressure is stepping up too. The EU has introduced ‘Rules of Origin’ mandating battery and car manufacturers to localize supply chains, forcing them to source precursor battery materials from UK or EU suppliers from 2024 or face punitive tariffs. Similarly, the EU will mandate adherence to its soon-to-be-implemented Batteries Regulation, which many international refineries – and their downstream customers – must meet to ensure compliance.

Western governments have meanwhile increasingly amended or created critical minerals lists, which detail raw materials considered essential to the economic or national security of a country and with a supply chain vulnerable to disruption.

That’s the case with lithium, prices for which have increased sharply in the past two years since bottoming out in 2020 following a revival in demand from the downstream battery sector for EV.

Lithium became part of the United States’ critical minerals list in 2018, with the criteria expanded in 2022 to include minerals that serve an essential function in one or more energy technologies.

Similar lists exist in major nations and groupings around the world, including in Canada, the United Kingdom, Australia, and the European Union.

In March, the International Energy Agency (IEA), whose 31 member countries include the United States, Canada, Australia and the UK, said it had launched a voluntary critical minerals security program which includes stockpiling, recycling and resilient and transparent supply chain mechanisms.

Given that the IEA forecasts lithium demand growth to be the strongest of all critical minerals, rising over 40 times by 2040 in a scenario in which all net-zero pledges are achieved in full, the mineral no doubt features prominently.

No easy OPEC

Yet the IEA’s organizational set-up has shortcomings: it omits several of the world’s largest lithium-producing nations, or those with the potential to be.

Current IEA member countries don’t include Bolivia, home to vast deposits of lithium, while major producers Argentina and China are just association countries and Chile, the world’s second largest lithium producer, is seeking IEA membership but doesn’t yet have it.

This means the IEA would either need to overhaul its membership to include countries at the center of the lithium supply chain or find its relevance to clean energies dwindle and risk being replaced by a different grouping entirely.

The latter could lead to the creation of a consortium of the world’s largest lithium-producing nations to balance market needs and ensure the security of supply chains, just as the Organization for Petroleum Exporting Nations (OPEC) has done for oil.

But those supply chains need to include refining and component manufacturing as well as cell manufacturing and recycling, similar to that achieved by China along with battery companies in South Korea and Japan.

While the broader lithium industry might applaud the creation of more local, integrated production lines, it is acutely aware of the time it will take to develop mines, build out refining capacity and create the battery gigafactories required to meet net-zero targets.

Not only that, but many corporates are perfectly happy operating in partnerships with peers from around the world, with the result that even when factors such as tariffs, sanctions or Covid-19 disrupt normal flows, globalization doesn’t end overnight.

Testing the triangle

While a move to reduce reliance on China might be at the heart of the current intentions of some western governments, it’s important to note that the alternatives might not be straightforward either.

The high degree of concentration of resources in the so-called ‘Lithium Triangle’ of Argentina, Bolivia and Chile means that any physical disruptions or regulatory and geopolitical events there would have large impacts on the availability of minerals, and in turn on prices.

These three nations have already discussed the possibility of creating their own OPEC for lithium, a move that is expected to be revived as the race for raw materials heats up.

A revival in resource nationalism and potential asset nationalization that has been evident in Bolivia in various commodities over the years.

Similarly, the investment climate in Chile, traditionally viewed as a stable operating environment, has been more challenging of late amid plans to rewrite the Constitution and change tax laws, and there have already been calls to create a state-run lithium mining company.

Argentina meanwhile has said that lithium is at the heart of a new strategic map for the country’s resources, while Mexico is also aware of the potential of its lithium reserves and this year banned private miners from developing them.

These aren’t the only sources of lithium, of course, but they will play an oversize role in future supply growth.

Clearly, the impetus to refashion the battery supply chain along geopolitical lines is there, but the long-term solution can only come from investment in manufacturing facilities as well as in research and development to create cutting-edge technology. That’s something that China knows all too well.

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