Shock waves from the war Israel and the United States launched against Iran at the end of February have sent oil prices skyrocketing—from $64 a barrel a year ago to $106 a barrel now. This episode joins a long list of embargoes, oil-price shocks, nationalization waves, and resource wars that have made petroleum the textbook case of commodity-driven instability. Yet the kinds of economic and geopolitical volatility that defined the oil age may well look minor compared with the turbulence the critical minerals era is poised to unleash.
Starting in the late nineteenth century, as the world industrialized and the internal combustion engine displaced coal and steam, access to petroleum became inseparable from national power. The emergence of critical minerals—cobalt, lithium, nickel, rare earths, and a dozen others essential to the energy transition, digital infrastructure, and advanced military systems—already bears some parallels to this history. A bonanza is underway: according to the International Energy Agency, in 2024 demand for lithium soared by nearly 30 percent, roughly three times the average annual pace during the 2010s, and demand for cobalt, graphite, nickel, and rare earths each climbed by six to eight percent. Prices for the heavy rare earths (such as dysprosium and terbium) on which electric motors and advanced weaponry depend have more than tripled since 2020. The IEA expects that by 2040, demand for lithium will be five times as large as it was in 2040; the world’s need for cobalt and other rare earths will also rise sharply.
This demand is spurring exploration across the developing world—and raising the prospect of a new round of resource curses in countries lacking the institutions to properly manage sudden mineral wealth. Familiar risks from the oil era loom: elite capture, failed economic diversification, and so-called Dutch disease (named for the consequences of a natural gas boom in the Netherlands), or when high revenue from resource exports drives up the value of a country’s currency and crimps other export industries.
But the comparison has real limits. Petroleum-exporting countries faced formidable challenges, but they operated in a world with functioning multilateral institutions, a dominant reserve currency, and a superpower willing—however imperfectly—to underwrite the rules of the global economy. The uncertainties surrounding critical minerals—structural, geopolitical, technological, and institutional—are of a fundamentally different and broader order. And no one is ready to contend with them. Imagining that the critical minerals era will only bring the same risks as the oil boom did (or even fantasizing that a renewables-dominated future will be less geopolitically volatile) dangerously underestimates the preparation states will need to make.
A STABLE FOUNDATION
The first decades of the oil age were volatile: the industry’s initial market was kerosene for lighting, but the rise of Edison’s electric bulb in the 1880s nearly rendered oil obsolete before gasoline and the internal combustion engine rescued it. But once the automobile, the oil-burning warship, and the petrochemical industry took hold in the early twentieth century, oil’s end uses—transportation, heating, petrochemicals, power generation—settled into a pattern that was varied, widely distributed, and relatively stable.
And even in this early period, the rules that governed the production, refining, pricing, and distribution of oil were sometimes disputed, but they were broadly understood. A handful of major U.S. and European companies controlled the industry; this oligopoly operated largely by way of private commercial arrangements and concessions negotiated with producing states (which often had limited bargaining leverage). In the 1960s and 1970s, OPEC and newly assertive producer states across Latin America, the Middle East, and North Africa shattered that system, nationalizing reserves and wresting pricing power from corporations. The transition was disruptive, but the underlying logic of the market—who held reserves, who needed supply, what determined price—remained legible. And crucially, by then, the international system had shock absorbers: the Bretton Woods institutions, U.S. dollar hegemony, and a relatively stable Western-led geopolitical order created a backstop against supply disruptions and price volatility.
Trade in oil ran on a recognizable scaffolding. Pricing benchmarks were set in London and New York and accepted globally. Commercial disputes were adjudicated in Western commercial courts and through the International Center for Settlement of Investment Disputes. Supply-security coordination ran through the International Energy Agency, founded in 1974 for precisely that purpose. And a tacit U.S. security guarantee underwrote the oil trade: the visible U.S. naval presence in the Gulf kept the Strait of Hormuz an open waterway.
The oil age, of course, never spread its blessings evenly. The so-called oil curse came to define the fate of resource-rich developing countries with weak institutions. Petrodollars bred corruption and rent seeking, entrenched autocrats, and hollowed out nonextractive industries. Collusion between governments and multinationals locked in arrangements that benefited elites and stunted broader development. In Nigeria, for instance—where petroleum has supplied roughly 90 percent of export earnings for half a century—successive governments partnered with Shell and other major companies to extract the Niger Delta’s reserves while the greater region remained impoverished. In Angola, the state oil company Sonangol operated as an extension of the ruling family, routing revenues through opaque offshore vehicles while roughly a third of the population languished in extreme poverty. Venezuela’s midcentury pledge to use petroleum rents to construct a modern industrial economy ended, four decades later, with the economy in ruins and hydrocarbons still accounting for more than 90 percent of exports. Yet for all these pathologies, producer states operated within a functioning international order and faced a demand curve that changed at a glacial pace.
BOOMS AND BUSTS
The critical minerals era will surely feature some of the oil era’s pathologies. But it will compound them with a set of uncertainties that have no precedent. The oil curse constituted overdependence on an economically and politically distorting revenue stream, but one that was fairly stable. Critical minerals carry a new risk: overinvestment in assets that can be technologically stranded almost overnight.
Begin with the demand side. For the better part of a hundred years, oil had no scalable substitute, and the demand curve was foreseeable enough to underwrite the long-term investments the industry depended on. Critical minerals, by contrast, already serve a rapidly evolving and intersecting set of end uses (electric vehicles, battery storage, wind turbines, semiconductors, and defense systems); a variety of minerals are being deployed for precise objectives that are likely to keep shifting. Neodymium, for instance, is used for cutting-edge magnets that propel drones; lightweight titanium is stretching the bounds of aircraft and missile design; and graphite can help reduce the acoustic signatures of submarines. Specific material requirements, however, are still being shaped by technological competition. The dominant battery chemistry of 2030 may differ substantially from that of 2025. Investors, producing countries, and supply chain planners are all betting on moving targets.
This pattern is not without precedent, but its scale is. In the decades before World War I, Chile’s nitrate fields supplied the world with most of its fertilizer and most of its military explosives; at one point, nitrates generated more than half of the Chilean government’s revenue. That industry was destroyed within a decade by a single breakthrough—the synthesis of ammonia from atmospheric nitrogen. But this kind of technological displacement no longer threatens a single commodity or region—it could upend the trade in many materials from many countries, affecting many industries simultaneously.
The dominant battery chemistry of 2030 may differ substantially from that of 2025.
The supply picture for critical minerals is no less uncertain. Their deposits are geologically concentrated—often even more so than oil deposits—and frequently located in politically fragile or contested jurisdictions plagued by conflict. Their extraction involves complexities that pumping crude oil does not. Most consequentially, the processing and refining stages that convert raw ore into usable materials require a sophisticated industrial capacity that China dominates to a degree unmatched by any single actor in the history of petroleum. Roughly three-quarters of the world’s cobalt is refined in China. China refines 60 percent of lithium, 90 percent of rare earths, and 95 percent of battery-grade graphite.
By contrast, OPEC countries today produce only about 35 percent of the world’s oil. Even at its 1970s peak, the cartel’s market share never approached the control China holds over critical minerals refining. Moreover, OPEC policies are set by an unruly collection of governments whose interests diverge often and publicly. China’s supply policies are made by a single, highly centralized state. That centralization can look like stability. But it also allows the supply of critical minerals to be throttled—as part of a government’s geopolitical maneuvering—in a way that the oil supply never could. Since 2023, Beijing has increasingly demonstrated its willingness to disrupt critical minerals supply chains, restricting exports of gallium and germanium and repeatedly tightened the supply of trade licenses for seven rare-earth elements. No OPEC member could have executed an equivalent move alone.
Leaders in fossil‑fuel‑rich economies often found it politically and economically expedient to diversify within the extractive sector rather than beyond it. Critical minerals might appear to offer a seamless extension of existing political-economic arrangements: they promise rents, rely on familiar forms of state-corporate collaboration, and avoid the difficult institutional reforms required for broader industrial diversification. Yet critical minerals generate far smaller and more uncertain rents than oil and gas; their extraction and refining are more labor‑intensive; and their underlying markets can shift rapidly. The political and economic systems that managed oil cannot simply convert to managing mineral wealth.
GAMES WITH NO RULES
The most important difference is the geopolitical context. The rules-bound oil order that eventually emerged—which stabilized prices, settled disputes, and absorbed shocks—depended on the United States serving as the global economy’s ultimate guarantor, a role Washington now seems far less willing to play. During the Cold War, the Soviet Union was a military rival but not a true economic competitor; the two systems were largely decoupled. Today’s bipolar tension between Beijing and Washington is categorically different. China is simultaneously the United States’ largest trading partner for a wide variety of manufactured goods, its primary strategic rival, and the dominant processor of minerals that both countries need for their economic and military futures.
The fragmentation accelerated by the Trump administration’s tariff escalation and hardball diplomacy is not a temporary disruption. It has begun to trigger a structural reorganization of the global economy, one whose ultimate shape remains genuinely unknown. Who counts as a “friend”? Which supply chains can be trusted? Which standards will govern trade in these materials? With respect to oil, after 1945, these questions had relatively settled answers. Now none do.
Oil price collapses devastated producer states in 1986, 1998, and 2014. But after the shocks, production and prices reverted to their long-term means. The pain was severe, but the asset class was not stranded. What distinguishes the critical minerals era is precisely that possibility: that collapses in demand for specific minerals will not restabilize because the technologies that drove demand have moved on. This is the condition the economist Frank Knight has called “uncertainty proper”: not risk that can be quantified and priced but an irreducible unknowability. The technological trajectory is uncertain. The geopolitical architecture is uncertain. The regulatory environment—who will set standards, enforce extraction norms, adjudicate supply disputes—is uncertain. The pace of the energy transition, and therefore the timing and magnitude of demand, is uncertain.
These uncertainties are already distorting countries’ economic and political choices. The Democratic Republic of the Congo spent a decade building its national accounts around cobalt; it now produces roughly 70 percent of the world’s supply. But cobalt demand has been redefined by chemistry decisions made in Chinese battery labs. The rise of lithium-iron-phosphate cells, which contain no cobalt, cut cobalt prices by more than half between 2022 and 2024; in early 2025 the Congolese government suspended exports entirely in an effort to arrest the collapse. Indonesia, by contrast, has tried to avoid the classic resource curse by banning the export of its unprocessed nickel ore and instead building a domestic refining and battery-materials industry. But it has done so at a cost: near-total dependence on Chinese capital, technology, and markets.
A STITCH IN TIME SAVES NINE
Without strong governance, mineral booms will not only replicate the familiar symptoms of the resource curse but also generate entirely new forms of volatility. No single power appears ready to underwrite a stable trading order. So producing countries will need to negotiate a new generation of partnerships with buyer governments and companies, agreements that exchange priority supply for long-term demand guarantees, price floors, and financing for domestic projects. There are agreements in the offing that could provide blueprints, although they do not yet match the scale of the problem. Ukraine, which has abundant deposits of lithium, rare earths, and titanium, has crafted agreements with both the European Union and the United States, which could be updated to tie extraction rights to coinvestment in refining and component manufacturing inside Ukraine itself and linked to multidecade purchasing contracts that would afford Kyiv stable revenue flows. Strategic partnerships recently forged between the European Union and Chile, Namibia, and the Democratic Republic of the Congo—primarily for lithium, cobalt, and copper—are also usefully structured.
Buyer countries, for their part, will have to cooperate if they want to dilute China’s dominance in processing. The United States’ Inflation Reduction Act, the European Union’s Critical Raw Materials Act, and Japan’s and Korea’s stockpile programs will only become powerful in coordination. The Minerals Security Partnership, launched in 2022 among 14 economies, is an embryonic form of coordination, but it will require binding commitments on cofinancing, harmonized content rules to ensure consistency and transparency across different minerals, and shared offtake contracts—functions an IEA for minerals would perform if one existed.
Countries that produce critical minerals will need to negotiate a new generation of partnerships.
Setting standards is a major challenge. Efforts by buyer countries to impose voluntary standards on extractive industries can make a real difference: the 2003 Extractive Industries Transparency Initiative, founded in Norway, has helped combat corruption and ensure resource revenues are used for productive purposes. The 2006 Initiative for Responsible Mining Assurance offers, for industrial-scale mine sites, valuable independent assessments that are overseen equally by the private sector, local communities, civil society actors, and workers. And the Organization for Economic Cooperation and Development’s 2010 Due Diligence Guidance has helped companies source minerals more responsibly from conflict-affected or high-risk areas. These kinds of architectures need to be extended to processing, in which Chinese capacity is dominant and environmental and labor standards are often the weakest. A standards regime adopted by critical minerals mining companies that respects human rights, treats conflict zones responsibly, and maintains environmental and labor standards would be a good beginning.
None of these shifts can insure against the risk that most distinguishes critical minerals from oil: demand curves that can collapse suddenly because of technological evolution. Here, the necessary instruments are financial. To limit inefficient innovation, producers and refiners should reject short-term contracts even if long-term demand is not proven. They must insist that buyers commit to long-term contracts to get supply at all, much as Japan has done for decades to secure Australian iron ore and liquefied natural gas. Sovereign wealth funds must be structured around the risks inherent in the critical minerals supply chain, in the model of Norway’s fund, which is built on the premise that hydrocarbon demand will decline.
Yet even the best‑designed contracts cannot substitute for the deeper need to cultivate nonextractive engines of growth. Mineral wealth can buy countries time to invest in education, infrastructure, and the regulatory capacity that nonextractive sectors require—but only if producer governments treat rents as a bridge, not a destination. Only institutional strength and economic diversification can secure long‑term resilience. Getting the balance right across dozens of very different producing states will determine whether critical minerals become the foundation of a more stable and equitable global economy or the epicenter of new geopolitical earthquakes.
Loading…
