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The Impact of the Ukraine War on Supplies of Critical Minerals and Rare Earths

- By Professor Sophia Kalantzakos

- Article on the supply of Critical Minerals available here


Even before the world could recover from COVID, the Russian invasion of the Ukraine and the ongoing tragedy unfolding there further complicates an already contentious geopolitical landscape. Moreover, responding to the climate crisis has taken a back seat. While one might hope that the unfolding horror in the Ukraine will be short-lived, it has tilted the balance toward more securitized assessments of global interdependence. Fossil fuel prices have spiked, food prices are rapidly rising and with them inflation and global insecurity. Rail and truck transportation has been disrupted and ships are being re-routed.

Supply chain disruptions continue and talks of diversification to build resilience against exogenous shocks are perceived as both urgent and inevitable in light of “weaponized interdependence.” There is no doubt that economic statecraft has become a potent weapon.

Does this minefield in global politics bode badly for the decarbonization and digitalization project? Have supply chains of critical minerals been impacted? Are green deal commitments shelved? There is both good and bad news and outcomes will be better assessed in the coming months.

First, the war unlike the pandemic has given fossil fuels a new lease on life. Energy prices skyrocketed for both oil and gas and remain highly volatile. The European Union, for instance, that has placed unprecedented economic sanctions on Russia, has had to acknowledge that it cannot cut off its energy supplies from the Federation. It has pledged to reduce reliance on Russian gas imports by 2/3 by the end of 2022. Importantly, the EU has turned to any source of available energy (including nuclear and coal) to keep the economy moving and the lights on. In the short-term, this constitutes a slap in the face for Europe’s climate ambitions. In the medium and longer term, however, it deepens the commitment to the decarbonization of the European economy. Until the moment of writing, OEM’s (Original Equipment Manufacturer parts are produced directly by the vehicle’s manufacturer) remain resolute about the electrification of transport, even though prices for rare earths, cobalt, and lithium had considerably spiked even prior to the War. Shortages in the global supply for semiconductors will worsen impacting the auto sector and consumer electronics. One reason is the disruption in the production of gases that are critical consumables for semi-conductor production. Neon, for instance, is produced in Ukraine and is vital for the manufacturing of advanced chips. Disruptions in nickel production will further increase EV battery costs. Still, industry, Brussels, and individual EU member states continue to push for greater resilience and diversification of their supply chains and are targeting a 30% share of world battery production inside the EU. The European Union and Canada, moreover, have signed off on a strategic partnership to produce both materials and applications needed for decarbonization. Brussels and member states through ERMA and EBA are looking for new sources of materials and actively support existing midstream processing infrastructure on EU territory. Although there may be some delay, the EU remains committed to Global Gateway to transparently finance new infrastructures of connectivity in the developing world that are smart, sustainable, and of “good quality”.

With respect to China’s ongoing dominance of critical minerals supply chains, Europe supports diversification and not decoupling from China even while the United States declares its intention to build greater autonomy from the PRC. All the major industrial actors, moreover, and especially the US and China are vying for control of the tech imperium as the digitalization of the global economy continues unabated.

For the developing world, the fall-out from the war in the Ukraine and the seemingly endless COVID spiral exacerbate ongoing socioeconomic difficulties and negatively impact fragile governance systems. Even while the prices for their valuable resources are skyrocketing, rising energy and food costs are dealing another blow to their economies.

For the moment, decarbonization and digitalization remain the great industrial projects for the 21st century. While important, they are not enough to safeguard the planet from heating above 1.5 C and 2030 looms around the corner. If cooler minds prevail and the current blow to global cooperation is short-lived and manageable, perhaps we might still be able to focus our energies on protecting the global commons and transitioning to a low carbon economy in a way that is inclusive and equitable in both developed and developing nations.

- Professor Sophia Kalantzakos, Global Distinguished Professor, Environmental Studies and Public Policy, NYU/NYU Abu Dhabi.


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