Critical Minerals, Strategic Power: How Policy Is Reshaping the Supply Chains Behind AI and Energy Transition

On 9 October 2026, the European Union announced two developments that reveal a growing contradiction at the heart of global commodity markets. The European Commission selected 46 new strategic raw-material projects to strengthen Europe's domestic supply chains, while EU Trade Commissioner Maroš Šefčovič announced an understanding with China to ease Chinese licensing procedures for rare-earth exports. One initiative seeks to reduce dependence on foreign suppliers; the other recognises that Europe still needs cooperation with its dominant supplier. Together, they illustrate how governments are increasingly using trade negotiations, industrial policy and regulation to determine where commodities move and who controls them.

This contest matters beyond mining. As artificial intelligence (AI), data centres, electric vehicles and renewable electricity infrastructure expand, demand for strategically important materials intersects with national security, technological competition and economic development. Rare earth elements and gallium provide two revealing examples. Both are essential to important industrial technologies, both have highly concentrated refining supply chains, and both demonstrate how policy decisions in one country can affect manufacturers and workers thousands of kilometres away.

The central question is no longer simply whether the world has sufficient mineral resources. It is whether the rules governing their extraction, processing, export and ownership can deliver reliable supply without transferring excessive economic and social costs to producing communities.

1. When Commodity Trade Becomes Geopolitical Power

Rare earth elements are particularly important for high-performance permanent magnets used in wind turbines, electric motors and other advanced industrial equipment. Gallium, meanwhile, is used in specialised semiconductors and power electronics that support computing and efficient electricity conversion. These applications link the minerals to the wider infrastructure underpinning electrification and digitalisation.

According to the International Energy Agency's Global Critical Minerals Outlook 2026, China accounts for more than 90% of global refining supply for both rare earths and gallium. This concentration gives Chinese industrial capacity and export policy an influence extending well beyond China's borders. Even when a mineral is extracted elsewhere, dependence on Chinese processing can leave manufacturers vulnerable to disruptions further along the supply chain.

Export controls make that vulnerability tangible. In October 2025, China announced an expansion of rare-earth export controls, including requirements affecting certain internationally manufactured components containing Chinese-sourced rare earths or made using Chinese technologies. The expanded measures were suspended for a year in November 2025, with the suspension due to expire in November 2026 unless changed. As of 10 October 2026, that approaching deadline remains an important source of policy uncertainty.

Export controls do not necessarily mean that a commodity cannot be exported. Licensing requirements can instead make shipments conditional on administrative approval. However, uncertainty over eligibility, documentation or delivery timing can disrupt procurement, encourage precautionary stockpiling and expose manufacturers to price volatility.

The EU-China understanding announced on 9 October may therefore offer some relief, but it should not be mistaken for the end of the problem. The announcement concerns easing licensing procedures; its practical effects depend on implementation, the scope of approvals and the treatment of individual exporters. The episode demonstrates that access to a commodity can depend as much on diplomatic and administrative decisions as on geological availability.

2. The AI Connection: Gallium and the Economics of Scarcity

The expansion of AI makes the stakes particularly visible. Building data centres requires semiconductors, power-conversion equipment, cooling systems and electricity infrastructure. Their supply chains overlap with those supporting industrial automation and the energy transition.

Gallium illustrates why this matters. The IEA's Energy and AI analysis estimates that gallium demand from data centres could exceed 10% of today's global supply by 2030. This is a projection, not a measurement of current consumption, but it highlights the potential pressure that a rapidly expanding technology sector could place on an already concentrated market.

Gallium also presents a distinctive supply challenge because it is primarily recovered as a by-product of aluminium and zinc production. Higher gallium prices do not automatically generate an equivalent increase in output: production depends partly on the economics and processing decisions of the industries producing the underlying materials. Developing alternative supply consequently requires investment in recovery technologies, processing capacity and commercial infrastructure, rather than simply opening new gallium mines.

This creates a policy dilemma. Governments seeking secure semiconductor supply must decide whether to rely on global markets, support domestic recovery and refining, develop strategic inventories or coordinate with allied producers. Each approach has trade-offs. Stockpiling can cushion temporary disruptions but ties up capital; subsidies can make alternative production viable but transfer some investment risk to taxpayers; and diversification can improve resilience while initially raising costs.

For gallium, effective policy must address the industrial process through which the material is recovered. For rare earths, it must address separation, refining and magnet production as well as mining. In both cases, counting mineral deposits or announcing extraction projects is an incomplete measure of supply security.

3. Europe's Critical Raw Materials Act: Industrial Policy by Law

Europe's response is built around the Critical Raw Materials Act (CRMA), which entered into force in May 2024. Rather than treating mineral procurement solely as a commercial activity, the regulation establishes a framework for strengthening the EU's capacity to extract, process and recycle strategic raw materials.

By 2030, the Act sets benchmarks for EU capacity equivalent to at least 10% of annual consumption through extraction, 40% through processing and 25% through recycling. It also establishes a diversification benchmark under which no single non-EU country should account for more than 65% of EU annual consumption of any strategic raw material at a relevant processing stage. Gallium and rare earth elements used in permanent magnets are both included in the Act's list of strategic raw materials.

The distinction between mining and processing is crucial. A country may host a mine yet remain dependent on foreign facilities to convert its output into usable industrial inputs. By setting benchmarks across different stages of the value chain, the CRMA attempts to reduce this structural dependence rather than merely relocate extraction.

The 46 projects selected on 9 October represent the latest step. Spread across 16 EU countries, they cover 15 of the 17 strategic raw materials identified by the EU and are expected to require approximately €21.1 billion in capital investment. Their designation provides access to accelerated permitting and assistance in securing finance, although it does not guarantee EU funding.

The strategy is ambitious, but benchmarks are not outcomes. A processing facility must obtain finance, secure reliable energy and feedstock, recruit skilled workers, establish customers and compete with established international producers. European governments must therefore evaluate projects by whether they deliver functioning capacity and diversified supply, not merely by how many receive strategic status.

4. The Financing Gap: When Political Ambition Meets Commercial Reality

The difficulty is apparent in the experience of projects selected under the EU's earlier programme. On 8 September 2026, Reuters reported that 23 of the 60 previously selected project developers had called for urgent funding, warning that liquidity constraints and unresolved commitments could jeopardise projects. The Commission said it had mobilised a financing framework worth €1.7 billion, while developers highlighted continuing problems involving finance, market access and permitting.

This reveals a basic limitation of industrial policy: regulatory recognition cannot replace capital. Mining and processing projects often require substantial initial investment and long development periods. If private investors doubt that governments will provide promised support, or if buyers are unwilling to commit to purchasing output at a commercially viable price, projects can stall before production begins.

There is also a question of where public support should concentrate. Funding extraction without adequate investment in refining may leave the original dependency intact. Similarly, a processing facility that relies on a single foreign source of intermediate material may offer less resilience than its location suggests.

Governments therefore need to coordinate finance, infrastructure, offtake agreements and trade policy. Strategic stockpiles can complement this approach by protecting against temporary shortages, but they cannot substitute indefinitely for competitive production. The measure of success is whether supported projects create durable alternatives that remain viable when subsidies decline.

5. Faster Permits, Environmental Law and Community Rights

Industrial policy also shapes the regions in which extraction and processing occur. New facilities may create construction work, technical employment, supplier opportunities, tax revenues and demand for local services. These benefits, however, are not automatic. Their distribution depends on hiring practices, skills development, taxation, ownership and the extent to which producing regions participate in higher-value industrial activity.

Environmental governance is central to this debate. On 30 September 2026, the Council of the EU agreed its negotiating position on a proposal to simplify and accelerate environmental assessments. The proposed changes include streamlined procedures relevant to the CRMA, while the Council's position retains provisions intended to ensure compliance with the Aarhus Convention on environmental information, public participation and access to justice. The measure remains subject to negotiations with the European Parliament; it should not be presented as an already enacted law.

The policy tension is clear. Delayed approvals can increase project costs and deter investment, but environmental assessments also identify risks that may be costly or impossible to reverse. Mining and mineral processing can affect water quality, land use, waste management and local ecosystems. Faster approvals are therefore beneficial only if procedures remain capable of identifying and addressing material risks.

The same principle applies to human rights. The OECD's responsible-minerals guidance identifies risks involving human-rights abuses, corruption, conflict financing and environmental harm across mineral supply chains. It recommends due diligence extending from producers to downstream businesses and end users.

A secure supply chain cannot be judged exclusively by whether materials arrive on time. It must also be assessed by whether workers receive safe conditions, communities can participate meaningfully in decisions, harms can be remedied and firms are held accountable for their sourcing practices. Otherwise, the pursuit of strategic autonomy risks shifting environmental and social costs onto communities with limited influence over the final products and profits.

6. Who Wins When Policy Moves Commodities?

The consequences extend across the global economy. Manufacturers may gain from diversified supplies and more predictable delivery schedules, while consumers may benefit if greater resilience prevents severe production interruptions. Governments can reduce exposure to geopolitical pressure, and regions hosting new facilities may attract investment and skilled employment.

There are, however, potential losers. If domestic production costs more, manufacturers or consumers may face higher prices, at least during the transition. Taxpayers may bear the cost of unsuccessful projects, while established exporters can lose market share as governments subsidise competing producers. Resource-producing countries may also find that investment shifts elsewhere without creating sufficient opportunities for local processing and employment.

These effects should not be confused with inevitable price movements. Licensing uncertainty can increase procurement risk and encourage buyers to accumulate inventories, but the direction and scale of market prices depend on inventories, substitution, actual export volumes and broader demand. Similarly, strategic designations cannot establish how many jobs will materialise without project-level evidence.

The important issue is the distribution of benefits and risks. Policies that support local processing, skills and responsible sourcing can make commodity investment contribute to broader regional development. Policies focused narrowly on securing cheap inputs may instead reproduce dependencies or concentrate value in a small number of firms and jurisdictions.

Conclusion: Security Requires More Than Self-Sufficiency

October's developments illustrate a changing relationship between commodities and the state. Export licensing can alter international supply conditions; industrial legislation can redirect investment; public funding can determine which projects survive; and environmental law can shape both the pace and legitimacy of new production.

Europe's Critical Raw Materials Act offers a framework for reducing strategic dependence, while the latest project announcements demonstrate political momentum. Yet financing concerns show how far policy ambition can remain from commercial delivery. The EU-China understanding similarly demonstrates that diversification and diplomatic cooperation are complementary rather than mutually exclusive.

Ultimately, effective commodity governance must balance three objectives: reliable supply, viable industrial development and responsible production. The decisive test is not how many projects governments designate as strategic, but whether those projects produce meaningful alternatives, create durable regional benefits and uphold enforceable environmental and human-rights standards.

In an economy increasingly dependent on AI and electrification, minerals are becoming instruments of geopolitical power. The countries that manage them most successfully will be those that understand a fundamental reality: controlling a commodity is not simply about owning the resource. It is about governing the entire chain through which that resource becomes economic and technological power.

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