Gulf could play pivotal role in US critical minerals strategy to counter China

A major critical minerals agreement is close to being finalised between the US and Ukraine, potentially ensuring Washington's support for the country, which has been engaged in war with Russia for the past three years.

However, a more important minerals partnership may be emerging between the US and Middle Eastern states, particularly Gulf countries, which could play a crucial role in Washington’s efforts to reduce reliance on China as trade tension mounts, experts and industry sources told The National.

China, the world’s second-largest economy and manufacturing hub, controls a major portion of the world's critical mineral reserves, and dominates the processing and refining of these materials, which are key to a wide range of modern technology and industry, from smartphones to military equipment.

Over the past few decades, the country has developed highly integrated supply chains, covering everything from mining and processing to manufacturing, including electric vehicles, renewable energy equipment and consumer electronics.

The US is currently trying to close the gap, and while it has access to critical minerals domestically and through allies, it severely lacks the processing infrastructure needed to refine them into materials for its massive tech and defence industries.

China dominates rare-earth production, controlling up to 90 per cent of global capacity, and uses this dominance to exert leverage through export bans and trade restrictions.

Analysts and industry participants say investors in New York and London are all about quick returns, while Chinese state-backed companies are willing to think long-term, investing in projects that could pay off down the road – even if they take a hit in the short term.

Gulf nations, rich in capital and seeking to diversify beyond oil, are well positioned to play a key role in America's investment and 'friendshoring' efforts, which involve moving manufacturing to allied or friendly countries.

“Many of the leadership in the Gulf, and even some of the companies have the ability to think a bit longer-term and a bit more strategically … and that gives them more of an ability to think more on a systems level,” said Patrick Barnes, vice president, and head of metals and mining consulting at Wood Mackenzie.

"So, the opportunity is there for certain western groups and Gulf powers to say, 'Hey, let’s cut through the noise. We all know what needs to be done here. We know it can be profitable, but we need to think about it at a systems level,'” Mr Barnes told The National.

The Emirates and Saudi Arabia have been exploring or investing in mining projects in Africa and Latin America, regions abundant in critical minerals. They are also prioritising the development of domestic processing capabilities to reduce reliance on foreign suppliers and add value to their economies.

“The US is not going to reduce reliance on China for key critical minerals needed for national and economic security alone,” said Gracelin Baskaran, director of the critical minerals security programme at the Centre for Strategic and International Studies.

“With their financial resources, political commitment and swift advancements, Gulf countries must play a central role in a friendshoring strategy to strengthen supply chain resilience,” she told The National.

ADQ-Orion JV strikes deal

Recent developments, such as a $1.2 billion joint venture between Abu Dhabi holding company ADQ and New York-based Orion Resource Partners, highlight the growing collaboration in this sector. The venture aims to invest in metals and mining, securing supply chains for critical minerals.

Philip Clegg, Orion’s managing partner, told The National that while $1.2 billion is the current headline figure, they are already discussing investments that would exceed that amount.

The joint venture, which will invest predominantly in emerging markets, will begin with a "relatively small" investment in Morocco's copper sector, Mr Clegg said, without revealing further details.

“Whilst this initial deal is actually quite small, it's paving the way for a series of other deals that would be for part of the consolidation strategy,” he said.

The venture is also open to investing in processing and refining facilities in the Middle East but will focus mainly on mining assets because “that’s where the supply crunch really is”, he added.

The UAE is already home to a large aluminium sector, and state-owned Emirates Global Aluminium is the country’s largest industrial company outside the oil and gas sector.

Affordable electricity, sourced largely from natural gas, solar and nuclear power, has fuelled the industry's growth.

"The key question … is which critical minerals and parts of their value chain require strengths that the UAE has or can develop. And unsurprisingly, that is likely to be centred around energy or energy-adjacent sectors," Mr Barnes said.

By 2030, the UAE plans to increase the mining sector's contribution to its non-oil GDP to 5 per cent and expand the number of mining companies operating within the country by 10 per cent.

Unlike the UAE, Saudi Arabia is rich in untapped mineral resources, estimated at $2.5 trillion. These include significant deposits of gold, copper, phosphate, iron ore and rare-earth elements.

The kingdom is also actively exploring and acquiring international mining assets through its sovereign wealth Public Investment Fund and its joint venture, Manara Minerals.

Domestically, Ma'aden, a state-run mining company, is leading Saudi Arabia's mining development. In 2023, Ma'aden teamed up with US-based Ivanhoe Electric to explore for metals within the kingdom's mineral-rich Arabian Shield region.

Saudi Arabia is also attracting midstream investment, with India’s Vedanta recently committing $2 billion to copper projects, including a smelter and refinery.

Deep reliance

Over the past few years, the Biden administration had introduced several key legislative acts to reduce US reliance on China for critical mineral supply chains. These include the Inflation Reduction Act (IRA), the Infrastructure Investment and Jobs Act, and the CHIPS and Science Act.

In addition to these domestic policies, the US government has also established two international partnerships to enhance mineral security.

The Minerals Security Partnership, a collaborative forum, includes nations from Europe and East Asia, as well as Australia, Canada and India.

Meanwhile, the IRA provides electric vehicle tax credits to countries that have either free trade agreements or critical minerals agreements with the US.

Despite these initiatives, the US continues to be heavily dependent on China for essential critical minerals, vital for national, economic and energy security. China remains the primary supplier for 24 of the 50 minerals designated as critical by the US Geological Survey.

An F-35 aircraft, which is manufactured by American defence company Lockheed Martin, requires about 410kg of rare-earth elements, according to the US Department of Defence.

In response to US tariffs, China recently restricted exports of five key metals used in defence and clean energy.

China has introduced strict export controls on "dual-use" technology and has enacted a full ban on shipments of antimony, gallium and germanium to the US.

Trump creates opportunities and challenges

Although US President Donald Trump could curb domestic demand for critical minerals by rolling back renewable energy and electric vehicle-friendly policies like the IRA, these minerals are currently a key focus of his foreign policy.

On Tuesday, Mr Trump announced the US and Ukraine had reached a draft agreement on critical minerals, which he estimated could be worth about $1 trillion.

Analysts believe Ukraine's proposed deal is a strategy to ensure support from the Trump administration, especially given worries about US-Russia diplomacy regarding the war.

Geopolitical tension complicates talks but could also spur deals, as multi-issue negotiations may lead to compromises otherwise thought impractical, experts said.

“Looking at the current transactional approach of the Trump administration, there is definitely room for a proactive critical minerals policy and co-operation with Gulf states,” Cyril Widdershoven, an analyst at the think tank Strategy International, told The National.

He said the Gulf could emerge as a potential investor in Ukraine's critical mineral assets, a step that might strengthen the region's alignment with Mr Trump’s strategic interests.

US-Gulf economic relations are expected to grow under Mr Trump, who has built strong connections with regional leaders through his business ventures and previous stint in the White House.

However, his plan to annex Gaza has faced widespread criticism in the Arab world, straining these ties and potentially jeopardising a deal to establish relations between Israel and Saudi Arabia.

For the US and Gulf to team up on critical minerals, Washington needs to adopt a more “balanced” foreign policy, Ms Baskaran said.

“When President Trump was elected, he had strong backing from allies such as Saudi Arabia. With the right foreign policy approach, Saudi Arabia could provide substantial investment, foster minerals co-operation and contribute to stability in the Middle East. Taking over Gaza is not an option,” she added.

“Gaining control of Gaza would not promote economic collaboration or partnerships in the mineral sector.”

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