The full implementation of China’s curbs on rare earth exports could jeopardise $6.5 trillion in downstream production outside the country, potentially crippling several industries across continents, the International Energy Agency has warned.
The automotive, high-tech, defence and energy sectors are among the most vulnerable parts of the global economy that could take a hit from Chinese export restrictions, the IEA said in its latest Critical Minerals Outlook report on Thursday.
How to confront these vulnerabilities "is the most important emerging energy security question”, executive director Fatih Birol said during an event at the Council on Foreign Relations in Washington.
The restriction could have consequences for the downstream global industrial base, but the US and Europe will account for nearly half of the economic impact, the Paris-based global energy watchdog said.
In April 2025, China, the world’s second largest economy, introduced major export controls on seven heavy rare-earth elements, of which it is the top global producer. The move significantly impacted downstream industries, forcing some automotive producers to temporarily halt operations.
In October last year, the export restrictions were further expanded to include internationally made products containing rare earths sourced from China. Although the expanded measures were suspended for one year until November 2026, vulnerabilities remain, according to the IEA report.
Small but vital
Though used in small quantities, rare earths are a group of 17 metals that are essential for making products that range from cars and aircraft to electronics and weapons systems.
Besides China, African nations including Democratic Republic of the Congo, Mozambique and Zimbabwe have rolled out export restrictions on cobalt, lithium and graphite. These moves have turned “supply concentration risks into reality”.
"Our latest analysis shows that vast amounts of economic value depend on relatively small volumes of critical minerals, whose supply chains remain highly concentrated and are therefore vulnerable," Mr Birol said in the report.
The Chinese control over rare earths was among the critical elements in the US-China trade war last year, as the US deemed the Chinese restrictions a national security threat. These elements represent only a fraction of production costs for businesses globally; however, supply risks and a sudden rise in prices can disrupt manufacturing and trade.
“If battery-grade graphite trade were fully disrupted, over $300 billion per year of downstream production outside China would be at risk,” the IEA said. “These developments underscore how small volumes of critical minerals underpin vast economic value and highlight the fragility.”
Prices of critical minerals rebounded in 2025 and early 2026 after four years of declines as supply conditions tightened. Price volatility and geopolitical tensions also weighed on investment, which fell by 9 per cent in 2025, ending several consecutive years of growth, according to the IEA data.
Investing in these projects require long timelines, major capital investment before production even begins, complex permitting processes and weak revenue visibility.
“If we leave it to the market forces, we can never fix this,” Mr Birol said.
Stark reminder
Mr Birol highlighted that when it comes to critical minerals, the gap between China and the rest of the world "is at least eight years".
He also said the IEA is working on a system where like-minded countries can have a “safety net” for critical minerals.
Strategic stockpiles, the IEA said, can provide an “important emergency buffer”, helping to maintain industrial activities during supply shocks.
The agency said a multilateral effort is needed to stockpile 11 high-risk materials that will cost countries other than the dominant supplier about $900 million – a modest expense relative to the potentially major economic impacts of disruptions.
Western governments, the IEA said, have already been trying to secure supply of critical minerals through alternative supply chains and public financing commitments for new projects have more than quadrupled between 2023 and 2025 to $65 billion.
In June, the Group of Seven (G7) announced the launch of a programme with the IEA's support to alert them of “future market stress or disruption in supply or demand".
They also announced a new platform with the IEA and Organisation for Economic Co-operation and Development to provide data on market developments and supply chain vulnerabilities, stockpiling and progress in financing and diversification.
“On one hand, we have to find ways to ways to make them more sustainable. On the other hand, we are trying to find opportunities, collaboration between the advanced economies and emerging countries to work together there,” he added.
While these and other efforts are afoot, the conflict in the Middle East has provided “another stark reminder of the vulnerabilities affecting mineral supply chains," it added.
While the key impacts of the conflict centred on the oil and gas market, the impact on the minerals and metals markets was also sizeable due to the closure of the Strait of Hormuz. The narrow waterway is not only vital for about a fifth of global energy supply but also carries significant quantities of critical cargoes such as aluminium, sulphur and helium.
The Middle East accounts for around 8 per cent of global aluminium production, and production curtailments at several regional smelters have added strain to an already tight market.
The region also supplies around one-quarter of global sulphur. Half of global seaborne sulphur trade passes through the Strait of Hormuz.
Supply disruption prompted China to curb sulphuric acid exports in May this year, which created “ripple effects across both mineral and fertiliser value chains,” it added.
