Partnering with Middle Eastern Countries to Boost U.S. Minerals Security

Commentary by Gracelin Baskaran

Published September 6, 2024

Over the last four years, the Biden administration has rolled out a series of legislation to reduce its reliance on China for various supply chains. This includes the Inflation Reduction Act (IRA), the Investment Infrastructure and Jobs Act, and the CHIPS and Science Act. The administration has also rolled out two avenues for international partnerships to advance its minerals security interests. The first is a multilateral forum, the Minerals Security Partnership, which includes European countries and high-income East Asian countries as well as Australia, Canada, and India. The second method is through the IRA, which gives countries that the United States has a free trade or critical minerals agreement with access to electric vehicle tax credits.

However, these partnerships alone are insufficient. The United States remains heavily reliant on China for key critical minerals needed for national, economic, and energy security-it is the primary supplier for 24 of the 50 minerals identified as critical by the U.S. Geological Survey. The United States should develop new partnerships and extend incentives to them in order to meet its needs, particularly in an environment where China is rapidly rolling out export restrictions that could undermine U.S. national, technology, and energy security.

A critical set of countries that have been left out are those in the Gulf Cooperation Council (GCC)-particularly Saudi Arabia, United Arab Emirates (UAE), Qatar, and Oman. These countries should be a central part of U.S. efforts to create resilient supply chains given their capital, ambitious goals, and entry into resource-rich markets that the United States has made limited progress in.

Partnerships with countries ready to deploy capital are crucial as the private sector has reduced investments due to incentives and low metals prices, except for copper. In March 2024, the S&P Global Market Intelligence's Pipeline Activity Index, which tracks activity across the commodity supply chain by evaluating drill results, initial resource announcements, financing, and positive project milestones, showed a decline of 30 percent. The index fell from 88 to 61, marking the lowest point since the peak of the Covid-19 pandemic.

The Saudi Arabian Ministry of Industry and Mineral Resources has expressed significant interest in cooperating with the United States on minerals security. In addition to significant domestic investments, Saudi Arabia is investing $15 billion in copper, lithium, nickel, and iron ore projects globally. This presents a strategic opportunity to reduce reliance on China. For example, Chinese firms in Indonesia have drastically increased nickel production, now producing roughly half of the world's nickel. This increase in production has forced nickel projects in Australia and New Caledonia to close because of a global surplus driving prices down while also simultaneously increasing U.S. reliance on Chinese firms. On the other hand, Saudi Arabia has taken a 10 percent equity stake worth $2.5 billion in Vale Base Metals, a Brazilian company with nickel assets in Brazil, Canada, and Indonesia. Given the United States has less than 1 percent of the world's nickel and has had limited success in Brazil and Indonesia, partnering with Saudi Arabia is in its strategic interest. Domestically, Ma'aden, Saudi Arabia's largely state-owned mining enterprise, has the single biggest exploration program in the world, designed to tap into its estimated $2.5 trillion in resources.

Similarly, Saudi Arabia's ambitions in the copper sector are important for the United States to meet its modern economic needs. Copper is used in transmission infrastructure, defense systems, data centers, electronics, and automotives. Artificial intelligence and data centers alone are expected to drive copper demand up by 1 million metric tons by 2030. The United States can't keep pace with demand growth.

Qatar is also an important ally and has prioritized mining. The Qatar Investment Authority recently invested $180 million into TechMet. The U.S. government, through the International Development Finance Corporation, also has a $105 million equity stake in TechMet. These investments are supporting nickel, rare earths, lithium, and vanadium projects globally, supporting a rapid expansion into new projects that give the United States an offtake.

Likewise, Oman has also identified mining as one of its four sectoral priorities for economic diversification. The free trade agreement between the United States and Oman allows foreign ownership of mines without a local partner. Oman became the first GCC country to export ferrochrome, which includes iron and chrome. They have also identified large-scale copper deposits and have ophiolites, which can contain commodities such as nickel, palladium, manganese, copper, cobalt, platinum, and vanadium zinc.

The UAE has also made rapid progress through the International Holding Company (IHC), a large conglomerate that is expected to sign $1 billion in mining deals this year, primarily in African countries that the United States has also had limited progress in. For example, in 2023, it acquired one of Zambia's largest copper mines. It has also entered joint venture agreements for two iron ore mines in Angola and advanced discussions to acquire a nickel mine in Burundi as well as mines in Kenya and Tanzania. In the words of IHC's CEO, Syed Basar Shueb, the firm is "competing with Chinese. There's no other countries."

GCC countries are also rapidly advancing their minerals processing efforts. Saudi Arabia is making large investments in minerals processing as it advances towards its ambition of becoming among the top seven minerals processing countries in the world. Saudi Arabia's low-cost energy and readily available raw materials necessary for minerals processing such as sulfur also make processing commercially attractive, given the high energy intensity of minerals processing. The United States is also strategically engaging with Africa and Asia to procure minerals that can be processed in Saudi Arabia and the offtake sent to the United States.

In 2023 Vale Base Metals announced plans to build mega-hubs to process and manufacture iron ore goods for the steel industry in Oman, Saudi Arabia, and the UAE for both domestic and international markets.

Ultimately, member countries of the GCC can serve as strategic allies, offering both production and processing alternatives to China. However, this will require formalizing partnerships and integrating them into incentive programs to compete on a level playing field with countries already benefiting from existing incentives.

The United States should look to develop and deploy new incentives for a broader range of commodities. Recent export restrictions from China on antimony could have significant implications for national security given that it's used in ammunition, night vision goggles, infrared sensors, and bullets. Currently, the United States imports roughly two-thirds of its antimony from China. To address this vulnerability, the United States should develop incentives for investments in minerals production and processing for inputs in national, technology, and energy products. The uptick in export restrictions from China in 2023 and 2024 in gallium, germanium, graphite, antimony, and rare earths processing technology serves as a harbinger. The United States should create incentives to stimulate private sector activity in commodities that have long been sourced from China, including rare earths, bismuth, antimony, arsenic, germanium, and gallium.

New partnerships and incentives should be a cornerstone of U.S. foreign policy moving forward. This strategy mirrors how China has achieved a significant advance in the mining industry for decades. The GCC should be a central component of this approach.

Gracelin Baskaran is the director of the Project on Critical Minerals Security at the Center for Strategic and International Studies in Washington, D.C.

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