Lithium is critical to the global energy transition. Lithium is the lightest metal, but it carries significant geopolitical weight. Lithium is a vital component in electric car batteries, but also for laptops, mobile phones and many other devices, making it an essential part of the modern economy. The projected rise of electric cars sales in next few decades has sparked a rush for lithium. Demand for the metal is expected to rise ten-fold in the decade from 2020 to 2030.
Supply of the silvery-white metal may struggle to match demand in the coming years because mining projects take many years to come online. China is the destination for much of the world’s lithium thanks to the country’s domination of the car battery industry. But as other countries start to build more of these batteries domestically, they are evaluating where the raw materials originate from.
Dependence on lithium for an increasingly critical part of the energy sector (batteries) has forced countries to consider the risks involved in the supply chain behind them. Over the past few decades Chinese firms have acted to secure as much of the world’s supply of lithium (controlling around 60 percent of the world’s processing capacity for lithium). This is part of a wider trend as powers – US, China, India the EU and others search for the raw materials to fuel the energy transition.
Countries across the world such as the US, Iran, Portugal, Austria and the United Kingdom have recently identified lithium deposits of varying sizes. Having a major deposit does not mean the lithium is commercially viable, it may be too expensive to actually extract the lithium from the ground. But thanks to growing geopolitical tensions countries are keen to both open up domestic sources and diversify their supplies of lithium.
South America
Lithium mining is heavily concentrated in South America. Chile is the leading producer, followed by Argentina. Bolivia has huge reserves of lithium in its stunning salt flats but has so far failed to exploit them commercially at scale. Fast rising demand for the metal has a set off a hunt for new supplies.
A geopolitical struggle is emerging over the so-called lithium triangle where much of the world’s reserves of extractable lithium are to be found. The battle is between the buyers of lithium for industrial purposes (primarily China and other industrial powers), but also local interests.
Across the lithium triangle there is conflict around the environmental impact of mining, whether lithium is benefiting the local economy and around which foreign partners to work alongside. Below I look at the political dynamics of three countries that make up the triangle.
Bolivia
Despite the riches found in the Salar de Uyuni, the world’s largest salt plane containing the world’s biggest lithium reserves (estimated at 23 million metric tonnes). Bolivia has not profited from this wealth. The Bolivian government had wanted to maintain control of the lithium – unwilling to let foreign companies extract the profits. The Bolivian government did sign an agreement with a German firm that would have created a partnership where technical knowledge was shared and the poorest in the country would benefit from the mineral wealth.
The German deal did not work out and so Bolivia has not so far exploited its lithium reserves. But last year Bolivia signed agreements worth US$ 1.4 billion with Russian and Chinese consortium (including Citic Guoan and CATL) which will yield around 100,000 tonnes of lithium per year. Geopolitically the deal has pushed Bolivia firmly further towards the pro-China camp. However, the agreement has been called into question, particularly as the terms have been kept secret. Critics are questioning whether the country at large will benefit from the investment and whether it is legal under Bolivian law.
Argentina
Argentina has also been a target for Chinese investment. Chinese firms such as Tibet Summit Resources have worked with the national and local governments to extract lithium from the crisis hit South American country. Argentina appeared to be leaning ever closer to China, (Sergio Massa the now ex-Economy Minister even called the country “Argenchina”). But ultra-rightwinger Javier Milei’s dramatic rise to power in late 2023 has thrown Argentina’s international relations into flux.
Milei attacked China during his election campaign, threatening to break off relations with Beijing and once in power ruled out joining the Chinese leaning BRICS grouping. However, Argentina’s dependence on Chinese demand for raw materials makes a complete break unlikely. Argentina is highly dependent on Chinese demand for its exports. Also Chinese firms are well established in the country and often deal directly with powerful local governors, not just the federal government.
China can also use economic levers, such as blocking Argentine exports (like it did with Soybeans in 2010) if it wants to put pressure on Argentina, or feels it is freezing out Chinese firms. Argentina is unlikely to fall completely out of China’s orbit, but western firms may now gain more opportunities to invest there. If Milei’s ultra-free market policies work out as he hopes Argentina will attract new foreign investment which will allow it to produce more lithium, perhaps enough to compete with its rival across the Andes – Chile.
Chile
Chile is currently the world’s second biggest lithium producer with around 28 percent of global supply (Australia is the biggest with around 40 percent of global production). Mining is concentrated in the ultra-dry Atacama Desert and is dominated by two producers. US based Albemarle and SQM – whose largest shareholder is Chinese owned Tianqi Lithium Corporation. This division matches Chile’s foreign policy aim of “autonomy” – or maintaining good balanced political relations with the US, China and EU, plus its South American neighbours.
In 2023 the left-wing Chilean President Gabriel Boric announced plans to nationalise the lithium industry. This will not happen overnight, the current licences will be allowed to run until their end date of 2030 and 2043. While this may benefit Chile who could enjoy more of the lithium wealth, there is concern it will cut production as a state-run organisation may not be able to run the operations as efficiently as the private sector. This has not put off foreign investment, Chinese firms are still planning to invest in lithium iron processing plants. German chemical giant BASF is also keen to invest in Chile.
Commodities and Cartels
There have been rumours that producer countries in South America and Africa will look to create a lithium cartel similar to OPEC. This could be difficult given the political differences between the states themselves and opposition from buyers, particularly China, but we should expect to see more attempts to control lithium and other critical material markets as their importance grows.
Chinese firms now control a large proportion of global lithium mining and processing. This domination makes others fearful it will cut the supply; or manipulate the price of the metal. This can be a difficult tool to use widely as it immediately alarms other buyers of the metal into seeking more secure supplies. But access to such a large proportion of the market will ensure China is well positioned to ride the net-zero wave and continue leading the battery and climate tech industry.
Environmental concerns are another major sticking point to new mines. Lithium mines attract criticism thanks to the environmental damage they cause, such as using up precious water supplies in arid regions. While the alternative – continuing to dig for coal, and drill for oil is overall far worse for the environment, local concerns often trump the global picture.
In the long term lithium demand may also face another hurdle - namely alternative batteries. Sodium, magnesium and liquid based batteries have all been proposed and researched, but not yet produced at scale.
As a commodity lithium is never going to rival oil and gas in terms of its geopolitical importance, but it is emerging along with other critical materials as a key strategic resource for the net-zero age
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