The Great Rare Earths Shift: Why Central Asia Matters Now
Key Takeaways:
China dominates the global rare earths supply chain, controlling over 85% of refining capacity and shaping global market dynamics.
Rare earths are critical to clean energy, electric vehicles, and defence systems, making them a strategic priority in global industrial policy.
The US and allies are racing to diversify supply through domestic mining and partnerships, but face high costs and long lead times.
Heavy rare earths, which are harder to source, pose the biggest supply chain risk — especially for magnets used in EVs and wind turbines.
Geopolitical tensions and export controls are driving states to view rare earths not just as commodities, but as tools of strategic leverage.
Overview
The intensifying trade dispute between the U.S. and China has renewed concerns over the stability of global supply chains for rare earths. Since the 1990s, China has maintained a monopoly on 7 out of 17 rare earths deemed critical to modern industry. In direct response to tariffs introduced during the Trump administration, Beijing imposed countermeasures that restricted the export of several of these key materials. These restrictions have heightened fears of supply chain disruptions as well as potential price volatility across multiple industries. As a result, both the U.S. and E.U. have accelerated efforts to diversify their supply networks, investing in suppliers outside of China to reduce their strategic dependence on Beijing.
Rare earths are grouped into two types: light and heavy. Of these, heavy rare earths are more challenging to extract and have been the focus of China’s export restrictions. These heavy rare earths possess unique magnetic, electronic, and thermal properties that make them essential for advanced manufacturing. Demand for them is high in technology-driven sectors including defence, electronics, and aerospace. Heavy rare earths play a critical role in the global shift toward cleaner energy. They are indispensable in the production of key components used in nuclear power plants, wind turbines, solar energy systems, and electric vehicles, making them vital to achieving both energy security and climate goals. Reflecting on this trend, the International Energy Agency (IEA) has projected that global demand for rare earths will increase by 81% by 2040, driven largely by international commitments to Net Zero Emission targets.
Geological surveys have identified Australia, Brazil, China, India, and Russia as holding the world’s largest national reserves of rare earths. However, recent data points to substantial and largely untapped reserves in Central Asia’s Tien Shan and Pamir mountain ranges, positioning the region as an emerging player in the global rare earths market. This Central Asian market presents attractive opportunities for near-term investment in energy, raw materials, and mineral processing and has potential to assist in regional infrastructure development. However, establishing deeper ties with Central Asia will require a carefully managed foreign policy approach. Without this, the West may risk straining relationships with Central Asia’s key trading partners, particularly Russia and China.
Shifting Dynamics: China’s Rare Earths Leadership and Russia’s Market Shortfall
China’s recent restrictions have renewed concerns over global access to these critical materials. In 2023, the International Energy Agency reported that China accounted for 90% of the global refining capacity across all 17 rare earths, a level of dominance that affords Beijing substantial leverage over global supply chains. The Chinese mining sector benefits from vast domestic reserves including the Bayan Obo district, the world’s largest known rare earth deposit, but has also made strategic investments in Central Asia’s emerging rare earth markets, including Kazakhstan, Tajikistan, and Kyrgyzstan. Accompanied by a burgeoning partnership with Myanmar, China imported 41,700 tonnes of critical raw materials in 2023, over double the domestic quota. A trade relationship that has not been extended to Western rare earths competitors. Beyond resource control, China has established itself as the technological leader in extracting and refining raw minerals – often processing rare earths on behalf of their competitors.
In response to U.S. tariffs introduced under the current Trump administration, China imposed new export restrictions, introduced production quotas, and revised licensing laws for rare earth processing, but this is not the first time China has leveraged its dominance in the rare earth market for geopolitical advantage. In 2010, amid a territorial dispute with Japan, China imposed an embargo on critical material exports. More recently, in 2023, in response to evolving geopolitical dynamics, China tightened control over its rare earth sector, banning the exports of technologies used to manufacture high-performance magnets, extending an existing ban on technologies for extracting and separating these critical materials.
As global demand for rare earths rises, Western economies face two major challenges: developing alternative supply chains and closing the technological gap in refining and processing these critical materials. Preliminary steps have already been taken: in 2020, the U.S. Department of Defence invested USD 439 million into developing a domestic “mine-to-magnet” rare earths supply chain. Despite this substantial investment, China’s strategic investment across decades means it continues to dominate the market. A comparable situation can be observed in the energy sector, where efforts to isolate dominant suppliers have had mixed results. Following the 2014 annexation of Crimea and the imposition of Western sanctions, Russia reoriented much of its fossil fuel trade toward Asian markets. Over the past three years, European nations reduced their Russian oil imports by 90%, yet in 2024, Russia still earned USD 274 billion from fossil fuel exports, 74% of which went to China, India and Turkey. This demonstrates that while geopolitical strategies can pressure dominant suppliers, shifting global supply chains is a slow and complex process. In the case of rare earths, reducing dependency on China will require not just investment, but long-term coordination, technological advancement, and diversified international partnerships to meaningfully reshape market dynamics.
The war in Ukraine has further strained the global rare earths market, as sanctions on Russia have curtailed its ability to export critical minerals, prompting Western companies to halt imports from one of the world’s largest reserves. In response, the U.S. and Ukraine have announced a new trade partnership aimed at developing an alternative supply chain for critical minerals and addressing some of this shortfall. The agreement would deepen economic ties and stimulate investment across Ukraine and neighbouring Eastern European economies, with a focus on the extraction of rare earths, other essential minerals, and energy resources. Importantly, the deal includes provisions for enhanced military cooperation, designed to bolster Ukraine’s defence capabilities against Russia and create a more secure environment for foreign investment and long-term development.
The Rise of Central Asia’s Rare Earths Market
The Central Asian republics, once part of the Soviet Union, were integrated into a large supply chain that moved oil, gas, critical raw materials, and key agricultural goods like cotton throughout the region and toward Moscow. After gaining independence in 1991, these nations initially maintained close trading relationships with Russia, China, and each other. However, this landscape is changing. In recent years, Central Asian countries have embarked on wide-ranging economic reforms, especially in energy, mining, and refining, aimed at modernising their industries and attracting a more diverse pool of international investors. As global demand for rare earths grows, the region is increasingly positioning itself as a credible partner within the global supply chain, offering untapped potential and a strategic geographic location.
This emerging role gained relevance after a critical turning point in 2011, when China, then the dominant rare earths exporter, sharply reduced its exports by lowering quotas and raising duties. The move triggered a substantial price rise of rare earths including europium and dysprosium oxides, critical elements in the production of LED displays and high-performance magnets. These shocks exposed in clear terms the dangers of over-dependence on a single supplier and ignited a global search for alternative sources. In response, the U.S. Geological Survey identified Central Asia as a region of interest. By 2016, their research revealed that Central Asia collectively contained 384 geological occurrences of valuable minerals, with Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan together accounting for 11% of known global rare earth sites. Growing investment and advanced exploration have continued to reveal the region’s potential highlighted by a 20-million-tonne rare earth deposit announced by Kazakh geologists in April 2025, a figure that, if independently verified, could significantly elevate Kazakhstan’s position in global rankings. These developments, coupled with the region’s increasing economic openness and participation in intergovernmental initiatives, such as the Asian Development Bank-led CAREC, the Eurasian Economic Union, and the C5+1 dialogue highlight Central Asia’s growing economic openness and appeal as a reliable rare earths partner for Western markets.
In recent years, the European Union has taken decisive steps to strengthen its economic partnerships with the five Central Asian republics. A major milestone was the first official E.U.–Central Asia summit, held April 2025, in Samarkand, Uzbekistan. The summit launched a series of ‘Enhanced Partnership and Cooperation Agreements’ aimed at deepening collaboration, with a strong emphasis on trade, investment, and long-term cooperation in areas such as energy, raw materials, and security. These agreements discussed improving cooperation in security and democracy, but the primary focus was to strengthen trade and investment between the regions.
Shortly after the April summit, the European Bank for Reconstruction and Development (EBRD) formally launched a USD 2.5 billion investment package spanning all five Central Asian republics under the E.U.’s Global Gateway Initiative. This initiative prioritises infrastructure and supply chain resilience, with a focus on critical raw materials, water, energy, climate adaptation, and regional transport connectivity. The package signals a strategic shift in E.U.-Central Asia relations, anchored in mutual economic interests and a shared urgency to diversify global resource networks. Momentum continues to build through a growing number of bilateral arrangements between Western partners and Central Asian states. In March 2025, the French company Orano and Uzbekistan’s state-owned Navoiyuran secured a joint venture in uranium mining, reinforcing Europe’s intent to secure alternative sources of nuclear fuel. Around the same period, a U.S.-based investor made a USD 5 billion offer to acquire Eurasian Resources Group (ERG), a Luxembourg-registered producer of copper, cobalt, and iron ore, 40% of which is owned by the government of Kazakhstan. The bid was declined by Kazakhstan’s Mining Minister, Baurzhan Aitkulov, who stated that ERG is considered integral to Kazakhstan’s plan to boost rare earth output by 40% by 2028. Together, these developments reflect how Kazakhstan and Uzbekistan are positioning themselves as key facilitators of regional integration—pursuing diversified investment partnerships while maintaining a degree of strategic autonomy in shaping the future of their resource sectors.
Not all states are equally positioned to take advantage of these advancements, Turkmenistan remains the most geopolitically and economically isolated of the five Central Asian republics. It ranks 162nd out of 184 countries on the Index of Economic Freedom, reflecting its highly centralised political system and restrictive business environment. The country has limited rare earth deposits, which, combined with its inward-facing economic policy, makes it an unlikely near-term destination for foreign investment in mining or refining. By contrast, Kyrgyzstan and Tajikistan occupy a middle ground in terms of economic openness and foreign investor engagement. Kyrgyzstan currently hosts 43 active mining operations, of which 23 are operated by foreign companies and 20 by domestic firms. Recent regulatory reforms and rising global demand have increased investor interest in expanding this base. In Tajikistan, there are 17 operational mining and processing sites, including those affiliated with TALCO, the state-owned aluminium producer and one of the country’s largest industrial entities. Chinese investment plays a dominant role in Tajikistan’s mineral sector, particularly under the Belt and Road Initiative (BRI), which has enabled more efficient export routes—particularly for zinc—without requiring transit through Russian infrastructure.
Despite limited global attention, Central Asia is positioning itself as a potential long-term contributor to easing rare earth market concentration and reducing trade bottlenecks linked to Russia and China. While the region remains in the early stages of scaling production capacity, its growing industrial base and strategic ties to China’s rare earths sector suggest it could play a supportive role in meeting future demand — particularly for the European Union.
Knock-on effects to European Markets
The E.U. has committed to achieving climate neutrality by 2050. Meeting this target will require a significant increase in the supply of rare earths to support the development of clean energy infrastructure. Combined with growing trajectories in defence spending and production due to escalating international conflicts, the E.U. and NATO both stress the importance of rare earths to ‘maintaining a technological edge and operational readiness’. The E.U. has stated their demand for rare earth metals is expected to increase six-fold by 2030 and sevenfold by 2050.
To meet projected demand, the 2024 European Critical Raw Materials Act was introduced to strengthen coordination among E.U. member states and support the development of a diversified rare earths supply network. The legislation aims to encourage domestic investment, supporting local businesses to build capacity in extraction, refining, and processing. In parallel, the European Bank for Reconstruction and Development (EBRD) has begun engaging with new investment opportunities across Central Asia. The ongoing U.S.–China trade dispute has increased the urgency for the E.U. to secure alternative supply chains before shortages begin to disrupt European productivity and drive up manufacturing costs.
While progress is being made to secure long-term sources of rare earths, another challenge will be ensuring there is sufficient supply in the near-term to maintain production in key industries and avoid growth stagnation. The Financial Times has raised particular concerns for the European automotive industry. Based on insights from government officials, traders and auto-executives, current rare earth inventories are estimated to last only 3-6 months before major shortages. The European automotive renewables and consumer electronics industries are likely to be impacted by these near-term supply chain disruptions.
The European Rare Earth Competency Network (ERECON) has speculated for years that price volatility and restricted access will limit supplies of rare earth reserves within Europe. ERECON highlights the broader long-term risk associated with limited rare earth supplies on European scientific research institutes, universities and businesses centered around technology, clean energy and defence. If these organisations have constrained access to rare earths and high research costs, it will negatively impact their ability to attract skilled expertise and invest in high-tech industries associated with critical materials. This limited access may decelerate Europe’s rates of technological innovation and weaken their contribution to many expanding markets. Increasing exports from Central Asia’s rare earth supply in European markets could help offset these near-term challenges.
Geopolitical Risks to Consider
Both the U.S. and E.U. have a vested interest in securing rare earths supply chains with Central Asia, yet, with different priorities.The U.S. aims to maintain its role as the world’s leading investor in defence, while the E.U. is poised to prioritise its 2050 target target to replace fossil fuels with renewable energy. These objectives actively shape the landscape of business interaction within Central Asia. The E.U. increased its imports from Central Asia by over 40% between 2014 and 2024, primarily purchasing crude oil and metals. As business activity is expected to grow significantly in the coming years, investors will grapple with the practical impacts arising from Central Asia’s complex history of geopolitical tensions and civil conflict factors that present key risks to the stability and reliability of rare earth market investments.
During the Russian Empire and the Soviet Union, Russia played a highly influential role in shaping the borders, political regimes, and economic relations within Central Asia. Relationships that have continued since the fall of the Soviet Union. In geographical terms, with exception to the Caspian Sea, Central Asia is effectively a landlocked region. The most cost-effective and fastest way to transport goods from Central Asia to Europe is through Russia’s Northern Corridor, which Europe has been avoiding since the 2014 annexation of Crimea. China’s BRI provides an alternative transportation route for Central Asian exports through Azerbaijan, undermining Russia’s strategic position. Russia and China are allies, yet, they have competed to assert their own interests within Central Asia while collaboratively managing Western influence. Over time, due to sanctions, reduced investment, and the Ukraine conflict, Russia’s influence has weakened, and Central Asia has formed a stronger dependence on Chinese investment and trade. In addition, China has cautiously improved security cooperation across the 3300km border it shares with Kazakhstan, Tajikistan and Kyrgyzstan. Western investments will have to navigate developing business activity without intervening in existing economic arrangements, otherwise they risk sparking dormant geopolitical tensions.
In terms of internal conflicts, the region has a history of civil conflicts that have fluctuated over several decades. Generally, tensions have been based on ethnic-group rivalries forming territorial disputes, but active cases of civil unrest in Kazakhstan and Uzbekistan have emerged in response to corruption and failure to form democratic institutions. Specifically, Kazakhstan's 'Bloody January' in 2022 which started as protests in the commercial capital, Almaty, and spiraled into a violent civil turmoil, resulted in the loss of 200 lives nationwide. Similarly, in 2010, Kyrgyzstan saw waves of protests against foreign mining firms emerging due to water contamination and pollution, which temporarily paused production. In addition, between 2019-2020, large-scale protests sourced in Bishkek, Kyrgyzstan spread the nation in response to alleged election rigging. This unrest caused huge labour shortages and forced many mining companies to halt operations. Currently, long-standing border tensions between Kyrgyzstan and Tajikistan in the Ferghana Valley are at a stalemate, but poses a real risk for businesses looking to make investments in the event these tensions resurface.
Outlook
Central Asia’s rare earth market presents a significant and timely opportunity for Western investors seeking to diversify supply chains and reduce dependence on dominant players like China and Russia. While the region’s complex geopolitical landscape and internal challenges require careful navigation, recent economic reforms and growing international partnerships position Central Asia as an emerging hub for critical minerals essential to the global green energy transition, defence technologies, and advanced manufacturing.
At the forefront, Kazakhstan and Uzbekistan are demonstrating a multilateral approach to balancing trade relations between Russian, European, U.S. and Chinese investors. As a result, the region is gradually building a broad and secure framework for investment. Even if China’s restrictions remain in place, Central Asia’s efforts to scale rare earth exports are unlikely to materially impact the short-term supply crunch, given the lead times required for mining and processing capacity to come online. The region’s potential is more relevant over the long term, and it should not be considered a near-term substitute for established supply chains already strained by geopolitical tensions. Central Asian states are already playing a valuable role in global rare earths markets, but the region’s untapped potential suggests that expanding business engagement could prove to be a smart long-term strategic investment.
Looking ahead, establishing a reliable long-term rare earth supply chain in Central Asia will demand patience, as rare earth project development — from exploration to production — typically spans a decade or more, with permitting, financing, and processing capacity acting as key bottlenecks.Encouragingly, the E.U. and the U.S. are actively pursuing a growing number of economic partnerships and initiatives with Central Asian countries. This increasing economic openness, combined with targeted investment, is set to enhance the region’s capacity to meet rising global demand for rare earths supporting critical sectors such as green energy, defence, and advanced technology.