A price worth paying? A mineral security premium as insurance against supply disruptions

Growing geopolitical tensions and export restrictions are turning critical mineral supply concentration risks into real economic and national security challenges. Recent export controls on rare earth supply chains have shown that restrictions on relatively small volumes of minerals can have outsized consequences for industries worth trillions of dollars.

In April 2025, the Chinese government introduced major export controls on seven heavy rare earth elements and related magnets, causing significant impacts across downstream industries – some automakers were forced to cut utilisation rates or even temporarily halt production due to insufficient magnet supplies, resulting in significant economic losses for each day of lost production. In October 2025, these controls were significantly expanded to cover internationally-made products containing Chinese-sourced rare earths or produced using Chinese technologies. We estimate that full implementation of these controls could put USD 6.5 trillion of annual sales at risk across energy, automotive, electronics and defence sectors outside China. While the expanded controls have been temporarily suspended, the major supply risks remain.

The trend extends beyond rare earths and beyond China. The number of mineral tariff codes subject to export controls has tripled since 2023, encompassing many minerals critical to aerospace, defence, semiconductors and energy including gallium, germanium, yttrium, tungsten and tellurium. Various producing countries have introduced restrictions including the cobalt export quota by the Democratic Republic of the Congo, lithium trade restrictions by Zimbabwe and graphite in Mozambique. The recent surge of new export controls has transformed concerns around high supply concentration from a theoretical vulnerability into an immediate economic security challenge.

Supply diversification remains the fundamental solution to these structural risks, but it comes at a cost. New projects in diversified supply chains often struggle to compete on cost with established incumbent suppliers, creating a major obstacle to investment in alternative production and processing capacity. In many cases, operating costs can be around 50% higher than in established supply bases, materially affecting investment decisions.

This creates a central policy challenge: diversified supply is needed by both governments and consumers, but it is less clear who should bear the additional cost or how the cost gap can be addressed. There have been efforts to introduce a “sustainability premium” linked to environmental, social and governance performance, but such premiums have yet to emerge at meaningful scale in practice.

Against a backdrop of rising geopolitical tensions, the additional cost of diversification could instead be viewed as a form of economic insurance against major supply disruptions. In this context, a “mineral security premium” offers a useful way of framing this cost, helping to facilitate the necessary investment, political and consumer support needed for diversification. Such a premium reflects the idea that societies already pay to manage risks in areas such as energy security, infrastructure resilience and financial stability. As export controls and geopolitical disruptions become more frequent, governments and consumers may increasingly need to price the value of greater supply security into their procurement and investment decisions.

The markets for many strategic critical minerals are relatively small compared with bulk commodities, yet they are indispensable inputs to high-value downstream industries. Their supply disruptions can therefore carry disproportionate economic consequences. For example, rare earths are fundamental to a wide range of modern technologies across energy, automotive, semiconductors, aerospace, advanced industry, artificial intelligence and defence. While the annual market for magnet rare earths remains less than USD 10 billion, their supply disruption could result in major economic impact of around USD 6.5 trillion per year, underscoring how small volumes of critical minerals underpin vast economic value.

However, in many cases, diversifying strategic mineral supply chains does not require major investment on the scale needed for bulk commodities given their much smaller markets. Bringing a relatively small number of high-quality projects online can substantially reduce concentration and improve supply resilience. For example, the investment needed to diversify magnet rare earth supply chains to meet projected demand outside of China in 2035 would amount to around USD 60 billion over the next decade. This is modest relative to the trillions of dollars of downstream economic activity potentially exposed to supply disruptions, illustrating how a modest security premium could deliver substantial economic resilience.

While the additional costs of diversification are often modest compared with the potential losses from supply disruptions, they ultimately need to be borne by someone, whether governments, consumers or actors across the value chain. Depending on the policy instruments and burden-sharing mechanisms adopted, if these costs translate into higher material prices, the implications for downstream products will depend on how significant minerals are in their overall cost structure. Understanding the downstream product cost implications of increased mineral prices is therefore a critical, but often overlooked, element of the policy discussion.

Critical minerals generally account for a small share of final product prices, although their cost contribution varies considerably across value chains, with important implications for policy design. While higher mineral prices can substantially increase the cost of intermediate products such as battery cells and permanent magnets, the impact on final products is often limited.

For example, critical minerals account for around one-quarter of the battery cell price but only about 3% of the price of an average electric vehicle (EV), while rare earths represent around 40% of the permanent magnet price but less than 1% of a vehicle’s value. By contrast, materials such as copper represent a larger share of equipment prices, accounting for around 10-15% of transformer and power cable prices.

These differences suggest that, in some supply chains, downstream users may be able to absorb higher material costs more readily, providing scope for diversified sourcing without materially affecting end-product prices. For example, a tripling of rare earth prices would increase the cost of a car by just 0.1%. A tripling of battery material prices would increase the final price of EVs and storage systems by around 5%, a notable but not prohibitive price impact.

As critical minerals generally represent a small share of final product costs, much of the additional cost of diversification could be absorbed with limited impact on consumers, although some intermediate sectors such as motor manufacturing and battery production may face greater cost pressures and require targeted policy support. More broadly, the financing of a security premium could be shared across governments, industry and consumers, depending on where in the value chain the cost burden can be most effectively absorbed.

A clearer understanding of the downstream cost implications is essential to inform policy design. Governments need to consider how best to structure policy tools and burden-sharing mechanisms, and at which point in the value chain intervention would be most effective. The issue of diversification is one of strategic risk management and framing it as such through a security premium may help unlock the investment needed to accelerate the development of diversified supply chains.

Nevertheless, a security premium should not be a justification for permanently subsidising inefficient and uncompetitive projects. Careful policy design is required to ensure that support measures are appropriately targeted to prevent inefficient spending and market distortions, while maintaining incentives for competitiveness. Regular project performance reviews, phased support, and linking support to production milestones and industry qualification requirements, can help mitigate these risks. Moreover, while mineral prices generally account for a small share of final product costs, it is important to note that diversification may also entail other additional costs, including new supplier qualification, product testing and certification processes, and other switching costs associated with establishing new supply relationships.

A mineral security premium provides a useful framework for addressing concentration and strategic risks across critical mineral supply chains, but the appropriate level and form of policy intervention will vary. The level of policy support could be calibrated across different minerals to reflect their degree of supply risk and economic importance. For example, minerals facing acute vulnerabilities — including high supply concentration, limited substitutes, critical roles in strategic applications and exposure to export restrictions — such as magnet rare earths, gallium, yttrium, graphite, tungsten and germanium could be prioritised for greater policy support.

The choice of policy instrument is also important. Many governments are considering a range of supply- and demand-side measures, including price floors, contracts for difference, diversified sourcing requirements, trade measures and capital and operating expenditure support. Supply-side measures can help improve project economics, while demand-side measures can provide the predictable demand needed to underpin investment in diversified suppliers. The suitability of different instruments will depend on the characteristics of individual mineral markets, value chain segments and local market conditions, with different trade-offs in terms of project bankability, implementation feasibility and fiscal exposure. Building on the analysis in the Global Critical Minerals Outlook 2026 (Chapter 3.2), a forthcoming commentary will examine in more detail key policy tools and mechanisms that can support effective diversification.

The IEA’s Alexandra Hegarty and Alessio Scanziani also contributed to this article.