Trade Wars, Missiles, and Magnet Metals: New Research Reveals How Geopolitics Shapes Rare Earth Volatility

Highlights

• A new HSE University preprint study found U.S.-China tensions explained as much as 70% of forecast volatility in neodymium over longer time horizons.
• U.S.-Iran tensions generated shorter-lived shocks concentrated in gold and select strategic materials, while China's influence was broader and more persistent.
• The study used geopolitical indices derived from New York Times coverage and advanced econometric modeling across metals including neodymium, lithium, and gold from 2012 to 2026.
• China's dominance in refining, processing, and magnet manufacturing allows geopolitical tensions involving Beijing to transmit directly into commodity markets.
• The paper is a preprint and has not undergone peer review, and relies on a single media source, warranting cautious interpretation of its findings.

The rare earth market is increasingly influenced not just by mines and manufacturing, but by geopolitics. In a new preprint study (opens in a new tab), Geopolitical Tensions and Metal Market Volatility, Valery Korenevskii (opens in a new tab) of the Higher School of Economics (HSE University) examined how U.S.-China and U.S.-Iran tensions affected the volatility of industrial metals, rare earths, lithium, and gold between 2012 and 2026. Using advanced econometric modeling and original geopolitical indices derived from New York Times coverage, the author concludes that U.S.-China tensions exerted a broader and more persistent influence on industrial metal and rare earth volatility than Middle East conflicts, while Iran-related crises generated shorter-lived shocks concentrated in gold and certain strategic materials. For Rare Earth Exchanges® readers, the findings reinforce a central Great Powers Era 2.0™ theme: critical minerals are becoming instruments of national strategy as much as commodities.

Following the Headlines to Understand the Metals

Korenevskii constructed original indices measuring U.S.-China and U.S.-Iran trade and military tensions using thousands of newspaper articles. He then applied time-varying econometric models to evaluate how those geopolitical shocks influenced zinc, aluminum, nickel, tin, neodymium, lithium, gold, and the VanEck Rare Earth ETF (REMX). The approach is novel because it attempts to separate the effects of two distinct geopolitical channels: China's role in trade, manufacturing, and supply chains, and Iran's role in military and energy-related instability.

Why China Dominates the Story

The study's most consequential finding is straightforward. U.S.-China tensions generated synchronized volatility across multiple industrial metals and rare earth markets, particularly during the 2018-2019 trade war. Neodymium—the essential rare earth used in high-performance permanent magnets—showed the strongest response. The model suggests that China-related tensions explained as much as 70% of forecast volatility in neodymium over longer time horizons.

By contrast, Iran-related tensions primarily affected markets during acute military escalations. Gold showed the clearest response, while neodymium exhibited a more moderate but persistent connection through defense and strategic-demand channels.

Great Powers Era 2.0 in Action

The paper's broader narrative overlaps significantly with REEx's Great Powers Era 2.0 framework. The author argues that China's dominant position in refining, processing, and advanced manufacturing allows geopolitical tensions involving Beijing to transmit directly into commodity markets.

That observation aligns with a reality increasingly visible across critical minerals. Control of separation facilities, metal production, alloying, magnet manufacturing, and downstream industrial ecosystems often matters more than control of the mine itself.

The study also argues that after 2020, China's influence shifted from a source of volatility to a stabilizing force due to industrial subsidies and state-supported demand. That interpretation is open to debate. Another explanation is that China's growing dominance gave Beijing greater ability to influence market outcomes through industrial policy. Recent export controls on gallium, germanium, heavy rare earths, and rare earth magnets may ultimately strengthen, rather than weaken, concerns about geopolitical concentration.

Important Caveats

Readers should approach the findings carefully. This is a preprint and has not yet undergone peer review. The study relies heavily on a single media source—The New York Times—which may introduce editorial bias. It also acknowledges difficulty separating geopolitical effects from overlapping events such as COVID-19, monetary policy shifts, sanctions, and broader macroeconomic shocks. Most importantly, the paper measures volatility rather than supply chain resilience, production capacity, or physical material availability.

The Bottom Line

The study offers another data point supporting a broader trend: strategic minerals increasingly respond to geopolitics, industrial policy, and national security considerations alongside traditional supply-and-demand fundamentals. In the Great Powers Era 2.0—a concept coined by REEx—neodymium, dysprosium, terbium, gallium, germanium, and other critical materials are becoming geopolitical assets. Investors, manufacturers, and policymakers who continue to view them as ordinary commodities may be looking at yesterday's world.

Citation: Korenevskii, V.V. Geopolitical Tensions and Metal Market Volatility: A TVP-VAR-SV Analysis of US–China and US–Iran Frictions on Industrial Metals, Rare Earths, and Gold (2012–2026). HSE University Working Paper/Preprint, 2026. Not peer reviewed.

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