Highlights
- U.S. airstrikes on Iran spark potential global rare earth market reconfiguration, with China’s strategic control of processing and supply chains under intense scrutiny.
- Potential Strait of Hormuz closure threatens global oil supply and increases rare earth extraction costs, pushing nations to diversify critical mineral sources.
- Downstream tech and manufacturing industries face significant risks, with potential supply shocks impacting everything from electric vehicles to military hardware.
The U.S. airstrikes on Iranian nuclear facilities on June 21–22, 2025 have sent shockwaves far beyond the Middle East. As Tehran vows revenge and Iran’s parliament moves to close the Strait of Hormuz (choking off 20% of the world’s oil supply), attention is turning to another strategic resource: rare earth elements. These 17 obscure metals – critical for everything from electric car motors to guided missiles – are now caught in a geopolitical crossfire. This analysis examines the potential impacts on the rare earth market upstream (mining and extraction), midstream (processing and refining), and downstream (manufacturing and tech applications) in the wake of the Iran strikes.
Upstream–Mining and Extraction
Even though the bombs fell in Iran, the tremors are being felt in remote mining sites. Rare earth elements are primarily mined in China, which produces approximately 60% of the global supply, with additional output from the United States, Australia, and other countries. In the short term, the conflict does not directly disrupt these mines – Iran is not a primary source of rare earths. However, broader fallout is pushing governments to shore up supply security. Washington has been exploring extraordinary steps to boost domestic mining, including invoking the Defense Production Act to fund rare earth projects deemed critical for national security. Just days ago, officials discussed fast-tracking permits and financing for new U.S. mines and processing plants. The Iran crisis adds impetus: a vivid reminder that supply lines for essential commodities can be weaponized in times of conflict.
The Hormuz shock also factors in. Oil prices are poised to soar if Iran’s threatened closure of the strait proceeds, raising fuel and shipping costs for all commodities. Extracting rare earths is energy-intensive; higher energy and transport costs could make mining more expensive and volatile. Additionally, the specter of geopolitical confrontation is alerting investors and policymakers to concentrated risk in the upstream supply. They recall that China’s Bayan Obo mine in Inner Mongolia alone accounts for nearly half the world’s rare earth production.. Any unforeseen disruption there, whether due to trade spats or something worse, could jolt global markets. Western mining firms, such as California’s MP Materials and Australia’s Lynas, which operate rare earth projects, may see a strategic boost as nations seek to diversify away from Chinese sources.
Perhaps, as Rare Earth Exchanges (REEx) reported, the rumblings of an Aussie-American critical mineral accord could materialize?
Midstream: Processing and Refining
If mining is globally dispersed, processing is where China really holds the cards. Beijing processes roughly 85–90% of rare earth ores into valuable oxides and magnets, as REEx often reports, effectively controlling the midstream of the supply chain. This dominance gives China powerful leverage – a fact not lost on strategists amid the U.S.–Iran flare-up. Beijing’s official reaction to the strikes has (so far) been limited to condemning the U.S. for “seriously” violating international law.
There is no explicit sign (yet) that China will retaliate economically over the Iran issue. Notably, China has not publicly linked the U.S. strike with any change in its rare earth policy or the tentative trade agreements in place, such as the 6-month reprieve negotiated in London. Yes, just a week prior, Washington and Beijing reached a framework to remove Chinese export restrictions on rare earths, as part of a broader trade truce. Although, as REEx has reported, the deal comes with severe limitations and Chinese leverage.
While President Trump boasted that under the deal, “full magnets, and any necessary rare earths, will be supplied, up front, by China,” according to the actual detail, this represents more of a remarkable promise given that China had been withholding some shipments during earlier disputes.
However, that deal now enters uncertain terrain. The rare earth arrangement was always fragile, tied to U.S.–China negotiations on other issues, such as tech exports. With the Middle East on edge and China expressing consternation at U.S. actions, observers wonder if Beijing might quietly slow-roll or reconsider its commitments.
History offers precedents: China has used rare earth export curbs as a diplomatic weapon before (notoriously against Japan in 2010). In recent months, it imposed new export permit requirements for certain high-grade rare earth magnets, squeezing foreign buyers.
Any renewed tightening would quickly ripple through global industry. For now, the rare earth midstream is a watching game – China’s state media emphasizes calls for peace. Still, if Washington’s “excellent relationship” with Beijing deteriorates, rare earth refiners could become pawns in the great-power contest. The U.S., for its part, is weighing countermeasures, including extending tariffs, stockpiling critical minerals, and investing in non-Chinese refining capacity. Yet none of these are quick fixes, and the necessary critical mineral (including rare earth element) industrial policy necessary for complete decoupling within a decade remains to be designed.
As of today, the United States remains heavily dependent on Chinese facilities to process rare earth ore into the refined materials its economy needs.
Chinese Geopolitical Considerations
When considering the dynamics solely between China and the United States, Iran’s weakened position and the closure of the Strait of Hormuz present the United States with a moderate advantage in its competition with China, though significant long-term challenges remain. China’s reliance on maritime oil imports from Iran exposes a vulnerability that risks slowing its entire economy, leading to factory closures and making its products too expensive to export or be competitive in its end markets. While China understands and will protect its valuable geopolitical position in monopolizing rare earth elements, a weaker Chinese economy coincides with a more conciliatory approach to negotiating with the United States.
This situation will also accelerate China’s search for alternative energy sources, thereby increasing domestic demand for rare earth elements as part of its energy diversification strategy.
However, a weakened Chinese economy and a shift toward energy diversification come with undesirable side effects. The United States and the global economy depend on China for rare earth elements, meaning that while a weaker overall Chinese economy might lead to a more cooperative tone from Beijing, the United States remains sensitive to China’s domestic, industrial, and export policies, higher oil prices will also translate to increased costs for the extraction, transport, and processing of rare earth minerals within China, subsequently raising input costs for the United States.
A rapid Chinese diversification strategy could also lead to the danger of China rationing the export of rare earth elements as it prioritizes domestic stability. Past behavior, such as the COVID-19 pandemic, suggests that Chinese export rationing often has a political component, favoring countries that make political concessions or maintain favorable policies toward Beijing. Such export rationing would exert political pressure on the United States and its allies to make concessions to China to secure access to rare earth elements.
Consequently, we should anticipate higher prices for consumer goods that utilize rare earth elements. While we are likely to see conciliatory rhetoric from China in the short term regarding reaching a deal with the United States, it will be crucial to verify and scrutinize Chinese trade behavior and remain vigilant for signs of economic coercion against the United States and its allies.
Downstream: Manufacturing and Tech Applications
Further down the value chain, the industries reliant on rare earths are bracing for aftershocks. High-performance magnets made from neodymium, samarium, and dysprosium (all rare earth metals) are essential in products ranging from iPhones to wind turbines to F-35 fighter jets.
Any turmoil in upstream or midstream supply can spell trouble here. For example, each F-35 jet contains about 50 pounds of rare-earth magnets in its engines and systems. A sustained cutoff of Chinese rare earths could “severely compromise” U.S. war-fighting capabilities by stalling production of such hardware – a bitter irony as the U.S. military posture hardens in the Gulf.
In consumer industries, electric vehicle (EV) makers are on high alert. China’s recent magnet export curbs have already forced automakers from India to Europe to slash output targets for EVs due to looming shortages. At least some Indian EV manufacturers warn of a production halt by July if Chinese magnet supplies don’t resume, and even global brands are scrambling to diversify suppliers or redesign motors. Tech giants in the electronics industry are also closely monitoring inventories of rare-earth-dependent components, in case a sudden price spike or export delay disrupts their supply lines.
If the Iran conflict widens or drags on, its indirect impact on these sectors could grow. A protracted oil price surge, for instance, might accelerate the push towards electric vehicles (EVs) and renewable energy, increasing demand for rare earth magnets, just as supply risks intensify. This could also impact the push for nuclear power, thus driving more demand for uranium, for example.
Companies may respond by investing in rare-earth recycling and substitution (for instance, developing motors that use less or no rare-earth material). Governments, too, might collaborate on stockpiles; South Korean firms reportedly maintain a rare earth reserve that can last approximately a year, a buffer that others might emulate. In the longer run, this crisis may add momentum to efforts already underway in Japan, the EU, and the U.S. to build resilient supply chains for critical minerals.
Final Consideration
Does the U.S. strike on Iran cast a spotlight on the strategic vulnerability around rare earth elements? More than likely, but we will have to monitor and track the situation. However, as discussed above, there are potential geopolitical implications for China, particularly regarding access to petroleum.
Upstream, it highlights the need for new mines and alternative sources; midstream, it tests a tenuous U.S.–China accord at a fraught geopolitical moment; downstream, it puts industries on notice to prepare for potential supply chain disruptions. The rare earth market has long been at the mercy of geopolitical whims, and now, from Washington to Beijing, a high-stakes drama is unfolding. Maintaining stability in China without disrupting supply chains will require deft diplomacy and strategic investment. As one analyst wryly observed, America finds itself “over a barrel” of rare earths – and the latest Mideast conflagration only tightens the lid.
It’s possible that oil access issues could lead to substantial economic challenges for China and a softer tone in Sino-American negotiations. The coming weeks will reveal whether this critical value chain can withstand the pressure, or if a metal that most consumers couldn’t name might become the next flashpoint in a volatile world. REEx will continue to monitor and track the situation.
Sources: Rare Earth Exchanges (REEx), U.S. and international news reports (AP, Xinhua, NY Post, NDTV) from June 21–22, 2025. All information is drawn from publicly available reporting in that periodasiatimes.com (opens in a new tab)english.news.cn (opens in a new tab)dailykos.com (opens in a new tab)reuters.com (opens in a new tab)reuters.com (opens in a new tab) and related analysesmining.com (opens in a new tab)reuters.com (opens in a new tab).
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