Tashkent, Uzbekistan (UzDaily.com) -- The growing demand for critical minerals over the past few years is driven by the ever-evolving energy industry - with clean energy technologies (Greentech) currently becoming the fastest growing segment of global demand.

Thus, dependence on critical raw materials may soon replace the existing dependence on oil. However, today’s overall mineral supply chain leaves the system quite vulnerable - the global market could experience disruptions in trade flows, thereby impacting not only the global economy, but also importers and end users of minerals.

The critical minerals sector operates in a changing environment and its development can be influenced by many factors that could immediately cause a decline in mineral export earnings.

First, good social management of companies is critical to the mining sector, which includes not only improving working conditions to support the health, safety and well-being of employees, but also building trust with communities near mines. Thus, according to a recent EY study, 54% of the world’s total mineral resources, such as lithium, nickel, copper and zinc, destined for the energy transition are located on or near indigenous lands. To be able to continue mining, it is essential for mining companies to work closely with local communities and work together to achieve mutually beneficial results.

Second, climate change has the potential to pose a serious threat to global stability, as the metals and mining sector accounts for about 10% of global greenhouse gas emissions. Moreover, the extraction of critical raw materials can exacerbate water stress and, as a result, disrupt food security - the mining of lithium, platinum, molybdenum and graphite is most at risk. It’s also worth considering the impact of metal mining on biodiversity and ecosystem disruption, the effects of which are the fourth largest driver of deforestation on the planet.

Thirdly, the world is witnessing increased government control over mining. For example, Australia, Canada, Chile, Mongolia, Namibia, Peru, South Africa and Zambia are strengthening tax regimes, revising royalty conditions, creating state-owned mining companies, carrying out full or partial nationalization of key resource industries and introducing restrictions on attracting foreign investment, which is already having a significant impact on the global market.

Fourthly, the governments of some countries are introducing restrictions on the export of raw materials in order to stimulate their processing within the country, the economic effect of which can be much more serious. Such actions have increased fivefold over the past decade, according to the Organization for Economic Co-operation and Development (OECD). Countries such as China, India, Argentina, Russia, Vietnam and Kazakhstan are among the top six countries in terms of the number of export restrictions on ore raw materials. Indonesia, Namibia and Zimbabwe are known for their ban on the export of unprocessed mineral ore. About a tenth of all global exports of lithium, cobalt and rare earth elements needed to make electric vehicles and renewable energy have been subject to restrictions at least once.

Another risk to the existing supply chain for critical minerals is the creation of cartel-like structures that could potentially wield significantly more power than the 15-member Organization of the Petroleum Exporting Countries (OPEC). Moreover, if OPEC’s share is 38% of world oil production, then the share of the three leading countries in mining is much higher (44% copper, 66% nickel, 80% cobalt, 85% graphite and 92% lithium).

By the way, Indonesia, being the world’s largest nickel producer, has already announced the idea of creating an OPEC-type organization for certain “battery” metals, including nickel, cobalt and manganese. Argentina, Bolivia and Chile, which account for about 65% of the world’s lithium reserves, forming the so-called lithium triangle, are already discussing the overall concept of the alliance. Moreover, Bolivia is calling on its neighbors to develop a common Latin American lithium policy.

Taking into account all the above risks, and the fact that the countries of Central Asia are a diversified macro-region, ranking among the world’s 20 largest producers of some types of critical materials (39% of world reserves of manganese ore, 30% of chromium, 20% of lead, 13% of zinc, 9% titanium, as well as significant reserves of other critical materials), it is important to begin working to create more self-sufficient regional supply chains (both mining and processing plants) to avoid dependence on critical minerals in the near future when electric vehicles and renewable energy sources become commonplace . For example, many Chinese companies are already exerting control by entering into new mining deals around the world to secure supplies of minerals.

Viktor Kovalenko, EY partner, leader of the sustainable development services practice in Central Asia, the Caucasus and Ukraine.