Concentration of strategic resources

Concentration of strategic resources (minerals, materials): Concentration of strategically important resources and materials among a small number of individuals, firms or states that can control access and impose discretionary prices. The question in here is what risks this concentration of strategic resources poses. To this end, I look at this phenomenon from the STEEPLD viewpoints. (Social, Technical, Economic, Environment, Political, Legal, Demographic)

In this contribution, I express my own opinion, not that of any organization.   The 2024 Global Risk Report – WEF provides these definitions

What does STEEPLD “say” about “Concentration of Strategic Resources”?

Social risks of concentration of strategic resources (minerals, materials)

These risks can be subdivided with the following connections to other STEEPLD characteristics:

Economic loss

A primary harm and perhaps source of many other socially related harms is economic harm with job losses and bankruptcies. This is because companies depend on the supply of strategic resources. That supply belongs e.g. to strategic resources that face higher costs from other countries. Like uranium in recent years. Higher costs can disrupt supply chains. From that follow job losses and economic damage in other sectors that depend on electricity. In this way, life becomes more expensive for end users on many levels.

Environmental damage

The extraction (and processing) of strategic resources is sometimes not innocuous, causing environmental damage, water pollution, health problems, pollution and deforestation. Environmental damage occurs here in developing countries because environmental regulations there are often less stringent, and people do not comply with or monitor them. It has negative effects on the health of local communities and ecosystems. Thus, social conflicts sometimes arise between local communities and mining companies.

Social unrest and conflict

The concentration of resources, with armed force, can lead to human rights violations, forced displacement and violence. Poorer international relations are a consequence then.

Emergence of armed groups

Armed groups may contest ownership of strategic resources. Resulting in violence and instability in the region.

Strengthening authoritarian regimes:

Countries that control access to strategic resources reinforce their authoritarian regimes with it. However, their efficiency of resource use is low. In the process, they suppress democracy. Human rights violations and a reduction of freedom then occurs in these countries.

Exploitation

A major phenomenon is labor exploitation and poor (read unsafe) working conditions. By this we mean by Western standards for people working in mining in developing countries. Health problems and poverty occur as a result. It is often accompanied by violations of human rights, such as forced labor, child labor.

Wages are often low, barely the local minimum wage. Poverty and malnutrition are then consequences. To compensate, people work overtime. Sometimes without breaks, leading to exhaustion, health problems and eventually accidents. In the process, little or no personal protective equipment (PPE) is often used against exposure to hazardous substances. In addition, they often discriminate against workers in these industries based on gender, race, ethnicity or religion.

Reinforcement of inequality:

In such ways, the concentration of strategic resources increases inequality between countries and internally the country, especially in developing countries.

Companies and states with control over these resources can increase their power and wealth, while others are left behind.

Developing countries that lack these resources have potentially lower access to basic needs and education necessary for their social and economic development.

Technical and technological risks from concentration of strategic resources (minerals and materials):

Increased dependence and vulnerability:

Europe and the world are becoming increasingly dependent on a small number of suppliers for critical raw materials. One consequence is vulnerability to supply disruptions that can lead to shortages of essential materials, such as during covid19. This cripples production and drives up prices. A negative impact on the development and production of cutting-edge technologies, including electronics manufacturing, renewable energy, defense technology, artificial intelligence, robotics and nanotechnology follows. One possibility in this regard is loss of technological sovereignty. Consequently, Europe has less control over the development of new technologies.

Supply chain risks:

When there is little competition, supply is sensitive. Securing the sustainable supply of raw materials in Europe is then a necessity.

Earth metals are essential for the production of batteries, electronics and other technologies. China is one of the few countries where they are mined. This concentration of extraction makes Europe vulnerable to disruptions in the supply chain and thus to production continuity.

Russia’s dominance in the oil and gas market made Europe vulnerable to dependence and supply chain disruptions as early as 2008, according to Richard J. Anderson.

Limited access to innovation:

The rarity and concentration of raw materials can hinder innovation of strategic technology by limiting access to materials. This deprives some R&D organizations of a competitive advantage and leads to a disadvantage. Expensive prices can also lead to less investment in R&D.

Having access to essential materials by third parties enables R&D of new more effective weapon systems for them.

China is dominant in the rare earth market. Recently, China has restricted rare earth exports, forcing European companies to move production to China or pay higher prices. A potential restriction on intellectual property of development of new technologies is the result.

Economic-financial risks of strategic resource concentration:

Price volatility and increases:

Limited access to essential raw materials due to a small group of suppliers causes unpredictable price fluctuations and increases. Production costs thereby increase, leading to higher prices for consumers. Inflation and impediment economic growth are the result. Even when demand for the commodity is stable.

Restrictions on accesses encourage speculation. That speculation in rare commodity markets also leads to price fluctuations independent of supply and demand. Prices thus rise artificially.

Natural disasters can damage infrastructure for the production and transportation of raw materials. Temporary shortages, delays and therefore price increases follow because switching suppliers is difficult at short notice.

Disruption of supply chains:

Concentration creates disruptions in supply chains, especially in sectors that rely heavily on specific raw materials. Consequences are production delays, shortages and economic losses.

Factors contributing to supply chain disruptions include geopolitical instability, natural disasters, capacity shortages, just-in-time production as companies hold small inventories, … Consequences here include increased production costs, shortages and delays, loss of production, inflation and damage to image.

Geopolitical tensions:

The concentration of strategic resources sometimes creates geopolitical tensions resulting in disruptions in the world economy. (E.g. the war in Ukraine.) From this follow shortages and further price increases, with negative consequences for production and competitiveness of European companies. (E.g. due to increases in energy prices with dependence on warring parties.)

Factors contributing to geopolitical tensions are competition for access to resources; dependence on strategic resources; gaining independence from them; geopolitical instrumentalization of resources to put pressure on other countries; territorial disputes; ideological differences.

Consequences of geopolitical tensions include higher commodity prices, supply disruptions, trade wars, armed conflicts. Each in itself can occur with devastating consequences for people and economies.

Dependence on a small number of suppliers:

China is a major supplier of many critical raw materials (such as earth metals and the like, see above), making Europe vulnerable to trade conflicts with China.

Such dependencies weaken Europe’s bargaining positions through unfavorable terms of trade and higher prices.

Loss of competitiveness

Factors contributing to loss of competitiveness are higher production costs, geopolitical pressures, uncertain access to raw materials.

Consequences of lack of competitiveness are economic decline leading to job loss, lower wages and reduced standard of living, loss of market share to competitors who have access to more resources which can lead to bankruptcies and loss of economic diversity, dependence on imports of finished products and services.

Environmental risks of strategic resource concentration:

Resource depletion:

Resource depletion means that extraction rates exceed natural replacement rates.

Overexploitation of mineral deposits depletes them and mortgages them for generations to come.

Environmental impacts of mining:

Mining is the total of the processes used to extract minerals and other materials from the earth.

Environmental impacts here are the (often negative) impacts of mining on the environment

An example is the search for gold in the mud of some countries. One uses mercury, which absorbs the gold. However, some of it contaminates the water in and soil of the ecosystem and the habitat of people in the area. The soil becomes locally unusable for farming and living because of the likelihood of eventual poisoning. Ultimately, the communities that mine the strategic minerals become vulnerable. The only answer there is corporate social responsibility, as defined in the West. But that often does not happen locally, often resulting in social and environmental vulnerabilities.

The upgrading of many ores into valuable metals requires the burning of fossil fuels. This produces air pollution with particulate matter, nitrogen oxides and sulfur dioxide, which is not harmless to the health of people in that environment.

Mining, through the construction of infrastructure for mineral extraction, causes loss of biodiversity, ecosystems, soil loss, deforestation and disruption of water flows, which has negative impacts on food supply, water management and habitat for animal and insect species.

The rhythm at which we “harvest” the earth’s minerals leads to resource depletion. But future generations need them for their own development.

There is also a risk of mismanagement of waste streams that contribute to this.

Lack of control and regulation:

Lack of control means lack of transparency and oversight of extraction and use. For regulation this means inadequate legislation and enforcement mechanisms.

This situation encourages a lack of transparency and control over the environmental impacts of extraction and use. Because of “quick wins”, creating regulations is a problem, and applying existing environmental laws to employ responsible practices is difficult.

Lack of control and regulation will lead to human rights violations, corruption and conflict in areas where strategic resources are extracted (see below).

Environmental risks:

In addition to the above environmental risks, the concentration of strategic resources also leads to specific environmental risks:

Storage and transportation risks:

Storage risks deal with the storage of large quantities of strategic resources with spills, fires, dust explosions and other accidents resulting in potentially serious environmental impacts.

Risks from land, water and air transportation include spills, accidents and emissions that pollute the environment and affect human health and the environment.

Additional causes of environmental risks here may include: risks from aging infrastructure; lack of compliance with safety standards for storage and transportation and the increasing frequency and impacts of extreme weather events.

Risks of reuse and recycling:

Reuse means using goods for a (new) purpose without first processing them into raw materials. For example, second-hand clothing.

Recycling means processing used materials as raw materials for (new) products.

Improper reuse and recycling processes can lead to hazardous materials emissions, water pollution and soil contamination. And health risks to workers and local residents.

Specific environmental risks are illegal reuse and recycling activities with lack of control and regulation, and improper processes including working with mixed materials. Environmental problems result.

Risks of new technologies:

New technologies can lead to unforeseen environmental impacts and health risks.

Specific environmental risks here:

• long-term environmental effects are not yet fully known;
• the large-scale application will have unforeseen environmental effects that were not apparent on a small scale;
• they are sometimes not covered by existing environmental regulations because the environmental impact is not yet known.

Political risks of strategic resource concentration:

Increased vulnerability to geopolitical pressure and blackmail:

Geopolitical tensions are tensions and conflicts between countries because of access to and control over strategic resources.

Countries may demand higher prices, restrict supply or even impose an embargo (see above China with the earth metals) for political or economic reasons. From this come disruptions to supply chains for other countries, which will lead to inflation (see above) and disruptions to politically, civilly and militarily important technical sectors. An erosion of political autonomy and a more vulnerable country are the result.

Competition for access to scarce resources creates geopolitical tensions and even trade conflicts or armed conflicts between countries competing for access to these resources. This is detrimental to third parties who depend on these supplies.

Countries without access to strategic resources may find themselves at a disadvantage in terms of economic development and technological progress.

Strengthening authoritarian regimes:

Countries rich in strategic resources can use this wealth to strengthen their authoritarian regimes. They can use revenue from resource sales to increase their political and military power, strengthen their grip on the media and suppress opposition groups, consolidate their political and military power and violate human rights.

So they can provide financial support to authoritarian movements in other countries. Or they can conduct disinformation campaigns to undermine democracy elsewhere.

Environmental disasters and social unrest:

Environmental disasters and social unrest can lead to political instability. This makes it more difficult for governments to govern.

Disruption of international trade:

When the prices of strategic commodities fluctuate widely or their supply is interrupted, disruptions in international trade follow.

This could have a negative impact on the global economy and trigger protectionist measures by countries seeking to protect their own economies.

Disruptions in supply chains and price increases slow economic growth. Companies will produce less and consumers will spend less, leading to a recession.

Legal risks of strategic resource concentration:

Risks to access to strategic resources:

The concentration of resources can lead to a monopoly or oligopoly situation.

Those who control resources can create artificial shortages.

They may, moreover, disadvantage or favor certain countries or regions.

There are also human rights violations, such as forced labor and child labor. Keeping control with a small number of actors, therefore, leads to poorer application of human rights.

This presents legal challenges:

It is difficult to enforce competition law in these markets. Indeed, traditional antitrust law is inadequate. Consequently, new, enforceable, international laws are needed to address this market manipulation.

Investment provisions in international treaties can protect investors’ rights. They make it difficult for governments to intervene.

Finally, dispute resolution over access to strategic resources is complex and lengthy. International courts are not well equipped to deal with these disputes.

Risks to environmental protection and sustainable development:

The concentration of resources quickly gives rise to overexploitation of natural resources and environmental degradation (see above).

Those who control resources may be reluctant to invest sufficiently in environmental protection. While there is progress in this (see this OECD paper as early as 2002), further environmental degradation remains a reality.

A lack of transparency about environmental impacts makes it difficult for governments and the public to take appropriate action after evaluating environmental risks.

The application of inspection on environmental regulations and enforcement of measures is difficult in these countries.

Demographic risks of strategic resource concentration:

Disruption of essential value chains

Price increases and unpredictability have a negative impact on living standards, especially in those developing countries that rely heavily on imports of these materials.

Unpredictable price increases make it difficult for businesses and consumers to plan and budget. Consequences include:

• Slowing economic growth which could lead to job losses in some areas.
• Inflation, which has the greatest direct social impact on families in poverty.
• Reinforcing inequality within and between countries.

Greater inequality:

Resource-rich countries can abuse their economic power. Consequences are:

• Increasing inequality between countries and regions.
• Deterioration of living conditions of poor households.

There is an inequitable distribution of benefits from these resources, with a small number of actors benefiting at the expense of the broader population. Inequality will then increase. It leads to a concentration of wealth and power in the hands of a select few, while the rest of the population benefits little or not at all. Direct consequences here are:

• The concentration of wealth and power creates increasing inequality in terms of income, wealth and access to opportunity.
• Weaken democratic institutions and undermine trust in government.
• Limited opportunities for marginal groups.
• Children who do not have access to education may have fewer opportunities later in life.
• Women and girls without access to health care participate less in the economy and society.
• Flight and migration, forced or voluntary in search of better living conditions.

Limited access to essential services

These include access to essential services through high prices such as energy, water and health care that are limited for the most vulnerable populations. An additional set of consequences for inequality between countries and regions in this regard are

• Spread of poverty and malnutrition in poor countries.
• Slowing economic and scientific development and modernization in poor countries.

Dissatisfaction with the high cost of essential services can threaten the stability of societies. Consequences include:

• Loss of trust in government when essential services become unaffordable.
• Increase in crime.
• People who feel excluded and marginalized tend to gravitate more toward extremist ideologies.

Conclusion

It is clear how intertwined the various risks are. Each of the characteristics according to STEEPLD has influence somewhere in the other six.

Access to strategic resources is essential for economic development. If access to these resources is limited, it will hinder economic growth, especially in developing countries and widen the gap between rich and poor countries.

Finally, the proper functioning of the supply chain is important for the business continuity plan (BCP), in which you may provide multiple suppliers for materials. However, if these obtain their raw materials from one and the same mine, this does not make much difference. Therefore, it is important to have access to your suppliers’ BCP. Or to obtain identical raw materials yourself from several mines. However, the best way is to build a good relationship with all your suppliers whether or not through the political players and international cooperation.

A second way is to promote, where possible, domestic production of raw materials. For example, through recycling according to the rules of the art, or with insertion of other, substitute, products. Or by setting up, possibly with government support, R&D to create substitutes for domestic products that do not require, or utilize less, certain raw materials.