The Emerging Risk of Critical Mineral Concentration Amid Global Water Scarcity

Critical minerals are essential for clean energy technologies, electronics, and national security, yet their supply chains remain highly concentrated, particularly in China. Parallel to this, escalating water scarcity driven by climate change threatens to compound risks to mineral extraction and processing. A weak but growing signal suggests that the intersection of resource concentration and worsening water stress could disrupt multiple industries by magnifying geopolitical tensions, supply vulnerabilities, and operational constraints over the next two decades.

What’s Changing?

Global critical mineral supply chains are undergoing restructuring as countries and companies strive to reduce dependencies on dominant producers, especially China, which currently accounts for approximately 60% of rare earth element production (GS Advisors). This concentration exposes vulnerabilities not only to geopolitical tensions but also to localized environmental stressors.

Japan’s concerns about Beijing potentially tightening rare earth element exports underscore the fragility of these chains beyond just economic competition, indicating how political maneuvers could escalate supply constraints (Asahi). In response, the UK has announced a new Supply Chain Centre focused on identifying and mitigating risks in the critical minerals sector, emphasizing strategic foresight in this domain (UK Gov).

The rush to diversify supply has also led to a reevaluation of minerals previously overlooked. The recent addition of silver to the U.S. Geological Survey's critical minerals list highlights how evolving policy frameworks could affect supply chains and pricing dynamics (Chronicle Journal).

Meanwhile, water scarcity has emerged as a silent disruptor. Reports warn that extreme drought conditions, such as "Day Zero" drought scenarios, are approaching worldwide, threatening the water availability necessary for industrial processes, including mining and mineral processing (SciTech Daily). The global water crisis could affect two-thirds of the population by 2026, intensifying competition for water resources in mineral-rich regions (NewsBreak).

These parallel developments—critical mineral supply concentration and worsening water scarcity—are not often analyzed together but represent a novel convergence that could heighten disruptions. Mining and refining are water-intensive activities vulnerable to climate-driven shortages. Thus, water stress may become a non-traditional choke point for supply chains already strained by geopolitical and economic factors.

Why is this Important?

The combination of concentrated critical mineral supply and increasing water scarcity poses multilayered risks:

• Operational Risk: Water shortages may constrain or increase costs for mining and refining operations, especially in arid regions rich in required minerals. This impacts production timelines and input costs.
• Geopolitical Risk: Countries controlling critical minerals may leverage resource access linked to water availability as a tool of geopolitical influence or economic pressure.
• Investment Risk: Investors face heightened uncertainty due to intertwined environmental and geopolitical factors, complicating long-term planning and capital allocation in resource projects.
• Supply Chain Fragility: Concentration enhances vulnerability to disruption, and water-related constraints would exacerbate this, potentially causing shortages or sudden price spikes.
• Policy and Regulatory Shifts: Emerging recognition of water as a cross-cutting risk factor could drive new regulatory requirements and sustainability directives affecting mining and processing industries.

Energy security is particularly vulnerable—given the reliance of renewable technology manufacturing on minerals such as lithium, cobalt, and rare earths—compounding the challenges articulated by the International Energy Agency regarding geographic concentration risks (Strategic Metals Invest).

Implications

Understanding and integrating the interconnected risks of mineral concentration and water scarcity will be essential for governments, businesses, and investors:

• Strategic Diversification: Supply chain diversification efforts must account for both geopolitical and environmental factors. Reliance on mineral sources in water-stressed regions may undermine diversification goals if not managed holistically.
• Cross-sector Collaboration: Addressing these intertwined challenges demands cooperation between water resource managers, mining companies, policy makers, and sustainability experts to develop resilient supply systems.
• Innovation in Water Efficiency: Mining and processing technologies may need rapid innovation to reduce water use and enable operations in areas of water scarcity without exacerbating local stress.
• Investment Due Diligence: Incorporating water risk assessments into mineral project evaluations and updating insurance and risk management models to reflect these compound vulnerabilities may become standard practice.
• Policy Integration: Future policies might link critical mineral strategy with water security, requiring companies to demonstrate sustainable water management alongside supply chain transparency.
• Market Volatility: Prices for critical minerals could become more volatile as supply disruptions related to water shortages amplify existing geopolitical tensions and export controls.

These evolving factors could create feedback loops where water scarcity intensifies national competition for minerals and vice versa, stressing international relations. Early scenario planning and horizon scanning should explicitly incorporate environmental variables alongside political and economic data.

Questions

• How might companies adapt supply chain strategies to integrate water scarcity assessments alongside geopolitical risk?
• What technologies or practices can meaningfully reduce water dependency in critical mineral extraction and processing?
• Could new international agreements emerge that link water resource management with critical mineral trade to reduce conflict?
• How will increasing recognition of water scarcity affect financing and insurance in mining investments?
• What role will emerging critical minerals, like silver, play in balancing supply risks related to water scarcity and geopolitical concentration?
• How can governments incentivize sustainable water use in strategic mineral sectors without compromising supply security?

By exploring these questions today, strategic planners across sectors can prepare for compound resource risks that may emerge unexpectedly over the next 5 to 20 years.

Keywords

Critical minerals; Water scarcity; Rare earth elements; Supply chain risk; Geopolitical risk; Mining water use; Investment risk

Bibliography

• As announced in the Industrial Strategy, the new Supply Chain Centre, will help identify and mitigate supply chain risks for UK companies in the critical minerals sector.
• Beyond tourism, Japanese officials fear Beijing could escalate tensions by tightening exports of rare earth elements.
• The restructuring of global critical minerals supply chains presents both challenges and opportunities for investors and industrial companies.
• Vulnerabilities are starkly illustrated by current global dependencies: China accounts for ~60% of rare earth production.
• The IEA warns of mounting risks to energy security, particularly due to the high geographic concentration of critical minerals.
• The recent addition of silver to the U.S. Geological Survey's critical minerals list could have future policy implications, potentially affecting supply chains and pricing.
• Day Zero Drought conditions are approaching rapidly worldwide, putting vast populations at risk of severe water scarcity.
• The global water crisis, driven partly by climate change, could leave two-thirds of humanity facing water stress by 2026, with water scarcity becoming a critical issue for an increasing number of countries.