Europe’s effort to electrify transport, expand wind capacity and strengthen defence depends on a small set of materials and processes concentrated in few hands.
A new study from the EU Today Research Desk, Rare Earths as Geopolitical Leverage: EU Exposure, Options and Timelines (October 2025), sets out where the European Union is most exposed, how a year-long squeeze on mid-stream inputs would transmit into industry, and which practical steps can cut risk on realistic timeframes.
It is released into a market shaped by recent Chinese export controls on rare earths and related technologies, a tightening of graphite permits, the gallium/germanium licensing episode of 2023, and allied efforts to mobilise finance for non-Chinese supply.
What the paper adds
The white paper’s starting point is that the EU’s chokepoints are not at the mine gate but in the “mid-stream”: chemical separation, refining, alloying and component fabrication. Mapping the chains for permanent magnets (NdFeB), graphite anodes, gallium, germanium and magnesium, it shows that European dependence rises sharply as value is added, with separation and component making concentrated in a handful of locations. It then stress-tests EU industry against a stylised 12-month reduction of 30–50% in refined inputs from China, implemented via licensing, standards and customs frictions rather than a ban. Programme-level impacts persist even after mitigation: curtailed EV output due to anode and magnet constraints; slippage in offshore wind installations where high-coercivity magnets are hard to substitute; and targeted delays in defence systems reliant on high-performance magnets and compound semiconductors. The analysis quantifies how bigger opening inventories, allied backfill and limited substitution blunt—rather than eliminate—those effects.
On policy, the paper benchmarks EU instruments under the Critical Raw Materials Act (CRMA) against US and Japanese toolkits. It recommends moving a finite list of mid-stream projects to bankability using milestone-based grants and price-floor offtakes, capitalising a strategic reserve of refined inputs and selected components, embedding qualification budgets for new suppliers, and enforcing predictable permitting clocks for separation, anode and magnet plants. Metrics to track are concrete: single-source shares at the processed stage, qualified EU capacity in tonnes per year, “days of cover” in public and industry stocks, project FIDs reached, and substitution milestones such as magnet-free model launches.
The current geopolitical backdrop
1) New Chinese controls on rare earths and technology
In October 2025, Beijing expanded export controls on rare earths and associated technologies. The measures add elements and dozens of items of refining and magnet-making equipment to control lists, tighten scrutiny for sensitive end-uses, and—critically—assert licensing requirements on some foreign producers that use Chinese-origin rare earths or Chinese processing equipment. This extends compliance beyond China’s borders and raises documentation burdens on non-Chinese firms. China has emphasised that the measures are not a blanket ban and that civilian applications complying with the rules should get licences, but the administrative perimeter is wider than before.
2) Earlier licensing rounds on gallium, germanium and graphite
Two recent episodes explain why licensing mechanics matter. From 1 August 2023, export controls on specified gallium and germanium products took effect; recorded exports fell to (near) zero in August while permits were processed, and prices moved accordingly. In October–December 2023, China imposed export-permit requirements on certain graphite products used in EV anodes, introducing friction into a stage where China exceeds 90% of global processing. Both cases show how short administrative steps can translate into delivery gaps measured in weeks, which can deplete European line-side inventories.
3) Allied finance and coordination
Allied governments have moved to shorten project timelines. On 20 October 2025, the United States and Australia announced a framework to mobilise public finance, price-stability mechanisms and offtakes to bring mining and—importantly—mid-stream projects to bankability. Independent analysis indicates an initial financing push within six months and a rapid-response mechanism to support supply chains. For Europe, this is a live comparator for risk-sharing tools that can bridge the cost delta of processing under OECD environmental standards.
4) Persistent concentration at the processing stage
IEA assessments in 2025 report that China is the dominant refiner for 19 of 20 strategic minerals, with an average refining share of roughly 70%, and that concentration has increased since 2020. For rare earths specifically, China also dominates magnet manufacture. High concentration means policy signals travel quickly: even licensing transitions or inspections can change availability and pricing outside China.
5) First steps to diversify—at modest scale
In May–June 2025, Lynas confirmed first production of separated heavy rare earths (dysprosium and later terbium) in Malaysia, the first commercial output of these materials outside China. It demonstrates technical feasibility of non-Chinese heavy-REE separation, but initial volumes are limited relative to global needs and do not remove near-term bottlenecks in magnet supply.
The EU’s baseline—and the gap to targets
The CRMA sets a direction: extract 10%, process 40% and recycle 25% of EU annual consumption for strategic materials by 2030, and ensure no more than 65% of any strategic raw material at any relevant stage comes from a single third country. Today, for rare earths used in permanent magnets, graphite anodes and magnesium, the EU remains above that 65% threshold at processed stages. With mid-stream plant lead times typically three to five years and mines seven to ten years, commissioning schedules imply that decisions taken in 2025–2026 will shape Europe’s exposure into the early 2030s.
How the white paper reads the risk transmission
The paper focuses on routine administrative mechanisms—licensing changes, standards and inspections, and technology/equipment controls—rather than dramatic embargoes. It notes that:
Licensing transitions create immediate queues as exporters compile provenance and end-use documentation; shipments bunch at ports; recorded exports can drop to zero for weeks; and outside-China inventories are drawn down. That pattern matches the 2023 Ga/Ge data.
Standards and inspection can effectively gate exports if impurity thresholds or testing protocols are tightened, especially for magnet powders and anode materials where process windows are narrow.
Technology and equipment controls slow replication abroad by restricting export of strip-casting, powder handling and sintering kit; the October 2025 package extends this perimeter.
Stockpile operations thin the tradable pool without a formal prohibition. The aggregate effect is to elongate cash-to-cash cycles and raise working-capital needs for EU importers.
The model translates a 12-month refined-input shock into sector outputs using published bill-of-materials intensities. Sensitivities show that doubling starting inventories at binding nodes halves first-year losses. In practice, that favours targeted buffers of specific forms—Nd/Pr/Dy/Tb oxides or metals, limited standard magnet geometries, coated spherical graphite, high-purity Ga/Ge, and magnesium ingot—plus “draw-down triggers” to avoid market distortion.
Where the binding risks lie
Rare-earth magnets (NdFeB). Mining is diversifying, but chemical separation—especially for heavy rare earths used for high-temperature coercivity—remains concentrated. Alloying and magnet fabrication are likewise clustered in East Asia. Supplier switches require qualification of grades and coatings, measured in months. In offshore wind, direct-drive turbines are particularly exposed; in automotive, magnet-free motor architectures partly mitigate but can carry efficiency, mass or noise/harshness trade-offs at model level.
Graphite anode materials. Over 90% of coated spherical anode material is processed in China. The 2023 permit regime showed how administrative steps propagate into EV cell output. Early European plants are commissioning but represent a small fraction of expected gigafactory demand. Reuters
Gallium and germanium. These are by-products of alumina and zinc/coal flowsheets, so availability is sensitive to host-metal run-rates and cannot be dialled up rapidly by price. The 2023 licensing round took recorded exports to near zero within weeks. European optoelectronics and defence-sensor chains therefore rely on stocks, recycling and diversified offtakes.
Magnesium. Primary smelting is overwhelmingly concentrated outside Europe. Secondary supply helps, but many aerospace and precision alloy applications still require primary feed.
What a leaders-level détente would—and would not—change
Any tactical easing of licensing in the wake of leader-level diplomacy would lower near-term friction. But the structural facts remain: processing is concentrated; controls now have extraterritorial features tied to materials content and equipment genealogy; and qualification inertia makes supply shifts slow. Planning assumptions should therefore account for policy oscillation rather than resolution—stock-builds during periods of easier licensing and readiness for renewed friction.
Practical measures aligned with EU conditions
Drawing on the paper’s recommendations, and read against recent market developments, the following steps are executable within European legal and industrial constraints:
1) Move a short list of mid-stream projects to bankability (2026–2030). Use milestone-based capex grants, contracts-for-difference (price floors), EIB/InvestEU debt and anchored offtakes from Tier-1 buyers to underwrite separation, anode and magnet projects. Standardise term sheets, traceability covenants and embedded qualification budgets. Allied frameworks (e.g., the US–Australia agreement) show how public finance can be combined with offtake rights to shorten the path to FID (Final Investment Decision).
2) Capitalise buffers where substitution is limited. Establish an EU-level Strategic Raw Materials Reserve focused on stage-critical forms (oxides/metals for Nd/Pr/Dy/Tb; limited standard NdFeB geometries; coated anode powder; high-purity Ga/Ge; magnesium ingot), with objective draw-down triggers and rotation rules. Align releases with allies where feasible. The modelled gains—from halving first-year losses when opening stocks are doubled at bottlenecks—justify the carrying cost.
3) Accelerate substitution at scale without mandating a single technology. Fund pilot lines for magnet-free drives (induction, switched-reluctance, electrically excited) and for emerging magnet materials (e.g., iron–nitride) with embedded qualification and standards. Support silicon-rich anodes and sodium-ion where fit-for-purpose. Substitution is not a near-term cure but bends demand curves late in the decade.
4) Make permitting clocks predictable for recurring plant types. Time-box assessments for SX circuits, HF-based purification and high-temperature furnaces using one-stop competent authorities, templated EIAs and concurrent reviews. Shared enabling infrastructure—acid recovery, solvent management, waste treatment—at cluster level can lower unit costs and environmental footprints.
5) Institutionalise coordination and early warning. Empower a Critical Materials Board to run quarterly stress-tests; aggregate confidential dependency and inventory data; coordinate joint procurement and stock releases; and track foreign licensing forms, export-control drafts and standards changes that affect compliance. This converts administrative surprises into managed delays.
6) Measure what matters to policy goals. Track processed-stage single-source shares, days of cover, qualified EU mid-stream tonnage, project FIDs and substitution milestones. Report against the CRMA’s 65% benchmark and the 10/40/25 extraction–processing–recycling targets for 2030.
Why the focus is the mid-stream, not the mine
The economics of long-train solvent extraction, HF-based purification and high-temperature furnaces improve steeply with scale and learning. Compliance costs are higher in OECD jurisdictions; without scale or public risk-sharing, sub-scale plants struggle on price. Tacit knowledge—grain-boundary diffusion in magnets, particle-size distributions and coatings for anodes—accumulates over time and is not readily licensed at production quality. Co-location with reagent suppliers, equipment makers and testing houses reduces downtime and accelerates incremental improvements. These features explain why diversification at the mine gate alone will not remove the EU’s near-term risk.
Outlook: the next 12 months
Compliance as a production constraint. With extraterritorial elements now embedded in Chinese controls, importers will need deeper documentation of content origin and, in some cases, equipment genealogy. Documentation cycles alone can immobilise inventory and delay delivery, irrespective of physical production.
Precautionary stock-building. If a diplomatic pause lowers near-term friction, firms are likely to expand inventories of magnets, anode materials and Ga/Ge feedstocks. The paper’s sensitivity work indicates this is one of the cheapest tools to convert an acute shock into a manageable delay.
Allied finance packages. Expect further announcements that combine public equity or debt with offtakes and price-stability devices. The signal for European debate will be whether comparable risk-sharing instruments are deployed quickly enough to bring EU mid-stream projects to FID before 2027.
Bottom line
The white paper’s premise is pragmatic: Europe cannot eliminate exposure quickly, but it can reduce single-point-of-failure risk on credible industrial timelines. That requires underwriting a small number of mid-stream projects, building and governing buffers, and hard-wiring coordination so that licensing and standards shifts translate into manageable delays rather than missed deployment targets. Given that China remains the dominant refiner for most strategic minerals and now links materials, technology and equipment into an expanded control perimeter, the decisive variable for the EU is execution in 2025–2027, not the direction of long-term ambition.
How China came to dominate rare earths — and what the West must do next
