Oil and rare earths: Which resource will define the future of the global economy?

The Shifting Foundations of Global Power

For most of the last hundred years, oil has served as the cornerstone of the world economy. It powered industries, transportation, and commerce, shaping which nations prospered and which remained reliant on others. The ability to direct oil supplies often meant having influence over inflation, industrial growth, and even the outcomes of major conflicts.

That sway has not vanished. Fluctuations in oil prices continue to ripple through economies, fueling inflation, complicating monetary policy, and straining government budgets. Energy security remains a top priority for policymakers, especially during periods of international tension.

However, the landscape of global influence is undergoing a transformation. As societies shift toward electrification and digital technologies become embedded in every sector, a new set of resources is taking center stage.

Back in the 1980s, Chinese leader Deng Xiaoping famously remarked, “The Middle East has oil, China has rare earth metals,” at a time when oil was synonymous with power. Today, his words seem remarkably prescient.

From Oil Dominance to Critical Minerals

Oil’s significance in the world economy is far from over. Global consumption remains above 100 million barrels per day, and most projections indicate that demand will stay strong into the next decade, even as the energy transition progresses at an uneven pace.

The oil market is designed for scale and adaptability—crude can be shipped worldwide, stored in reserves, and traded on deep, liquid markets. When disruptions occur, the system is generally able to adjust, sometimes with difficulty, but often with surprising speed.

Rare earth elements, by contrast, play a very different role. They are not consumed for energy or traded in vast daily quantities. Instead, they are essential components hidden within the technologies that drive electrification, automation, and the digital economy.

Permanent magnets crafted from rare earths are indispensable for electric vehicle motors, wind turbines, robotics, aerospace, and advanced military systems. Their importance is also rising in data centers and infrastructure supporting artificial intelligence.

The Rapid Growth of the Magnet Economy

At the Rare Earth Mines, Magnets & Motors (REMM&M) conference in Toronto in October 2025, Lawson Winder, a commodities analyst at Bank of America, outlined the stakes in this evolving sector.

According to Bank of America, global demand for neodymium magnets—a key type of rare earth magnet—could expand at an annual rate of about 9% through 2035.

Passenger electric vehicles are projected to drive annual growth of around 11%, while demand from robotics could surge by nearly 29% each year. In the United States, magnet demand is expected to increase fivefold by 2035, equating to roughly 18% growth per year. Europe’s demand could rise by about 2.5 times over the same period. In comparison, global oil demand growth is forecast to slow to well below 1% annually.

Demand Far Outpaces Supply

Despite soaring demand for rare earths, Europe has almost no domestic mining or processing capacity for these materials. Bank of America predicts that the region will face persistent shortages, with deficits widening as demand climbs from an already high baseline.

China dominates the rare earth sector, accounting for about 90% of neodymium and praseodymium oxide production, nearly all heavy rare earth oxide output in dysprosium and terbium, and around 89% of global rare earth magnet manufacturing.

When it comes to processing, China controls approximately 87% of the world’s capacity to convert mined material into usable products for manufacturers.

In terms of unprocessed material, China holds about 49% of global rare earth oxide reserves and produces roughly 69% of the world’s unseparated output.

This concentration creates a structural vulnerability. Rare earths are less a traditional commodity and more a complex manufacturing system, where scale, technical know-how, and integration are more important than raw geology alone.

The real chokepoints are in processing, refining, and magnet production—stages that are technologically demanding, environmentally sensitive, and require significant investment.

China’s export restrictions, implemented in April 2025, made this clear. Exporters now need licenses and must disclose end-uses for several medium and heavy rare earths.

Materials at the Heart of the AI Revolution

Jordi Visser, head of macro nexus research at 22V Research, sees rare earths as part of a broader trend: the rise of “physical AI.”

“Building out physical AI infrastructure creates sharp dependencies on resources where China leads the global supply chain,” Visser noted recently.

Artificial intelligence is not just about software and data centers—it also relies on hardware like robots, sensors, motors, batteries, and power systems.

“This transformation requires rare earth elements for permanent magnets in robotic actuators and EV motors, lithium and advanced battery materials for portable AI devices and energy storage, and processed materials such as refined graphite and cobalt, where Western production is minimal,” Visser explained.

He emphasizes that timing is as critical as strategy. “Even as the US and Europe rush to build AI infrastructure, they remain fundamentally reliant on China’s processing capacity. This is a strategic risk that cannot be resolved as quickly as the technology demands.”

Who Controls the Chokepoints?

While the world pushes to reduce carbon emissions, oil remains vital—its price still shapes inflation and global trade. Yet, in the new industrial era defined by automation, electrification, and AI, rare earths are becoming the deciding factor in what gets built and by whom.

“This shift presents enormous opportunities for producers, but also significant challenges for governments and end-users striving to secure supply chains,” Winder observed.

In this evolving landscape, dominance is less about controlling fuel and more about managing bottlenecks. Oil continues to power the present, but rare earths are increasingly determining who will shape the future.