In its latest Critical Minerals Outlook, the Paris-based agency said the full implementation of Beijing’s export restrictions on rare earths could have sweeping consequences for manufacturers worldwide, with the United States and Europe expected to bear nearly half of the economic impact.

China introduced export controls on seven heavy rare earth elements in April 2025, leveraging its dominant position in global production. The restrictions disrupted supply chains almost immediately, forcing some automotive manufacturers to suspend production.

Although expanded controls covering products made abroad using Chinese rare earths have been temporarily suspended until November 2026, the IEA said the episode underscores the risks posed by highly concentrated supply chains.

Rare earth elements comprise a group of 17 metals used in small quantities but are indispensable for permanent magnets found in electric vehicles, wind turbines, smartphones, aircraft, robotics and advanced military equipment. The IEA noted that while these materials account for only a small share of manufacturing costs, even brief supply disruptions can halt production and trigger significant economic losses.

“Our latest analysis shows that vast amounts of economic value depend on relatively small volumes of critical minerals, whose supply chains remain highly concentrated and are therefore vulnerable,” IEA Executive Director Fatih Birol said.

The report said similar vulnerabilities extend beyond rare earths. If trade in battery-grade graphite were completely disrupted, more than USD 300 billion in annual downstream production outside China would be at risk.

Export restrictions imposed by countries including the Democratic Republic of the Congo, Mozambique and Zimbabwe on cobalt, lithium and graphite have further heightened concerns over supply security.

The IEA said prices of critical minerals recovered during 2025 and early 2026 after four years of declines as supply tightened, while investment in the sector fell 9% in 2025 amid geopolitical uncertainty and price volatility.

To reduce future risks, the agency urged governments to build strategic stockpiles of 11 high-risk minerals. It estimated that creating multilateral reserves would cost countries other than the dominant supplier about USD 900 million – a relatively modest outlay compared with the potential economic losses from supply disruptions.

Western governments have already stepped up efforts to diversify supply chains, with public financing commitments for new critical mineral projects rising more than fourfold between 2023 and 2025 to USD 65 billion.

The report also highlighted the recent conflict in the Middle East as a reminder that geopolitical flashpoints can quickly disrupt supplies of aluminium, sulphur and other minerals passing through the Strait of Hormuz, reinforcing the need for more resilient and diversified global supply chains.

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The declining investment appetite comes at a time when the global energy markets remain disrupted by the Iran war, which has halted tanker traffic through the Strait of Hormuz, apart from causing production stoppages across the Middle East.

These developments have forced companies to accelerate ⁠investment in other geographies and boost spending on renewables, LNG and coal to shore up supply security.

“We are already seeing intensified efforts by both producer and consumer countries to diversify trade routes and energy sources,” IEA Director Fatih Birol said.

The “World Energy Investment 2026” report predicts capital flows to the energy sector to grow 5% in 2026 to reach USD 3.4 trillion, despite Middle East disruptions.

“Expectations for investment across different fuels vary widely, with oil set for another subdued year. Natural gas and coal are poised for continued growth as the next major wave of LNG projects advances and energy security concerns in Asia drive renewed demand for coal,” the report said.

While USD 2.2 trillion will go to renewables, energy ‌storage, ⁠power grids and low-emission fuels, less than USD 500 billion will be invested in oil supply. Total spending on fossil fuel supply in 2026 is expected to reach just over USD 1 trillion, returning to 2024 levels after the near 3% decline in 2025.

“Heightened concerns over energy security are expected to boost investment in domestic power supply, including renewables, nuclear and coal. This comes at a time when global investment in renewable electricity is flattening after several years of rapid growth, although renewables still account for more than 70% of total power generation spending, including USD 365 billion – USD 1 billion a day – for solar projects. At the same time, orders for new natural gas-fired power plants surged to 130 GW in 2025, a 25-year high, with US data centre demand a major driver,” the report added.

Natural gas’ investment growth will largely come from the United States-based projects. However, the current energy shock that arose from the Strait of Hormuz blockade has made Asian importers cautious on gas dependence.

“Coal investments will reach a 14-year high, hitting USD 180 billion, ⁠driven by China and India. “Nuclear is making a comeback with USD 80 billion in spending this year,” IEA remarked.

The gloom will be upon the Middle East, as oil and gas investments are expected to fall 1% ⁠in 2026. Damage from the Iranian missile and drone attacks; lower revenue; and production stoppages, in the IEA’s opinion, are reducing the region’s ability to deploy capital.

By contrast, upstream investment in Africa, Central and South America will ⁠jump more than 10% in 2026 as ongoing projects gain momentum.

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The latest estimate from the independent research and intelligence company marks a steep increase from its initial USD 25 billion projection, reflecting a broader scope of damage as ceasefire talks continue between the United States and Iran.

“Repair work does not create new capacity. It redirects existing ⁠capacity, and that redirection will be felt in project delays and into inflation far beyond the Middle East. The $58 billion bill is the headline, but the knock-on effects on energy ‌investment timelines ⁠globally may prove ⁠just as significant,” Rystad senior analyst Karan Satwani told Reuters.

Rystad sees total repair spending likely to average around USD 46 billion, with downstream refining and petrochemical assets accounting for ‌the largest share due to their ⁠complexity and extent of damage. Industrial, power, and desalination assets may add a further USD 3 billion to USD 8 billion in costs.

“Recovery timelines are starting to diverge between assets and countries, showcasing differences in domestic execution capabilities and access to supply chains. Iran faces the most widespread damage, with repair costs potentially reaching USD 19 billion, affecting gas processing, refining and export infrastructure. In contrast, Qatar’s impact ‌is more concentrated but technically complex, particularly at its ⁠Ras Laffan industrial hub, where repair work may overlap with ongoing LNG expansion projects,” Rystad said.

While engineering and construction will account for the largest share of spending, delays in procuring critical equipment will likely ‌determine recovery timelines. The biggest challenge, in Rystad’s opinion, will be procuring equipment and workers.

Rystad’s estimate also coincides with the assessment of Fatih Birol, the head of the International Energy Agency (IEA), who believes that it will take about two years to recover the Middle East’s lost energy output. In an interview with German newspaper Neue Zürcher Zeitung, the official said, “That will vary from country to country. In Iraq, for example, it will take much longer than in Saudi Arabia. However, we estimate it will take approximately two years overall to reach pre-war levels again.”

Birol has further warned the energy players, along with the broader global economy, against underestimating the consequences of a prolonged closure of the Strait of Hormuz.

“Shipments of oil and gas that were already en route to their destinations before ‌the ⁠war in Iran began have now arrived, mitigating the impact of shortages. But no new tankers were loaded in March. There were no new deliveries of oil, gas or fuels to ⁠Asian markets. This gap is now becoming apparent. If the Strait of Hormuz is not reopened, we must prepare for significantly higher ⁠energy price,” the IEA boss remarked.

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This development comes after the head of the International Energy Agency warned Europe that Russia is planning to cut off the gas exports to the region starting this winter.

The governments have been asked to work on reducing the demand for fuels and keeping the nuclear power plants open.

Fatih Birol, the Executive Director of the International Energy Agency has mentioned that there will be a reduction in supplies in the coming weeks as Gazprom announced that they will be cutting the deliveries via the pipeline by around 40%, stating the reason behind this as “maintenance work”.

This in turn could be the beginning of a huge shortage by preventing the filing of the storage facilities in order to prepare for the upcoming winter season.

Commenting on this, Robert Habeck has stated that the Russian energy plant Gazprom’s decision to cut supplies of natural gas to the European countries was a “political” move.

When asked if gas rationing would be needed, Habeck said, “Hopefully never” but added, “Of course, I cannot rule it out.”

With this news, the EU countries are rushing to refill the storage sites. Germany plans to reach 90% of its capacity by November.

In response to their decision to put sanctions on the Kremlin over its invasion of Ukraine, numerous EU members have seen Moscow limit or even stop their gas deliveries in recent weeks.

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