— Strategic Minerals as Instruments of Power and Diplomacy —
( Economic Intelligence Report | October 2025)
1. Executive Summary
Pakistan’s recent emergence as a potential supplier of rare earth elements (REEs) has positioned it at the intersection of U.S.–China strategic competition.
Following a US$500 million agreement with a U.S. mining consortium in late 2025, Pakistan made its first shipment of rare earth–bearing ore to the United States.
While seemingly a commercial milestone, this development represents a deeper realignment of geopolitical and economic interests.
China—long Pakistan’s closest strategic partner through the China–Pakistan Economic Corridor (CPEC)—now faces a gradual dilution of its exclusive influence, as the United States seeks to integrate Pakistan into its broader critical minerals security architecture.
This report analyzes the underlying dynamics, strategic calculations, and long-term implications of this emerging triangular relationship.
2. Strategic Context
(1) Rare Earths as a Power Asset
Rare earths are vital for high-technology industries, renewable energy systems, and defense manufacturing.
China currently dominates over 70% of global REE production and nearly all downstream refining capacity.
For the United States, diversifying away from Chinese-controlled supply chains is not merely an economic objective—it is a strategic imperative. Pakistan’s potential, therefore, carries both economic and symbolic value: it offers a new node in the global critical minerals network, positioned between the Middle East, South Asia, and China’s western frontier.
(2) Pakistan’s Emerging Leverage
Pakistan’s geological endowment—spanning Balochistan, Khyber Pakhtunkhwa, and Gilgit–Baltistan—contains copper, gold, and polymetallic deposits with REE potential.
Beyond resources, Pakistan’s geostrategic location provides proximity to key maritime routes and ports such as Gwadar and Pasni.
This dual advantage makes the country a potential “swing producer” in the critical minerals value chain.
3. The U.S.–China Competition: Divergent Approaches
| Dimension | United States | China | Implications for Pakistan |
|---|---|---|---|
| Strategic Goal | Reduce dependence on Chinese REE; build a diversified supply network with trusted partners | Preserve dominance in REE value chain; maintain influence via CPEC | Pakistan becomes a testbed for balancing great power engagement |
| Instrument of Influence | Direct investment (US$500m deal), security assurances, infrastructure co-development (Pasni Port proposal) | Financing through BRI/CPEC, existing mining rights, infrastructure debt diplomacy | Dual-track diplomacy raises sovereignty and transparency concerns |
| Economic Model | Equity-based, transparent financing, joint ventures with Western technology | Concessional loans, infrastructure-for-resource swaps | Pakistan’s fiscal stress amplifies asymmetry of bargaining power |
| Narrative Strategy | “Critical minerals security” and “free supply chains” | “Win-win cooperation” and “non-interference” | Competing narratives exploit Pakistan’s economic fragility |
| Risk Exposure | Political instability, contract enforceability, local security risks | Western sanctions risk, image of neo-debt diplomacy | Pakistan must diversify partners while strengthening governance |
4. Geoeconomic Maneuvering
(1) U.S. “Mining Diplomacy”
Washington’s engagement marks a strategic pivot from security to resource diplomacy.
By anchoring rare earth supply within U.S.-friendly jurisdictions, the Trump administration seeks to operationalize its Critical Minerals Alliance—a coalition linking Australia, Canada, India, and selective emerging economies.
The Pasni Port development proposal, tied to potential logistics access for U.S.-linked mining exports, illustrates how resource corridors are becoming extensions of geopolitical influence.
(2) China’s Counterstrategy
Beijing, for its part, aims to retain dominance through continuity.
By leveraging CPEC’s existing infrastructure—especially Gwadar Port, mining concessions, and financial leverage—China can counterbalance U.S. influence without direct confrontation.
It may expand “silent control” mechanisms, including technology-sharing, new loan packages, and long-term offtake agreements with state-owned enterprises.
China’s broader objective is to prevent Pakistan from becoming a U.S.-aligned critical minerals hub, while maintaining its economic and political grip through asymmetric interdependence.
5. Pakistan’s Position: Between Opportunity and Vulnerability
(1) Economic Leverage
The rare earth sector offers Pakistan a potential escape from chronic fiscal stress. It could:
- Generate export revenues exceeding US$2–3 billion annually within a decade (if industrialized domestically).
- Create technology-transfer spillovers through joint ventures.
- Enhance regional connectivity through port and logistics infrastructure.
(2) Structural Weaknesses
However, Pakistan’s bargaining power is constrained by:
- Weak institutional governance and opaque contracting;
- Fragmented authority among federal, provincial, and military entities;
- Security instability in mineral-rich Balochistan;
- Lack of domestic refining and high-end processing capabilities.
These vulnerabilities make Pakistan susceptible to resource capture—either by overreliant Chinese partners or extractive Western investors seeking short-term gains.
6. Economic and Financial Implications
- Investment Risk–Return Asymmetry
Political volatility and contract opacity heighten sovereign and credit risk premiums.
Institutional investors may require export credit guarantees or multilateral co-financing (e.g., JBIC, IFC, AIIB) to participate sustainably. - Currency and Fiscal Dynamics
A successful mining export strategy could strengthen Pakistan’s FX reserves and reduce external debt dependency.
Yet, heavy reliance on foreign currency contracts risks exposure to dollar volatility and profit repatriation pressures. - Regional Spillover Effects
If managed effectively, Pakistan’s REE integration could reposition South Asia as a new resource corridor, linking Gulf capital, Indian demand, and U.S.–Asian supply networks.
7. Policy Recommendations
For Pakistan
- Institutionalize a Critical Minerals Authority to oversee licensing, transparency, and environmental compliance.
- Negotiate balanced contracts emphasizing technology transfer and local value addition.
- Pursue multilateral frameworks to avoid overdependence on any single power bloc.
For the United States and Allies
- Expand financing for sustainable mining infrastructure through the U.S. Development Finance Corporation (DFC) and allied institutions.
- Support Pakistan’s capacity-building in environmental standards and REE refining technology.
- Integrate Pakistan into regional trade frameworks that reinforce transparent market practices.
For China
- Adapt CPEC into a more multilateral, open investment platform to retain goodwill.
- Shift from a “control model” to a collaboration model emphasizing co-development rather than dominance.
8. Outlook and Strategic Scenarios
| Scenario | Description | Likely Outcome |
|---|---|---|
| A. Strategic Cooperation | U.S.–Pakistan partnership deepens, with transparent investment and port co-development | Pakistan emerges as regional REE hub; China diversifies elsewhere |
| B. Dual Engagement (Most Likely) | Pakistan balances U.S. and China via selective contracts and shared access | Moderate growth, high geopolitical tension, mixed investor confidence |
| C. Resource Fragmentation | Governance failures and security crises derail development | Withdrawal of investors; REE potential remains unrealized |
9. Conclusion
Pakistan’s rare earth diplomacy encapsulates the geoeconomic transformation of the 2020s: resources have become instruments of power projection.
The country’s strategic location and untapped mineral potential give it unprecedented leverage—but also unprecedented exposure.
For the United States and China alike, Pakistan represents a microcosm of the 21st-century struggle for critical minerals dominance.
The outcome will depend less on geology and more on governance—on whether Islamabad can balance competing powers while safeguarding national interests.
If managed prudently, Pakistan could emerge not as a pawn in great power rivalry, but as a sovereign pivot in the global rare earth supply chain.
Analyst’s Insight
Rare earths are the new oil, and Pakistan sits on a geopolitical seam where supply, strategy, and sovereignty converge. The coming decade will test whether it can transform mineral abundance into sustainable economic independence—or repeat the cycle of dependency in a new, more strategic form.
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