For most of the last century, oil remained the cornerstone of the global economy, as noted by Euronews.
This resource powered factories, transportation systems, and trade, shaping the financial strength of nations. Control over oil supplies often became a tool for influencing economies, inflation, and even the outcomes of military conflicts.
The influence of oil remains relevant today. Prices for this resource can destabilize economies, causing sharp inflationary spikes and complicating the work of central banks. In the context of rising geopolitical tensions, energy security continues to be a significant challenge for governments.
However, the foundation of global power is gradually transforming. In an era of electrification and digitalization, other resources are coming to the forefront.
"In the Middle East, it's oil, and in China, it's rare earth metals," said Deng Xiaoping in the 1980s when oil dominated the global stage. Today, these words seem particularly prophetic.
From Oil to Strategic Materials
Despite the changes, the role of oil in the global economy has not lost its significance. Global consumption continues to exceed 100 million barrels per day, and most analysts suggest that high demand will persist at least until the 2030s, even amid an uneven transition to alternative energy sources.
Oil markets stand out for their scalability and flexibility. This raw material can be transported across oceans, stored in strategic reserves, and traded under liquid standards. In the event of supply disruptions, the system is usually able to adapt, although sometimes this occurs with difficulties.
Rare earth elements, on the other hand, play a completely different role. They are not used for energy production and are not traded in large volumes.
These materials are the foundation of technologies that enable electrification, automation, and digital infrastructure.
Permanent magnets made from rare earth materials are key components in electric vehicles, wind turbines, robotics, aerospace systems, and advanced military equipment.
With each passing year, their importance grows for data centers and infrastructure related to artificial intelligence.
Growth of the Magnetic Economy
At the Rare Earth Mines, Magnets & Motors (REMM&M) conference held in October 2025 in Toronto, Bank of America analyst Lawson Winder emphasized the importance of the issues being discussed.
According to Bank of America, global demand for neodymium magnets—one of the most sought-after rare earth materials—could increase by an average of 9% per year until 2035.
The segment of passenger electric vehicles is expected to contribute to growth at around 11% per year, while demand from robotics could increase by nearly 29%.
In the U.S., these rates are even higher. Demand for magnets is projected to grow fivefold by 2035, corresponding to about 18% per year. In Europe, an increase in demand of approximately 2.5 times is expected over the same period.
In comparison, global demand for oil during this same period is forecasted to slow to less than 1% per year.
Shortage of Rare Earth Resources
With the growing demand for rare earth elements, Europe faces a shortage of its own capacities for their extraction and processing. Bank of America expects that the deficit in the region will widen, given the high demand.
China controls about 90% of the production of rare earth oxides, such as neodymium and praseodymium, as well as nearly all production of heavy rare earth oxides, such as dysprosium and terbium. China also produces approximately 89% of the world's rare earth magnets.
In terms of processing, Bank of America estimates that China accounts for about 87% of the world's capacity to convert raw materials into final products that manufacturers can use.
As for unprocessed raw materials, China holds about 49% of the world's reserves of rare earth oxides and produces about 69% of the global output of unseparated products.
This dependency creates structural vulnerabilities related to rare earth elements. It is not just a raw material market, but a manufacturing system where scale, expertise, and integration play a crucial role, surpassing the significance of geology.
The most vulnerable points remain the processing and production of magnets—complex, environmentally hazardous, and capital-intensive processes in the supply chain.
Export restrictions imposed by China in April 2025 highlight this issue. Now, licenses and disclosure of end-use are required for the export of several medium and heavy rare earth metals.
“Physical AI” puts materials in the spotlight
According to Jordi Visser, chief researcher at 22V Research, rare earth elements are part of a broader picture: the implementation of "physical AI."
“The implementation of physical AI creates critical dependencies on raw commodities, where China holds a dominant position,” he notes in a recent memo.
Artificial intelligence is not just software and data centers, but also hardware: robots, sensors, motors, batteries, and energy systems.
“The technological transition requires rare earth elements for permanent magnets in robot drives and electric vehicle motors, lithium and advanced battery materials for portable AI systems and energy storage, as well as recycled materials such as refined graphite and cobalt, for which there are almost no capacities in the West,” explains Visser.
He emphasizes that this is not only a strategic issue but also a matter of timing.
“Despite the efforts of the U.S. and Europe to quickly build infrastructure for AI, they remain structurally dependent on Chinese processing capacities,” warns Visser. “This strategic vulnerability cannot be eliminated within the timelines that technology demands.”
Control over Bottlenecks
Despite the global race towards decarbonization, oil remains critically important. Its price continues to influence inflation expectations and shape international trade balances.
However, in this new industrial era, where automation, electrification, and AI are key, it is rare earth elements that increasingly determine what can be created and who can do it.
“This creates significant opportunities for manufacturers and serious challenges for governments and end-users seeking to protect their supply chains,” emphasizes Winder.
In this new context, dominance is less about control over fuel and more about control over bottlenecks. Oil still drives the present, but it is rare earth elements that increasingly determine who is capable of creating the future.
