Digging beyond oil: Saudi Arabia bids to become a hub for energy transition minerals

The top crude exporter is using its oil riches to position itself as a major player in clean energy supply chains. Investors are interested, but hurdles remain

After half a century as the world’s biggest oil exporter, Saudi Arabia is investing its petrodollars to become a major player in the global clean energy transition, seeking to cash in on demand for critical minerals.

The desert kingdom sits on an estimated $2.5 trillion worth of minerals including lithium, rare earths, zinc and copper – key ingredients in rechargeable batteries for electric vehicles (EVs), power storage and solar panels. It is also spending billions of dollars to invest in transition minerals projects abroad.

With the US and Europe rushing to reduce their reliance for these materials on China, which dominates global mineral supply chains, Saudi Arabia is pitching itself as an alternative supplier of the resources countries need to produce clean energy technologies.

Its geopolitical relations with both the West and China – built on fossil fuels – mean it is well-placed to benefit from the minerals’ supply scramble, analysts say.

“Saudi Arabia is viewed as a politically neutral player in the growing US-China race over critical minerals,” Said Bakr, a research associate at the Arab Gulf States Institute in Washington, told Climate Home News.

“For the US, [Saudi Arabia] presents an opportunity to diversify away from supply chains dominated by China. For China, it offers a stable partnership outside Western investment restrictions surrounding critical minerals,” he said.

Tapping into energy transition minerals is part of Crown Prince Mohammed bin Salman’s ambitious 2030 Vision to diversify the country’s economy beyond oil.

A major driver of Saudi Arabia’s mineral ambitions is a plan to become an electric vehicle (EV) hub, producing both batteries and EVs. By 2030, the kingdom aims to produce 500,000 EVs a year.

To deliver, it is focused on mining and refining lithium and rare earths into high-value materials required to produce EV batteries and motors.

Earlier this year, state-owned oil giant Saudi Aramco announced plans to form a joint venture with Maaden, a state mining company backed by the kingdom’s $925 billion sovereign wealth fund, to explore and extract domestic lithium deposits.

Saudi Aramco said it had found “promising lithium concentrations” in its oil and gas fields and that commercial production could begin by 2027.

To cement the kingdom’s place as a key player in the critical minerals sector, the government launched the Future Minerals Forum – an annual event aimed at drawing foreign investment to the sector. This year, deals worth more than $28.5 billion were signed.

“Our clients in the mining, minerals and metals sector are no longer just watching to see what will happen in the kingdom, but are actively seeking ways to get involved,” said Assheton Carter, CEO of TDi Sustainability, a global consultancy which advises companies on building sustainable mineral supply chains.

A mining power at home and abroad

But Saudi Arabia is a newcomer to mining and most of its mining projects are still in the development phase. It could take years for it to ramp up production and bring refining capacity online. Shortages of skilled local workers and water for notoriously thirsty mining projects are major challenges, Bakr said.

And environmental regulations remain underdeveloped in the country, said Carter. “How [Saudi Arabia] manages these [challenges] over the next five to 10 years will determine its credibility as a long-term player,” he added.

The Saudi Ministry of Industry and Mining did not respond to requests to comment.

At the same time as developing its own mineral resources, the Saudi government plans to invest billions of dollars to buy stakes in mining projects in resource-rich countries in Africa and Latin America.

With that goal in mind, it established Manara Minerals, a joint venture between the sovereign wealth fund and the state miner Maaden.

In 2023, Manara bought a 10% stake in Brazil’s base metals company Vale, granting it offtake rights, and is in talks to buy a stake in copper and nickel mines in Zambia on a similar basis.

Saudi officials have also looked at possible investments in mining and processing projects in Chile, Namibia, Guinea and the Democratic Republic of the Congo. However, negotiations to invest in one of the world’s largest copper deposits in Pakistan fell through.

These discussions are part of an ambitious plan to develop a minerals ‘super region‘ – comprising Africa, the Middle East, Central Asia and South Asia – that could become a counterweight to China’s energy transition mineral production.

Saudi Arabia would become a pivotal connecting node for the region, which it says has vast but largely untapped and unexplored mineral resources, as well as a substantial and growing market.

Navigating a geopolitical tightrope

While the kingdom is still far from rivalling China as the top supplier of energy transition minerals, it could become a secondary supplier to countries seeking to diversify their supply chains, Meike Schulze of the German Institute for International and Security Affairs told Climate Home.

The US, whose imports of Saudi oil have declined in recent years, is interested.

In May, the US and Saudi Arabia signed a cooperation agreement on critical minerals mining and processing. Washington and Riyadh have previously held talks on a deal to secure access to metals in Africa needed to produce EVs, according to The Wall Street Journal. The arrangement would see Saudi Arabia buy stakes in mining assets and allow the US to purchase some of the output.

A spokesperson for the European Commission said there were currently no discussions between Brussels and Saudi Arabia on a raw materials agreement, but the bloc has stepped up its engagement with the Gulf Cooperation Council, whose members include the kingdom.

At the inaugural EU-GCC summit in October 2024, the two trade blocs agreed to “secure resilient energy supply chains including on clean technologies, raw materials and critical minerals”.

For Riyadh, such negotiations will be a delicate balancing act because it will also want to keep Beijing – its top crude oil customer – on side.

In addition, like much of the rest of the world, Saudi Arabia will remain dependent on China for imports of key cleantech materials, including rare earths for the EV industry, until it builds out a supply chain of its own.

For Schulze, Saudi Arabia’s narrative of being a “neutral” player in the critical minerals trade will be difficult to maintain in practice because of the geopolitical competition for securing access to minerals that are key to national security and economic development.

Efforts to gain access to minerals by buying stakes in mining projects in developing countries could also prove challenging.

Developing countries with significant energy transition minerals want to move beyond the pit-to-port export model of the past and instead add value to their resources by refining materials within their own borders. For example, Zimbabwe, which has banned raw lithium ore exports, is planning to expand the ban to lithium concentrate from 2027 in a bid to force companies to process the metal into higher value materials on its soil.

Saudi officials, meanwhile, have promised investment in infrastructure projects such as roads, schools and processing plants in exchange for access to countries’ minerals. “You cannot take the mine like in the old days [of] colonialism…and leave the people,” Vice-Minister for Mining Affairs Khalid bin Saleh Al-Mudaifer said last year.

But some experts are sceptical that this offer to support local development will be sufficient. Laleh Khalili, director of the Centre for Gulf Studies at the University of Exeter, told Climate Home that Saudi Arabia’s plans appear to be part of a broader ambition for regional hegemony. “Investors take the profits and workers do the labour and are exploited [while] land ends up getting ravaged,” she said.

Neither Manara nor Maaden responded to requests for comment.

An electric vehicle dream

Saudi Arabia’s mineral ambitions are largely driven by its plans to become an EV hub.

“Saudi Arabia is betting on becoming, within a decade, a reliable alternative supplier and manufacturer [to China] for the battery and electric vehicles markets,” said Hesham Alghannam, head of the national security programme at the Naif Arab University for Security Sciences in Riyadh and an expert at the Malcolm H. Kerr Carnegie Middle East Center.

Making inroads into the highly competitive sector could be challenging, however, analysts say.

But industrial projects to supply the sector are already in progress. Saudi EV manufacturing company Ceer Motors plans to produce its first cars in 2026. Australian battery manufacturer EV Metals is expected to begin refining lithium and other minerals into battery-grade materials at a battery chemical complex in the western port city of Yanbu in 2026.

Plans for a second lithium processing plant would refine lithium mined in Austria and supply German automaker BMW.

The kingdom is also hoping to make a dent in China’s dominance in rare earths, a group of more than a dozen elements with a wide array of industrial uses including to make magnets used in wind turbines and EV motors.

Aerial surveys have identified deposits of rare earths worth tens of billions of dollars, Al Ghannam said.

Earlier this year, state miner Maaden signed an agreement with US company MP Materials to establish the country’s first end-to-end rare earth supply chain to mine, separate and refine rare earths and produce magnets. It also agreed to set up a rare earth processing plant with Australian company Hastings.

State-owned companies, notably the behemoth sovereign wealth fund, are at the helm of the kingdom’s energy transition projects, which Carter said raised concerns about efficiency and political influence in decision-making – key issues for competitiveness in a fast-changing global market.

One key aim of Saudi Arabia’s energy transition push, analysts said, is to ensure its influence on global energy systems endures as the world strives to avoid runaway climate change by transitioning from fossil fuels to cleaner energy, even as the Gulf State continues to produce oil for as long as possible.

“Rather than stepping away from oil, the kingdom may be looking to layer: positioning itself as a key player in the emerging low-carbon economy and strategic mineral supply chains,” said Schulze.

Cover photo:  A Saudi labourer walks at Maaden Aluminium in Ras Al Khair, Saudi Arabia, May 22, 2016. (File photo: REUTERS/Faisal Al Nasser)