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July 2023

A new OPEC for lithium

Enrica Lazzarini

South American countries try to ally in order to increase their bargaining power and control the prices of the new “white gold”
As one of the most valuable minerals of the modern age, lithium is crucial to the production of rechargeable batteries for electric vehicles, mobile devices, and the ecological transition in general. As global demand for lithium continues to grow rapidly, South America is becoming a major player in the production of this precious mineral. In fact, almost half of the world's lithium reserves are believed to be located in South America, which makes this region extremely desirable for mining companies and countries wishing to secure supplies of this valuable resource. Countries such as Chile, Argentina and Bolivia are known for their abundant lithium reserves and impressive ongoing mining operations.

Lithium is nicknamed “white gold” not so much because of its rarity, but rather because there is still no certainty that the supply of refined and processed lithium will be sufficient to meet future global demand, which is estimated to increase by 42 times by 2040, according to the International Energy Agency (IEA). As a result of this estimate, the European Commission decided to include it in the list of minerals considered critical and to present the Critical Raw Materials Act. The latter is a series of measures to ensure that raw materials useful for Europe's energy transition are available in a secure and diversified manner.

To ensure that the economic development associated with this mineral will hopefully be similar to that of oil, as well as that the increased profits resulting from its extraction and refining processing will contribute to government revenues, South American countries are forming an alliance similar to OPEC (Organisation of the Petroleum Exporting Countries) to protect their interests. This agreement, known as “Lithium OPEC”, aims to establish strategic control over production and prices of the mineral, allowing participating countries to maximize their economic gains. To Latin American leaders, discussing lithium OPEC would mean, among other things, avoiding enriching (as has occurred in the past) only foreign mining companies.
As a result of the agreement, members will cooperate to limit the supply of lithium on the world market and establish common policies on exports, taxes, and royalties. As a result, member countries can exert greater influence on the global lithium market and gain significant revenue from this strategic resource.

However, a reduction in supply could lead to higher prices, favouring participating countries but posing a problem for companies whose operations depend on lithium. In addition, the agreement may encourage international mining companies and other regions of the world to look for alternatives or invest in new sources of lithium to reduce South America's dependence on it.
It will be interesting to observe how the situation evolves over the coming years.

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