SoC Podcast Episode 2: Building a secure critical minerals supply chain w/ Cory Combs, Trivium China

I’m pleased to announce that you can now listen to this and all other Securing our Climate podcast episodes on the Substack app, Spotify and Apple Podcasts (coming soon)! Hi everyone: My friend Cory Combs at Trivium China, one of the best analysts in the business when it comes to all matters China, renewable energy, critical minerals and supply chain, have traded notes on how intersection of climate and geopolitics will evolve for many years. So as the war in Iran continues to rumble on, gas prices climb to years-old highs in the US, inflation creeping up across the board and catalysing political uncertainty from the Philippines to the UK, it only made sense to reconnect with him to get his views: [01:28] What is the impact of the war in Iran on critical minerals and its value chain [07:04] Why sulfuric / sulphuric acid matters and why we should be watching its price and availability [11:14] Expectations v reality in building a secure critical minerals supply chain for the US [25:42] Can winning examples like Lynas (Japan/Australia/Malaysia rare earth processing JV) be replicated and scaled ? [33:02] China’s strategy to impose costs on US behaviour in critical minerals e.g. export controls and bans, and the emerging US strategy in response [41:05] Is the Iran war going to accelerate the energy transition? Yes and no… Keywords: energy transition, Iran, China, US, critical minerals, rare earths, export controls, sanctions, defense, resilience Key links: Project Vault: the US’ critical minerals strategic reserve initiative Forge, the US State Department’s new iteration of the Biden-era Minerals Security Partnership Transcript Alan Leung (00:07) Hi, and welcome back to another occasional edition of the Securing Our Climate podcast, where we bring industry practitioners and thought leaders at the nexus of security, climate, geopolitics, and finance to discuss key trends, risks, and opportunities. I’m your host, Alan Leung. And today, I’m joined by Cory Combs. Cory Combs directs climate, energy, and critical mineral supply chain research at Trivium China, where he and his team provide research and strategic advisory services for a range of government agencies, corporates, investors, and NGOs. He’s a member of the National Committee on U.S.-China Relations, a regular participant in international track two dialogues, and a frequent commentator in global media. He’s also a contributing author in the Springer Nature Handbook of Climate Change Mitigation and Adaptation. Cory served at the US Department of Energy Loan Programs Office, or LPO, supporting clean energy technology commercialization through the LPO’s then $20 billion plus investment portfolio. Cory studied astrophysics and philosophy at Yale and received his master’s from Johns Hopkins SAIS where he studied energy economics and Chinese political economy. In addition, he was a Yale China Fellow in Hunan Province and was twice awarded the Starr Excellence in China Studies Fellowship at Johns Hopkins SAIS. Welcome to the podcast, Cory. Cory Combs (01:25) Cheers, absolute pleasure to be here, thank you. Alan Leung (01:28) Fantastic. So, you know, we’ve known each other for a long time and we’ve always talked critical minerals, energy transition, renewable energy, you know, for the last several years. And, you know, really felt like those kinds of trends were really going to converge at geopolitical realities at some point. And there’s always a myth we were talking about how at what point would they really hit home for a lot of people. And I wonder if the current Iran war is one of those moments, right? Ukraine was kind of one, but Iran has really displaced a lot of energy markets, created a lot of energy insecurity issues everywhere from Latin America to Southeast Asia. So you sitting at, you know, looking at critical minerals day in, day out, you’re looking at energy transition supply chains. Curious, maybe we start off with your thoughts about the Iran war. What does it mean for critical minerals as you see it and supply chain resilience going forward? Cory Combs (02:30) Yeah, let’s take both of those in turn. The first, the energy side, because obviously that’s very top of mind, but it’s also specifically a lot of the impacts of critical minerals also come from the region’s specific role in the oil and gas to critical minerals pipeline. I’ll explain what that means, but the punchline is going to come down to sulfuric acid. So it’s going to sound a little weedy, but I think it’s really important, that when these kind of deep rooted supply chains that are not usually top of mind, come to the fore of global media, that it’s a great learning opportunity for governments, for industry, for everyone really to understand how these things really work. And I think I have yet to see the critical mineral energy nexus brought to light in such sharp relief at any point in recent memory. So this is, I mean, it’s a terrible situation, but in terms of understanding the resilience issues and the security issues, this is the case to study. So it’s worth breaking out both pieces. And so on the energy side, I say, you know, the top of mind question for everyone is energy security. And I’m sure we’ll dive further into this, but just top of mind are two quick points. One is that for most of the world, oil and gas is not energy security. It just isn’t anymore. Certainly diversified energy mix is part of that. And then oil and gas can be part of that. But no longer is the US motto of more oil, more gas equals energy security. That’s just not valid for most of the world. And this [the Iran war] demonstrates why. And I think the second piece here is that, you know, you always hear this narrative in the US, certainly among leadership that has especially come from the oil and gas industry, that the US has ample shale gas, has always had oil, right? This is security for the US. Maybe it’s not security for the rest of the world. And we can talk about the implications of global competitiveness if the US is behind on renewables and everything except oil and gas. There is that question. But even more fundamentally, is it energy security for the US? And I think what has - shouldn’t have but has surprised a number of observers I know - is that oil and gas products, they flow to the highest bidder. And so because the world’s supply is disrupted, the US might have the oil and gas, but Americans are still feeling the energy price inflation. So even if it’s produced in the US, it’s flowing to the highest bidder, which means Americans absorb that cost as well, even though they don’t have supply shortages, necessarily. And so this is again, a question not only of, is the world made more secure by an overdependence on oil and gas? Even the US isn’t made more secure when it comes to the pricing side. that’s the first thing I think has been very interesting to see the flow of conversation around oil and gas here. The other piece here is around sulfur. So I would say for critical minerals in general, the Iran war isn’t creating necessarily new vulnerabilities, but it is absolutely, a polite word would be stress testing. A more blunt word would be showing how broken the global supply chain vulnerabilities really are. And the issue is that even though Iran’s not a major source of a lot of these critical minerals, is, Hormuz is a strait through which many of these pass. In addition, sulfur specifically is a byproduct in large part of oil and gas refining. And a lot of that obviously is done in the region. And then those products again flow through the strait. Sulfur is the essential input as well as, you might guess, for sulfuric acid. There’s basically hydrofluoric acid and sulfuric acid. Those are the two. If you’re going to know any acids, know those two because those two power so many things of the world. And most importantly in this conversation, they are the inputs for processing critical minerals. If you don’t have sulfuric acid, and in some cases, hydrofluoric acid, you don’t have rare earth processing. You don’t have nickel. You don’t have cobalt. You don’t have manganese. You don’t have half of the things you need for batteries, for solar panels, for petrochemical catalysts, right? And so this is one of those kind of tier two, tier three, by which I mean just kind of hidden upstream dependencies. And it’s also critically for China. And this is a separate story, but worth noting, sulfur, in particular, is also critical for fertilizer. And for China, there are very few things more important than energy and industrial security. Food security is one of them. Food security and Taiwan basically the top tier. And this is a direct hit in terms of food security. And so this is why we see Beijing, the central government that is, saying they will temporarily limit, or it looks like it’s going to be a shadow ban, on exports of sulfuric acid. Why? Because China is going to make sure it has what it needs for domestic fertilizer, for domestic food security, and specifically for processing all the critical minerals on which it and the world depend. That is the deeper dependency issue that Iran has demonstrated. Alan Leung (07:04) So, you know, a lot to unpack there, Cory, but maybe I want to stick with a sulfuric acid a little bit. Where is it manufactured? Is a lot of it manufactured in the Middle East and that’s why Hormuz is such a big concern for them? Or is it a matter of, you know, the sulfuric acid manufacturing is somewhere different from where, you know, where oil and gas are produced and exported and that Hormuz has just kind of displaced where supply and demand is. You mentioned China has significant sulfuric acid reserves. They built it up over time. Where else is sulfuric acid manufacturer created, stored? And is there enough, like with a lot of other types of chemicals and materials like ammonia, urea have come up as well when I was doing my research about what else in the supply chain is directly hit as a result of the Hormuz being shut down. Urea was one of them as well. So is there enough give in the system at the moment? are we seeing, know, so for acid is another one of those kinds of chemicals that are facing crunch times yet. Tell us a bit more about that. Cory Combs (08:03) Yeah, it’s one of those situations where there is production outside of the Gulf. There is just a lot of production outside of within the Gulf and more specifically, China itself imports massive quantities. I’ve seen various estimates anywhere from half to 75 % of its sulfur is from the Middle East. Most of that, not all of that, flows through the strait. And a lot of that has to do with costing. So a lot of the time, if it’s not specific heavy rare earth elements, right, most of the time outside of that particular niche, you can find, if you look hard enough, other supplies, but they might be three, four times the cost. And one of the key issues here is that minerals are already produced at surprisingly low margins. I say surprisingly, because I think for a lot of people, there’s an understanding that critical minerals, especially the battery minerals, are incredibly strategically valuable. And the batteries themselves are valuable. And the catalysts they produce and the electronics that these things go into are very high value add. But the minerals themselves are not financially that valuable. They’re very, very low margins. And this is one of the critical issues with a lot of the critical minerals that are at risk. So just to confirm again, it’s worth backtracking a little. Critical minerals, as defined by the US government, every government has a different set. They’re very widely in terms of use and also type of markets. So lead in some cases is categorized as a critical mineral because of its functions. It’s not in danger. No one’s really worried about running out of it or it being disrupted as opposed to say chromium, which is somewhere in the middle. It’s a little more disruptible. And then you have things like molybdenum, very disruptible, right? It’s another byproduct material. And then you have gallium, germanium up the chain to rare earths, right? So the issue is that you move up that chain in terms of scarcity. The problem is that those minerals are produced not only at low marginal value, but also relatively low volume compared to your base metals, compared to your copper, things like that. And so where is the money? The truth is there’s not that much money to be made in most of these investments, which is why there isn’t that much investment. And then with byproducts, chemicals as well, very low margin. So you need the stuff. But the people using it don’t have much flex in terms of their ability to pay. So this is where it might sound like, the price is going up. That’s tolerable. It’s tolerable until the processing shuts down because of the margin issue. Right. So yes, we can find more stuff, but there’s absolutely a critical issue in terms of timing of getting new supplies rerouted. Right. This stuff travels halfway around the world. So there tends to be weeks of delay if you, if you move supply chain suddenly, but there’s also the pricing issue that is very material. Can it be handled? Yes. It’s not existential. The world’s not going to shut down tomorrow, right. But you might suddenly see shortfalls of supplies that have typically been readily available, which cascade down the supply chain. So that’s the kind of issue that we see and that we have to work on trying to mitigate. Hope that makes sense. Alan Leung (11:14) Yeah, no, that makes sense. And connecting that back to the first half of your view about how the Iran war is impacting, especially in the US context around there’s a difference in supply and also the pricing, you know, where availability may still be there, but the pricing, because the markets for oil and gas are, know, oil is much more fungible than gas, is that people are still feeling that pain at the pump or at the till, you know. Connecting that back to your comments just now about sulfuric acid, you would have seen the news that the US Trade Representative, Jamieson Greer, mentioned that there should be a national security premium for the US and allied countries to buy certain kinds of critical minerals. When I read through a little bit, feels like it’s the latest iteration of a number of attempts to create US and Allied initiatives, to create some kind of coordination and collaboration throughout the value chain of critical minerals. But this one specifically feels like more of a buyer’s cartel type of proposal arrangement. When you contrast that with what you just said about how the manufacturing and processing of these minerals is oftentimes, if not most of the time, very low margin businesses. And you’re asking potentially companies in the supply chain to stand up and invest billions in manufacturing or creating new plants and fabs for critical minerals that would potentially be sold to a cartel that has a price floor or something like that. Given that this whole ecosystem at that minerals production and value at level is so low margin with the current economics, curious to get your views about those comments and the potential viability with the asterisk saying “details to follow,” the viability of creating some kind of cartel and really asking people to pay more when the margins are so low. Maybe that will work, but it sounds like there will be some major challenges in the economics of actually turning that kind of vision where the US and its allies have developed some kind of viable and sustainable moat where elements of that critical mineral supply chain can be secured. Cory Combs (13:22) Yeah. Absolutely, you nailed it. This is the story that we have been working on behind the scenes since really gallium and germanium export controls came out of China in mid 2023. I’ll say a couple things. First off, what’s the model? The model is China, as you see a lot of US policy gets increasingly Chinese, if you will, because in terms of mineral security, China certainly has its problems and certainly demonstrates it through its policy signals - uncertainty and concern about certain materials and security - but it is by far the most secure in terms of overalls as a supply chain and critical mineral security. And why? It’s not just because China has a relationship with Iran or anything like that. It’s because China produces the stuff. And where it doesn’t produce the particular input, it has diversified its sources, it has stockpiled, et cetera. China has had a very forward-looking approach to this. The problem is that no one outside of China really, and no one without China’s governance system is really going to be able to pull off the interesting marriage of private markets acting in an air like downstream with batteries and solar and all the manufacturing side led by private companies operating in the ecosystem that is basically state-backed guarantees of industrial inputs as well as energy cost management, right? That’s an unusual situation by itself. And then you add in, of course, the difficult talking points about China’s scale - support for R&D, all that stuff absolutely applies. What the US is trying to do is finally, I think, one of the big points of progress we’ve seen over the last few years is the US understanding it cannot go out alone. The Biden administration clearly understood this with failed ventures, but ventures like the Critical Minerals Partnership, which predates all of this by a little bit. It didn’t really go anywhere, but the thinking was there. The understanding the US can’t go out alone. needs support and allies. And now the Trump administration, I think, is, you know, at this point, realizes that you can’t just do America for America. America doesn’t have all the resources it needs. America doesn’t have the processing it needs. America doesn’t have the tech and talent to do half the stuff. Maybe it could in 20 years. It doesn’t today. And so there needs to be an international model to replicate a piece of what China has built over the last several decades. Now, there’s several issues. One is, and I’m going be very blunt here: to what extent do you want to replicate what China has done? Because China itself is dealing with the environmental ramifications of taking on the world’s mineral processing, basically. Why does China have that? Again, back to the point about a lot of these industries being low margin and dirty and human health hazardous, They’re not very attractive industries from a commercial standpoint. They’re really only attractive from a strategic standpoint in most cases. And so, you know, China has basically managed to build an industrial ecosystem, partly through vertical integration, partly through separation of what is state versus privately managed and led and invested, of internalizing those costs and doubling down on the value out of the downstream. The US isn’t producing batteries in much quantity of note. It isn’t producing a lot of the other products, EVs, batteries, et cetera. That’s where the supply chain starts to make sense in China’s case, because the value out there can account for, as I say, losses, of the low margins and impacts of the investments upstream. The opportunity cost is basically built into the value creation strategically and financially of the big three exports and everything else like that. So that’s really where the US and allies have to figure out what they want to do, because it’s not just a, OK, we have enough supply for what? The first key thing is for military. The US does not want to depend on Chinese rare earths for niche military applications. Understandable. No one should be depending on really any other major country for 100 % of its military input in any particular category. That’s just the security risk. But more importantly, it drives up the fear and the geopolitical risk perception that leads to other, let’s say, more provocative policies too. So there’s a geopolitical angle here too. When governments feel threatened, they act out. And when you have a stranglehold on a particular military supply, like a particular [rare] earth, they feel threatened. Right. So there’s actually there’s actually a knock-on effect, I think, to having some supply diversification there. But what about the rest of the commercial sector? What about the rest of industry, which is probably 95-plus percent of rare earth demand? And for most minerals, it’s going to be most of demand as well outside of a few specific things. But so then you the question of you already raised it. How do you get the commercial sector to play along? And the first thing is you do not simply ask the whole of global industry to be patriotic to some grand cause and pay more for materials they’re used to getting for a certain price level, certain level of quality readily from China. Chinese export controls have certainly forced a shifting or diversification among corporates, but not enough to build out a complete replication of Chinese supply chains. Right? And so now you have a situation where the way you build out these supply chains basically is through a combination of governments giving grants and loans at very preferential rates, governments guaranteeing offtake, governments giving other tax concessions, et cetera, and governments trying to connect the dots between actors. So for example, if you have a you know, French metals expert or UK, [for] less common metals, of, you know, these niche players that somehow survived the global migration of supply chains to China, then you pair that with say, an American rare earths company and they can start to build that vertical supply chain. That’s kind of what the companies are doing. They’re doing it with government support. But that works in very narrow commercial cases. It does not work as a general all encompassing, let’s all band together kind of approach. And the reason is, it’s really hard to make the commercial cases. Cory Combs (19:29) And the government has to basically backstop all of it. And so the government, there’s no government, even all governments are not going to backstop most of the world’s commercial industrial demand for most of these minerals. Right. What you can do is narrowly target - hey, the Pentagon is going to offtake enough critical mineral, enough rare earths from Mountain Pass to supply military demand. That’s great. Doesn’t change the rest of the market, right. And be asked to do the rest, but there’s still a price premium. How do you work that out? That’s a difficult issue. And the final piece I’ll say here, and I know there’s a lot of dimensions, I’m just trying to talk through some of the key pieces here so people can have their own mental model as they think through these issues. The more cooperation, the more cost sharing, more to the point that you can have, the better. But you have multiple different dimensions of US engagement. There’s packed silica looking at the silicon supply chain all the way through chips. You have Forge, [which] is this effort to, it was the first kind of major effort to bring countries together, sign all these bilateral agreements. And this is, this is, know, what Representative Greer is talking about. He’s really building on that. Basically agreements to agree to work together, right? And then you have Project Vault, which is an effort to build a series of US stockpiles and basically a reserve management system. The core of all of those things, the premise is that we non-Chinese countries, we all need to work together. We have to band together in the face of this common threat. That is the US side. For the rest of the world, what they hear is the US, which is jointly responsible for the mess that everyone is in. To be very clear, the US policies are the catalyst to which the Chinese government was responding with export controls. It was predictable. It was publicly predicted. And it was used by basically the US government decided it was worth it one way or another. This not a normative statement. I’m not saying I [don’t] have opinions, obviously, but I’m not saying it’s one side’s fault. Both were involved. Both are partly responsible. That is, that is just the factual basis of it. And you can kind of have your normative assessment on top of that. So for the rest of the world, when you go in and say, it’s their fault, we have to band together and you’re not kind of taking responsibility for one’s own part. It’s not just a political issue. It’s a practical one. Cory Combs (21:46) Can other governments trust that the US strategy won’t involve actions that screw them over again, even as they cooperate on these big investments. So that is a huge practical issue in question for them. So that is, yes, so that is just something that they have to figure out and the US needs to figure out its messaging in order to assure partners if it wants to work with them, especially because these investments don’t take two years to play out. They take a decade to play out and that’s even before payback. Alan Leung (21:59) Yep. And that leads to something that’s, as you were mapping out kind of the potential value chain, how this may work, the challenges we face, then becomes a very serious medium to long-term policy question relative to short-term viability. I think from the non-US Western ally perspective, is now an arguably, almost inarguably, a greater trust deficit. Cory Combs (22:27) Yes. Alan Leung (22:40) At the high level across most policy areas between the UK, NATO, other NATO allied states, Japan, Australia, and the like with the United States. Critical minerals and Project Vault and creating a buyer’s cartel, pulling together resources to try to bring some of the costs down to create a vertically integrated critical mineral supply chain. It feels like that’s at risk of just being lost in the mix of all the other potential policy areas where there is differences of policy or just frankly fault lines there. And what you’re articulating about how the consensus view from the market is around what they would need to actually stand up a vertically integrated supply chain that supports not just the US military, but also the militaries of Europe, Asian allies, et cetera, that requires sustained coordination, not just over two, five years, but 10, 15, 20 plus years. So the question then becomes, how viable really are these efforts and where are there promising signs anywhere really that there is enough traction here to potentially insulate it from the… Cory Combs (23:46) Exactly right. Alan Leung (24:04) …political, well, frankly, electoral cycles, you know, in the US, but also with in the various allied countries as well, where it seems in the US side of things, there seems to be a bipartisan consensus that this is a problem, that this needs to be fixed. And over- dependence and over-reliance on Chinese sources is probably not a good thing for US national interests and probably not a good thing for a lot of the allies as well. But therein lies the question is the US has that broad bipartisan consensus. But I don’t think we can say the same for some European countries and maybe some Asian countries as well, either by choice or out of necessity. And they see the geographic and political realities of where they are right now. In your perspective, what kind of policy do you see signs of potential policy guard rails in place to almost kind of safe, kind of put critical minerals to one side and say, [that] is a long-term project while we can let other types of policy areas, we’ll let those kind of play themselves out. But we all agree that this is a long-term challenge that we will continue to work together on, bring private sector engagement into it, provide the right kinds of subsidies and the sandbox really for them to fail, succeed, et cetera. What do you think is needed? And do you see signals or green shoots that there are gonna be these kinds of, that kind of political willpower in place to make at least some of these things happen? Cory Combs (25:42) Absolutely. It’s a rich, it’s a rich set of interconnected issues. We have the material, we have the financial, we have the tech and talent pool, and we have obviously geopolitics. We also have US government strategy at the core of this. And that’s where things get very directly tied to the electoral cycle. And I’m glad you raised it very explicitly. Sometimes we talk about US policy longevity and we should be much more direct about it. We’re talking about electoral cycles, as you said. And so the way I broke this down is just top line, there is progress. There absolutely is. In particular on the rare earths front, just because that’s been a specific focus of the US government, there has been a mass mobilization of resources. And I would say I have critiques of various ways that capital has been deployed. But it’s also, in some ways, you just get the money out the door and you start moving resources around and you start to build up whatever you can build up. And that’s kind of been the approach. Now I’m to get to a deeper critique than that in a second. But credit where it’s due, the US government has managed to help support several rare earth companies in the US. And more importantly, they’ve kind of opened the scope and said not just, you know, not just we’re going to help American companies make American resources, blah, blah, blah, but also, you know, being much more open, especially this year, it’s by necessity, right, it’s overdue, but they have finally come around to allowing companies that receive US government support to work with other international partners. So that’s not a subsidy to other countries or other countries’ companies, but it is an opening of the possibility space, I suppose, for actors to collaborate. And that’s important for other countries as well. And I want a case in point of something that works versus something that doesn’t. Lynas. If anyone has not heard the name Lynas, this is the company to know in terms of critical mental diversification. They, for a long time now, a long time relatively speaking, a couple years, been the only commercial producer or processor of heavy rare earths, which are what make permanent magnets perform at a high performance of magnets possible. They are the only non-Chinese entity able to produce quality heavy rare earth products. How do they do it? It’s a collaboration between an Australian company, Lynas, Malaysia, which has the processing facilities, and Japan, which is actively paying more than it would pay China, for specifically secure supply for its massive magnet industry. There’s a trilateral engagement where, back to the value chain piece, everyone has a different strategic and financial interest in that, and everyone’s interest is being met in a way that actually makes sense for that vertical to exist, right? From extraction to processing to actual send-off to magnets, the offtake there. What the US policies have done so far, and where the progress has been made but is insufficient, is in boosting the supply side. Having companies, particularly in the Emirates, but also few others, several others now, bring up supply, bring capacity to produce things or to extract things out of the ground. Processing, very far behind. And the offtake is limited. So one of the key issues as you’re setting up a project, how do you turn your extracted product into something useful? That’s processing. And then who buys the stuff? And right now it’s mostly governments or question mark. Now that’s OK for a little while because it can take a couple of years for a lot of these investments to really be built. But that’s got to be figured out sooner than later. Otherwise, these things all go kaput the moment the government stops directly kind of backstopping everything, which will be relatively soon, just in terms of scale of cost. The off-take side is still being worked out. And this is where the kind buyer’s club notion becomes really important. If everyone can agree that they will buy, basically create demand for non-Chinese sources, well, your demand side goes up, And so you can afford to charge a different price point. But that, again, is not something that’s... we haven’t seen much progress toward that. And I think the reason is largely that trust deficit. And it’s not just a, “I like the president,” this isn’t that level of politics. It’s a, “will US policy support these investments long enough to be successful, to scale up and reduce the cost curve to something manageable?” Will the US, and this is a critical one for Project Vault. Project Vault is very directly asking allies and other strategic partners to send into US stockpiles, US managed stockpiles on US soil of scarce critical minerals that can either go to the US for safekeeping or go directly to industry that needs it today. If you were a foreign government, what would the enticement have to be for you to send scarce supply away from your own industry to a stockpile, especially if you’re not confident that the US would use that stockpile and release reserves in your interest and not just its own? So that is a practical question that is politically and geopolitically driven. That’s where I progress has not really been made, kind of making those guarantees and assurances. Certainly it is something that can be assured. The US has managed strategic reserves in the past that benefit the world. But right now, that trust gap is the policy in place, it’s the strategy in place. And I would, the deeper critique, I’m going to circle back to the top real quick. There are a couple ways to manage the supply chain crises. Not Iran, right? That’s well, actually, you know, I’m gonna include Iran. There’s a couple ways to manage these geopolitically driven supply chain crises, namely, policies that Beijing uses antagonistic and therefore comes back with export controls to defend its interests as it sees them attack on Iran, Iran closes Hormuz predictably, now you have a crisis, right? These decisions, there are two options. One is you reduce your dependency, ideally for the action that creates the crisis, right? Which did not happen. Or, and this is where both China and Iran have basically tried to impose costs to certain strategic actions, or you don’t take the action. And so in the case of China, the big conversations around, well, should the US bother trying to continue with export control policies around tech? Those are 90, maybe 80%, but certainly the majority of what has provoked most of China’s export controls, with the exception of the BIS affiliates rule, need to go into that right now. But again, a very predictable, it directly attacked China’s economic upgrading interest, which for the 15th Five Year Plan are the central focus. China’s economic upgrading strategy is the paramount focus right now. And anything that attacks that, it’s going to respond. So either you have the choice to try to mitigate your dependencies before a usually somewhat, at least somewhat predictable response, or you take a different action that won’t provoke that response. For lot of allies, I think the question is, does the US understand the trade-offs of its own strategic decisions? And is it willing to the costs or just ignorant of the costs? Because if it’s willing to [bear] the costs, there’s at least a narrow pathway of maybe we partners can work with the US to strategize beforehand, you know, kind of steel ourselves, prepare. But if the US is not taking this in what we really call a strategic manner, that’s just a threat. That’s just a risk that is very difficult to mitigate. And so that, think, is the deeper critique I have of what is the trade-off assessment, the cost-benefit analysis, if you will, is it being taken seriously at the level of the White House? That’s the question that has to be answered to really meaningfully give assurances to actors that the US wants to partner with. Alan Leung (33:02) And that’s a nice pivot to talking about what China is learning from the Iran war and how it views the different policy areas where it’s actively engaged with United States on of the export controls being really key to that. So my thought on that, and you’ve began to allude to it in your responses now, is that China has realized that they also have a bit more leverage now than they used to in imposing costs or changing the cost calculations of the US’s allies in terms of their policy behavior, whether they want to continue to be more on the American side for a specific type of policy action or be somewhat more neutral or continue in this, whether it’s supply chain, trade flows, capital investments, et cetera, be more aligned with behaviors that at least don’t get in the way of what Beijing believes is their strategic imperative. So my question to you is, think one, you know, what other lessons do you think in real time Beijing is learning right now from the Iran war as it relates to supply chain? Do you think that what they’re seeing right now is validating a lot of their behavior and thinking long-term thinking, stockpiling strategies, export controls, ramping up their own sanctions slash counter sanctions types of toolkits. And I think one of the things that I wrote about in the Securing our Climate newsletter is that one of the biggest challenges out of the Iran war is really what happens to the Southeast Asian countries who have not invested in the infrastructure or have the capital reserves and the relationships to outbid the next buyer for the remaining oil and gas supplies on the market. So as a result, they’re proverbially left a little higher and drier than the next country. So really two questions. What are they learning? Does China see an opportunity there to potentially leverage the outcome of Iran war to maybe change some of the geostrategic equations in places like Southeast Asia, where it is a very key long-term priority for them to remain the regional leader. Cory Combs (35:23) Yeah, it’s a very rich set of questions. When it comes to, I mean, I think right now, honestly, there’s a lot of focus on crisis management. So I think a lot of the lessons will be very operational for China. So for example, and there’s one policy in particular that kind of, I think you’re absolutely right in terms of direction of, China’s, Beijing’s response, I say Beijing is a central government strategy, but I’m not talking about corporate interests in China, et cetera. But the central government strategy toward Southeast Asia certainly wants to be, we shouldn’t think of it in terms of spheres of influence in this kind of US Western mindset, but certainly there is an analog to be made there with China, Southeast Asia. But at the same time, China has made very clear that it will not be the buffer for its partners. It’s curbed exports of refined petroleum products specifically to keep them at home. That does not help allies, and there were partners in Southeast Asia or elsewhere. And so think Beijing has been very clear that its interests come first, right? And it will secure them, and then it will help its friends, and then the rest of the world can have whatever’s left. That’s kind of the process I see. So I think that in the short term does cut a little bit into the engagement in Southeast Asia. Cory Combs (36:42) At same time, I think part of what’s been challenging for China is that it spent several years since the gallium and germanium export controls in mid 2023, up until really October 9th of 2025, trying to signal to the US, if you take certain actions, there are certain costs. It’s basically trying to put a clear strategic cost on certain US actions. And the US clearly did not get the memo or did not care or the cost wasn’t high enough. One of the three. And maybe Beijing has views on which one. We don’t know. That’s kind of trying to mind read. But one of those three options is the case and, whichever it is, it wasn’t working until October 9th. And then you see basically, think the lesson from that, and then we’ll get the lesson of Iran. I think the lesson from October 9th, which for, for listeners who not familiar was when the, when, when China had responded to the US BIS affiliates rule, which basically would have sanctions somewhere between 15 and 20,000 Chinese companies, incidentally, basically. China responded with six different export control related policies that dramatically expanded the scope, dramatically escalated the scope in multiple modes of retaliation. Basically, dramatically increased the cost of doing that compared to its prior export controls. The US backed down. The lesson from October 9th was if you push hard enough, you can get the US to back down. The US undid that policy, extremely rare for the US to undo a policy like that. Cory Combs (38:02) The lesson from Iran, I think, is that the US still does not have a very forward looking assessment. You cannot threaten a cost and then the US holds back from an action because of the cost that will come. The US is only responding right now to costs already imposed. So the closure of Hormuz was not surprising. The closure of Hormuz, the impacts have been obviously the dynamics that are hard to map out in advance. But realistically, what is Iran’s leverage? It’s the strait. So of course they’re going to use what leverage they have. That part is not rocket science. The exact price dynamics, that’s rocket science, right? But the basic facts are not. And it reinforces that the U.S. is acting first, dealing with the consequences later. And so China has to adapt that playbook. It cannot just have forward-looking threats. That works with the EU. They can negotiate and say, if you do these particular tariffs, China will respond and you can anticipate the way we Beijing might respond, right? And you can kind of pre-negotiate, I suppose, on pre-crisis. The US does not seem to operate that way. And I think Iran is another example of that at this stage. will also note, I’m just jumping back real quick, something I should have mentioned. When we come to US strategy, when we come to US diversification, I think one of the big differences between the US and China right now is that the US diversification approach doesn’t have a particularly clear goal in mind, or benchmark or success. And there’s no there’s no win condition, right? For China, there is. And I think for China, when it comes to supply chains, the bottom line is, Beijing wants to make sure that its value creating downstream industries have whatever they need. Like, there’s a lot of complexity to policy, don’t get me wrong. But when you really boil it down, that’s what’s happening. Beijing isn’t investing in all these supplies, because it makes them money. They’re investing in it, so that other industries downstream can create value using those inputs, right? The US is currently on the path of we need to diversify, cool, but to what extent? Do you need 50 % non-Chinese supply, 100 % non-Chinese supply? Who’s gonna use it? A lot of the issue, the US didn’t buy sulfuric acid in large quantities. didn’t buy the rare earth oxides or the rare earth metals. What it bought was motors, right? And so you have 15 steps in the supply chain between these upstream components and what the US actually buys. So now the US is like, let’s produce all these things that are many, many, many stages of production before the thing we actually need. What do we do with it? How much do we need? That’s not particularly clear. For China, it’s always been quite clear what they’re trying to do. And I think that that is really important in terms of diversification, in terms of how you’re dealing with your, like how you structure the mechanisms for every type of disruption from sulfuric acid to metals and minerals. You need to know exactly what you’re aiming for. And I think the US is still figuring that. It’s going to figure that out. But I think it’s just in the middle of that process. And I think another thing that China has learned is the fact that the US doesn’t have a clear win condition or kind of victory condition here. Alan Leung (41:05) And I think that ties into the final topic that I want to cover today, which relates to your last point around policy clarity from China versus the lack thereof from the United States. The United States doesn’t have, as you say, a win position. Maybe there are semblance of a lose position, but that doesn’t create policy. That’s not what you ⁓ would put any kind of solid policy foundation on. Now, if we contrast that with a lot of the media commentary, especially in the first couple of weeks of the Iran war, and especially after Hormuz got shut down, I guess for the first time, I think we’re in our third and a half iteration of the Hormuz being closed, is that… Cory Combs (41:50) I was going say three or four. don’t know. Alan Leung (41:52) Third or fourth, I’ve lost count because it’s open, it’s closed. Cory Combs (41:53) Yeah. Right, just cyclical. Alan Leung (41:58) …the sesame is either open or closed or half open. And so a lot of commentary from folks in the sustainability and the energy transition space saying that this war is an opportunity to accelerate the energy transition. Now, do you agree with that argument? I feel like with some of the things we’ve discussed earlier around vertically integrated supply chains, around pricing, around the difficulty in mobilizing private investment to help create and sustain these moats It feels like that’s not an A to B or very linear conclusion to draw. And on top of that, I wonder because of the unit economics and the challenges thereof, whether that actually creates some very odd, but potentially odd policy outcomes where in some jurisdictions they may go backwards on the energy transition at least for a period of time. I wanted to ask you as maybe a final broad question is, you agree with that more armed conflict in places where oil comes out of ground means that the energy transition is accelerated? Maybe it’s a question about for whom. Do you think you’re going to see policy momentum in Europe, Asia, maybe even the US, ⁓ towards electrification, EVs, batteries, and so forth. So yeah, as a final question, I’m curious to hear how you feel about that argument. Cory Combs (43:18) Yeah, I think there’s first of all, this is usually true, but it’s especially true here. There is a lot of room for genuine debate and, and, and disagreement here. I think a large part of it depends on, on where specifically you’re coming from, in terms of your, your prior is about how government works. But many other things, technical things besides. So my view, which I do not pretend is gospel, um, I do think it’s directionally accurate in the medium to long term that issues like this just throw into even sharper relief than was already the case that oil and gas is just not security for most of the world most of the time. It can be part of a secure energy mix. As much as I would love to have 100 % renewables, but the only secure thing there is, there is, you know, a lot of industrial arguments for some supply, right? And diversification is key and oil and gas can be part of that mix, whether I like it or not, given our current industrial structures, right? Which again can change. But right now, that’s going to be the case for a while. But at the same time, oil and gas is a day in, day out risk vector. If a shipping vessel gets the way laid by anything, if there’s a hurricane, right? It’s a day in, day out, right? Prices can change immediately. Solar panels, I hear a lot about this, you we don’t want to swap dependency from oil to Chinese solar panels. The reality is you buy a solar panel, at worst you have a decade, and if you take care of it, 15 plus years of supply. That is not the same type of dependency. It should be very clear on the equipment side. And when it comes to software, just do the software at home, right? Just get the hardware, separate the software. This is a manageable set of risks. All of the national security risks, risk discussions around Chinese supply chains, I think, tend to be either, they’re genuine in many cases, but dramatically overstated, with an underappreciation for how mitigatable those risks are, and also fundamentally mischaracterize the nature of the risk, in my view, in many cases of particular conversations I’m thinking about that I’ve had with various governments and policymakers. So yeah, I think there’s absolutely a very strong argument, and Iran just makes the argument even more salient, that a massive increase in the amount of renewables used in everyone’s energy mix is helpful, is economical, is strategically important. That is the direction. Now the problem is in the short term. I don’t think that’s going to happen. And a few reasons. One is just we’re in crisis mode. You have so many different dynamics. Right now, everyone’s just trying to secure supply. The cost of energy is up everywhere just because of the disruptions. And so as the cost of energy is up, that means the cost of processing, the cost of metals making, the cost of actually building out new capacity for renewables and everything. It’s all going up and also everyone’s extremely worried about new supply chain dependencies, which include China. And again, back to my point, I think the risk calculus is biased in an unhelpful direction there, but it is very material, it’s very real. there’s a phrase used in a slightly different context, but it certainly applies here strategically in terms of strategic logic. The EU saying, we’re looking to reduce dependencies, not swap dependencies, right? They’re not looking to go from, you know, this is usually in the case of critical minerals, we’re not looking to go from, you know, dependence on China for minerals to dependence on the US for minerals, right? They’re also not looking for to go from dependence on Russia for gas, right? Imports to dependence on China for, you know, its clean tech. But again, fundamentally different types of dependence. But I think in the short term, the price crisis, the cost of actually bringing on new supply without creating new dependencies. It’s a political issue as much or more than a financial issue. And I just want to throw, you know, kind of a historical analog into this. There are, there are dependencies that people are comfortable with, dependencies people are not comfortable with. There have been for years, many, many years, around the degree to which the US and others buy Chinese steel. Why is that so important? Well, because steel and rubber, basically, and oil are the main inputs to a war, to your war fighting capabilities. So the military side has always been concerned about the amount of steel. But you don’t see a World War II-style mass mobilization campaign to bring on new US steelmaking, right? There’s the jobs argument and everything. But you do not see, and you have not seen, any efforts comparable to the US building out rare earths, right? And to be fair, so it’s a different industry, which takes a few projects for earths and many, many dozens of projects for steel. But you get the point. That was a strategic vulnerability that we’re willing to live with because the US can produce just enough for military and the rest of the commercial sector. You know what? Fine. We don’t think China’s going to weaponize steel or whatever, or we just don’t think the risk is enough to invest in. So that was a dependence that collectively the US tolerates. Most of the world tolerates. What is the difference between that and solar panels? And I think the answer is largely it’s newer, it’s geopolitical, it’s related to energy, but frankly, steel is related to critical infrastructure. So a lot of these arguments that are being used for national security apply in the case of clean energy. They don’t seem to apply in things that we’ve just gotten used to. Right. So just want to point out that there are disanalogies, there are plenty of differences, steel and solar panels are not the same thing, but the strategic logic used to justify not going to renewables tend to pretty closely map to arguments you could absolutely apply to things that we’re comfortable with. And I just really want to press governments, the US and others, what would it take to live in a world where maybe not the vanguard best technology, but the tier two “good enough” clean energy and batteries, not software, just hardware, what does it take for those to move into the category of just commodities that we’ll get from the lowest price, right? And yes, having procurement to make sure it’s not 100 % from China, because that’s just risky from a basic macroeconomic perspective, right? You don’t want all of your supply coming from any one source. Maybe there’s a flood or something, right? But what does it take to move that into a different category of consideration like a normal commodity, right? Where you can balance as opposed to completely decouple. And I think that is in financial interest. I think it’s an economic interest, different things. I think it’s a strategic interest. It’s just not currently in short term political interest. What does it take to change that calculus? That’s the question I have. Alan Leung (49:45) Yeah, and Cory, and just to wrap up, think that’s really important, and I agree 100%, really important, kind of nuanced and detailed take about what really does it mean to have a secure supply and who really needs it? And also, is that absolutely necessary on where the rest of the market or rest of society can live with good enough? So, to me, that reminds me of everything from screening criteria for certain kinds of investments based on who’s going to be the end user to various types of quality standards about what’s good enough, right? A solar panel is probably a little bit low tech and some of the other things. So what can different countries live with? And I think that’s going to be an interesting space to watch from a policy perspective, but also from like a regulatory perspective in terms of the, what does that look like for the U.S.? Alan Leung (50:37) And that’s probably going look a lot different from the UK or Italy or Finland. That’s going look very, very different. So to try to balance that with, say, buyer’s pools and funding pools is going to be very dynamic to, say, the least. So definitely an area we’re going to definitely keep watching. I think we’re at time today, Cory. So thanks very much for joining the podcast. But before we go, is there anything that you’d the audience to know about what you’re working on? And maybe what’s coming down the pipeline on your end or which review. Cory Combs (51:10) Yeah, absolutely. So for those unfamiliar, Trivium is a China-focused research consultancy. Most of our teams are in China. I’m currently between Beijing, DC, and I’m briefly in California for little bit. We engage with, basically we have the government side. And that’s global. It’s not a US-aligned association. And we have the commercial and investor groups. So if you’re interested in any of these topics, please feel free to get in touch. Happy to have initial conversations. No problem there. In terms of what I’m working on day in day out, so we have two things to flag. A lot of what my team is working on day in and day out is the involution issues within China. So basically the question is, who’s going to survive the consolidation cycle of EVs, batteries, solar panels, wind turbines, electrolyzers, all of these things, the emerging green hydrogen space, is now a priority, making Shanghai the global green fueling hub. A refueling hub is a thing trying to manufacture that industry basically out of thin air. That’s a policy priority this year. What’s going to happen? Who gets out of, who wins out of that? And what are the implications for business and for government? That is one of the big pieces we’re working on right now. And then my personal time is largely spent going around talking about minerals, obviously. And so if there are vulnerabilities there, we’re happy to talk about around what supply chains really mean for you. That’s at a government level, at a business chamber level, and at a corporate level. So plenty of discussions to be had there. Alan, it’s been an absolute pleasure to be able to take a step back. Usually day in, day out, we’re in the weeds. We’re like, OK, where does this particular form of indium phosphide go? Where is it coming from? And what do do about it? So it’s really nice to able to step back and look at the bigger picture with you. And again, thanks for all the work you’re doing on this space. It’s terrific. Alan Leung (52:52) Thanks again for having us on the podcast, Cory. So that wraps up another episode. I’m your host, Alan Leung. And if you haven’t subscribed yet, go to Substack, look for Securing Our Climate, and look for the different subscription options. So with that, thanks again, and see you on the next podcast.