The global transition to clean energy has put a spotlight on the strategic importance of critical minerals, including lithium. South America, particularly the “lithium triangle” spanning Argentina, Bolivia, and Chile, is home to over two-thirds of the world’s known lithium reserves. This raises the prospect of an “OPEC for lithium,” drawing parallels to the Organization of the Petroleum Exporting Countries (OPEC) and its influence over global oil markets. However, the feasibility and implications of a potential lithium cartel are complex, given the unique characteristics of the lithium supply chain.

South America’s Lithium Potential

Lithium Resources in South America

The lithium triangle of Argentina, Bolivia, and Chile accounts for an estimated 65% of global lithium resources (IRENA, forthcoming). Bolivia has the single largest known lithium reserves at 21 million tonnes, followed by Chile with 9.2 million tonnes and Argentina with 6.9 million tonnes (U.S. Geological Survey, 2023). These three countries together produced approximately 79% of the world’s lithium in 2022 (Benchmark Mineral Intelligence, 2023).

Geological Formations and Extraction Techniques

The lithium resources in South America are primarily found in salt flats, or salars, where lithium-rich brines are extracted and processed. This brine extraction method is distinct from the hard-rock mining techniques used to extract lithium from spodumene deposits, which are more common in Australia. The brine extraction process is generally less energy-intensive and lower-cost compared to hard-rock mining, giving South American producers a potential advantage.

Environmental Considerations

However, the brine extraction method also raises environmental concerns, particularly around the intensive use of water resources in arid regions. The lithium triangle is located in the Andes, where freshwater is scarce, and local communities, including indigenous groups, rely on these water sources for their livelihoods. Addressing the potential conflicts between lithium production and water security remains a crucial challenge for the industry and policymakers in the region.

Potential for a Lithium OPEC

Geopolitical Factors

The concentration of lithium resources in South America has fueled speculation about the potential for a “lithium OPEC” that could emulate OPEC’s influence over global oil markets. Unlike oil, lithium is not a fuel but a crucial raw material for batteries powering electric vehicles (EVs) and energy storage systems. This has made lithium a strategic commodity in the global energy transition, with major economies vying for secure access to supplies.

Economic Implications

A lithium cartel could potentially allow the producing countries to exert greater control over prices and production volumes, potentially disrupting the global supply chain for batteries and EVs. This could have significant economic implications, from higher costs for consumers to potential delays in the rollout of clean energy technologies.

Regulatory Frameworks

The formation of a lithium cartel would also face regulatory hurdles. Antitrust laws in major consumer markets, such as the United States and the European Union, could pose challenges to any attempts at collusion or market manipulation. International trade agreements and investment treaties may also limit the ability of countries to impose export restrictions or other measures that could disrupt the free flow of lithium in global markets.

Challenges to Lithium OPEC Formation

Supply Chain Complexities

Unlike the relatively homogeneous global oil market, the lithium supply chain is more complex, with diverse extraction techniques, processing methods, and end-use applications. This diversity can make it more difficult for producers to coordinate production and pricing strategies effectively.

International Cooperation Barriers

Successful formation of a lithium cartel would require the alignment of interests and cooperation among the key producing countries in the lithium triangle. However, these countries have historically had political and economic tensions that could hinder their ability to form a cohesive bloc.

Technological Advancements

The lithium market is also subject to rapid technological change, with ongoing research and development into alternative battery chemistries and recycling processes. These innovations could reduce the reliance on lithium or enable the use of more abundant and geographically dispersed lithium sources, undermining the pricing power of a potential cartel.

Impacts of a Lithium OPEC

Global Energy Transition

The emergence of a lithium cartel could have far-reaching implications for the global energy transition. Disruptions in lithium supply or price volatility could slow the adoption of EVs and energy storage technologies, potentially delaying the decarbonization of the transportation and power sectors.

Automotive Industry Disruption

The automotive industry, which is heavily dependent on lithium-ion batteries for EVs, would be particularly vulnerable to the formation of a lithium cartel. Automakers may face higher production costs and supply chain uncertainties, potentially impacting the affordability and availability of electric vehicles.

Socioeconomic Consequences

The socioeconomic impacts of a lithium cartel could also be significant, especially for the producing countries in South America. While a cartel may increase government revenues, it could also exacerbate tensions with local communities and indigenous groups concerned about the environmental and social impacts of lithium extraction.

In conclusion, the prospect of a lithium OPEC is a complex and multifaceted issue. While South America’s lithium resources present an opportunity for the region to exert greater influence over global markets, the feasibility and implications of a lithium cartel are uncertain. Navigating the challenges posed by supply chain complexities, international cooperation barriers, and technological advancements will be crucial in determining the future of lithium geopolitics. As the world increasingly relies on lithium for the energy transition, ​ the way in which this critical mineral is governed and developed will have far-reaching consequences for the global economy, the environment, and the communities involved.