Part 1 here: Restructuring Global Supply Chains in the Shadow of Geopolitics (Part 1)
How are geopolitical shifts impacting the energy supply chain?
Geopolitical shifts are profoundly impacting the energy supply chain by transitioning its focus from traditional oil dependence to critical minerals essential for renewable energy. Historically, the global energy market relied heavily on geopolitically unstable regions like the Middle East and vulnerable maritime chokepoints, where organizations such as OPEC could directly influence supply and prices, as seen with the 2022 production cut that drove Brent crude above $120 per barrel. Critical straits, including Bab el-Mandeb, which sees over 6.2 million barrels of oil pass daily, are also frequently at risk from regional conflicts.
A major geopolitical shift is underway: from controlling oil to controlling the critical minerals essential for renewable energy, such as lithium, cobalt, and rare earth elements. In 2022, the Democratic Republic of Congo supplied over 70% of global cobalt production, while China controlled more than 60% of lithium refining capacity and 85% of rare earth processing capacity. This has created a new layer of dependency for Western nations.
The battle for supply control has shifted focus: once it was oil fields, now it is mineral mines for electric vehicle batteries, solar panels, and wind turbines. Lithium carbonate prices surged nearly 500% between 2020 and late 2022, fueling a “mining rush” in South America and Australia. Similarly, China’s 2023 decision to tighten exports of gallium and germanium—two strategic materials for semiconductors and green energy—created a significant supply gap, forcing the U.S., EU, and Japan to accelerate mining investments in Africa and South America.
This underscores that the renewable energy supply chain, once viewed as a sustainable solution, is facing geopolitical risks comparable to those of traditional fossil fuel supply chains.
What is ‘chip diplomacy’ and how does it affect the semiconductor industry?
Chip diplomacy refers to strategic efforts by nations, particularly the U.S., to secure and diversify the highly complex and sensitive semiconductor supply chain, which is currently heavily reliant on a small number of countries and regions. Taiwan’s TSMC, for instance, produces approximately 90% of the world’s advanced chips under 10 nanometers, establishing the island as a critical global strategic chokepoint. This concentration means that any disruption, whether from natural disasters or military tensions, could severely impact global automotive, electronics, and defense industries, making diplomatic strategies crucial for national security.
To mitigate these risks, the U.S. passed the CHIPS and Science Act in 2022, providing over $52 billion in subsidies to encourage companies like Intel, TSMC, and Samsung to build fabs in Texas, Arizona, and New York. At the same time, a strategy of “chip diplomacy” is being pursued to develop a trusted international partner network: Vietnam, Malaysia, and Costa Rica are emerging as assembly and testing (OSAT) hubs to partially replace China.
On the other hand, China is rapidly advancing its technological self-reliance. Despite restrictions on access to sub-7nm technology, SMIC managed to produce 7nm chips for Huawei’s Mate 60 Pro in 2023, raising concerns in the U.S. and allied nations about loopholes in export controls. The earlier sanctions on Huawei had already demonstrated the power of technology restrictions: within just two years, Huawei’s global smartphone market share plunged from 18% (2019) to below 5% (2021).
Why is China still central to global supply chains despite de-risking efforts?
Despite being at the heart of geopolitical tensions and global de-risking efforts, China remains an irreplaceable link in global supply chains due to its extensive control over critical manufacturing and processing capacities. For example, China controls over 70% of global lithium-ion battery manufacturing capacity (IEA, 2023) and more than 80% of cobalt refining, both essential for EV batteries. Furthermore, it dominates the rare earths sector, accounting for approximately 60% of mining output and nearly 90% of processing capacity (USGS, 2022).
In logistics, 7 of the world’s 10 busiest container ports are located in China, led by Shanghai, which handled over 47 million TEUs in 2022—almost double the throughput of the largest U.S. port (Los Angeles). This massive logistics capacity makes China the “logistics infrastructure” of global trade.
This poses a major challenge to Western “de-risking” and friendshoring strategies. While the U.S. and Europe are ramping up domestic battery projects (e.g., Northvolt’s gigafactory in Sweden or Tesla’s plant in Germany), experts estimate it will take at least 5–10 years to build capacity competitive with China. In the short term, a complete substitution is virtually impossible. As a result, supply chain restructuring will be a costly and prolonged process, with reshoring or nearshoring offering only limited relief. In practice, many multinationals are adopting a “China+1” strategy—maintaining production in China while diversifying into countries such as Vietnam, India, or Mexico to reduce risks.
Conclusion
These two articles have highlighted that global supply chains are undergoing an unprecedented phase of transformation, driven by the dual forces of geopolitical conflict and the urgent push toward sustainability. From energy and semiconductors to other strategic sectors, supply chain security is no longer merely a corporate issue but a top national priority.
Yet, the reality is that restructuring cannot happen overnight. China continues to hold a pivotal role across production, processing, and logistics, making the path to reduced dependency a long, costly, and complex journey. In this context, strategies such as “China+1,” friendshoring, and trusted partnership networks represent temporary measures—balancing sustainability with cost-efficiency.
The future of global supply chains will hinge on the adaptability of both governments and businesses: can they maintain flexibility, safeguard strategic security, and still optimize costs? This will be the central question shaping global trade and the world economy in the decade ahead.
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