Rearmament: How government spending changes lithium and rare earth demand

In brief

• World military expenditure reached $2,887 billion in 2025, the eleventh consecutive annual rise, per the Stockholm International Peace Research Institute (SIPRI). NATO members account for 55 per cent ($1,581 billion); the June 2025 Hague Summit pledge of 5 per cent of GDP by 2035 implies sustained real spending growth in Europe for a decade.

• The US One Big Beautiful Bill Act (July 2025) appropriated roughly $7.5 billion for the critical-minerals complex — stockpile purchases, an industrial fund with authority to take equity in companies, credit lines, and Defense Production Act financing. Lithium sits on the National Defense Stockpile list.

• The Pentagon has already demonstrated the full toolkit on rare earths — a $400 million equity stake in the miner MP Materials plus a guaranteed floor price of $110 per kilogram for neodymium-praseodymium (NdPr) oxide, the feedstock for the permanent magnets in motors and guided weapons — and has funded lithium directly, with $90 million to Albemarle's Kings Mountain mine. State stockpiling adds a price-insensitive demand segment to a market entering deficit.

Measured in tonnes, Part II of this series showed, defence barely touches the lithium market. Measured in institutional power over the supply chain, however, defence has become the most consequential actor outside China.

The fiscal aggregates

The Stockholm International Peace Research Institute (SIPRI), the standard independent source on military spending, puts world military expenditure at $2,887 billion in 2025 — the eleventh consecutive annual rise, equal to 2.5 per cent of world output and the highest share since 2009. European spending rose 14 per cent in a single year to $864 billion, the sharpest increase in Central and Western Europe since the end of the Cold War; Germany alone rose 24 per cent to $114 billion, and Spain 50 per cent to $40.2 billion.

NATO members account for $1,581 billion, or 55 per cent of the world total, and at the Hague Summit of June 2025 they committed — Spain negotiating a formal exemption — to spending 5 per cent of GDP by 2035: 3.5 per cent on core defence, plus 1.5 per cent on a deliberately elastic category of "defence- and security-related spending" that explicitly includes strengthening the defence industrial base and protecting critical infrastructure. European NATO spending grew nearly 20 per cent in real terms in 2025 alone.

The non-NATO 45 per cent — roughly $1.3 trillion — deserves equal attention. China ranks second in the world and, uniquely, combines heavy military spending with control of the battery refining complex that everyone else's militaries depend on.

Russia spent $190 billion in 2025, a 5.9 per cent rise that carried its military burden to 7.5 per cent of GDP; Ukraine, the world's seventh-largest spender, devoted $84.1 billion — 40 per cent of its GDP — much of it to the drone industry described in Part I.

Asian spending is surging more broadly: Japan reached its highest military burden of the post-war era, and South Korea allocated $47.8 billion. Saudi Arabia, at roughly $80 billion, anchors a rearming Middle East. Global rearmament, in short, is not a NATO phenomenon with a periphery, SIPRI expects it to persist through 2026 and beyond.

This is the largest predictable, politically protected stream of public capital expenditure in the world. A growing slice of it is aimed at minerals.

The new toolkit: stockpiles, equity, price floors

The US One Big Beautiful Bill Act, signed on 4 July 2025, appropriated roughly $7.5 billion for the critical-minerals complex: $2 billion for purchases into the National Defense Stockpile; $5 billion for the Industrial Base Fund, with explicit statutory authority for the Department of War to take equity positions in companies; $500 million in credit authority through the department's Office of Strategic Capital; and $1 billion in Defense Production Act financing through 2027. The National Defense Stockpile list includes lithium, alongside copper, nickel, antimony, and sixteen rare-earth elements, and in 2025 the department announced its intent to procure up to $1 billion of stockpile materials.

The department had already spent Defense Production Act money on lithium under the previous administration: $90 million to Albemarle, the world's largest lithium producer, to reopen the Kings Mountain mine in North Carolina, and $11.8 million to Lithium Americas for domestic lithium carbonate processing. And with rare earths it has demonstrated what the complete toolkit looks like when deployed: a $400 million equity stake in the miner MP Materials, a $150 million loan — and, the genuinely novel instrument, a guaranteed price floor of $110 per kilogram for neodymium-praseodymium oxide (NdPr, the rare-earth feedstock for the high-strength permanent magnets inside electric motors, wind turbines and guided weapons), with the state taking 30 per cent of any revenue above the floor.

The price floor deserves particular attention, because it changes the economics of mining. A guaranteed minimum price from a solvent sovereign converts a volatile commodity into an annuity--a predictable revenue stream. It responds to the problem that emptied the lithium project pipeline in 2023–25 when prices collapsed more than 80 per cent from their late-2022 peak to $8,259 per tonne by June 2025. Over that period, feasibility studies fell from dozens per year to fewer than ten, Australian mines were mothballed and exploration budgets evaporated. Private investors, as a rule of thumb, demand a premium against exactly this genre of volatility. The state-sponsored price floor neutralises the risks associated with such price volatility.

If the MP Materials model migrates to lithium — and the stockpile shopping list suggests the architecture already exists — the state will have become simultaneously the investor (equity), the lender (credit), the insurer (price floor) and the customer of last resort (stockpile) for a commodity of which its armed forces  does not directly consume.

Stockpiling: demand without consumption

Stockpiling operates on the demand curve differently from procurement. A tonne of lithium bought for a drone battery returns to the economy as a capability; a tonne bought for the six depots of the National Defense Stockpile — releasable only in declared war or by order of a senior defence official — can be understood to be a form of demand without consumption. Effectively, it subtracts supply from a market that, as Part V of this article series will show, is entering deficit. The Transition Security Project, a research group critical of the programme, calculates that the Pentagon's planned cobalt and graphite reserves alone embody material for some 80 gigawatt-hours of batteries, more than twice current US grid storage.

State stockpiling is also procyclical: governments hoard when markets tighten and geopolitics deteriorates — exactly when prices are already rising. The US programme, China's own strategic reserves, and the European stockpiles under discussion within NATO's 1.5 per cent "defence-related" spending window all point in the same direction: a new demand segment that responds to political triggers rather than prices, layered onto a market already short of new supply.

The consequence is a re-labelling of Lithium as it passes from commercial commodity to a solidly strategic material — a category with different buyers, different prices and different rules.

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Principal sources: SIPRI, Trends in World Military Expenditure 2025 (April 2026); NATO, Hague Summit declaration and defence investment data (2025–26); Brownstein Hyatt client alert on the One Big Beautiful Bill Act minerals provisions (November 2025); Covington, Federal Push for Critical Minerals Stockpiling (February 2026); US Department of War DPA Title III announcements (Albemarle, Lithium Americas, MP Materials); Transition Security Project, Mining for War (2025); Fastmarkets and Investing News Network price histories (2025–26).