Giving Ukraine modern tanks remains a key question facing Kyiv’s allies after a meeting of Germany’s top defense officials on Friday produced no progress. But perhaps the most exposed link in the supply chain for the production of such weapons is running on the railway tracks through the enemy they are trying to defeat.
Russia is at the center of a rail cargo route that supplies Western arms manufacturers with supplies of the metals needed to make the microchips, electronics and ammunition used in modern weaponry. Most of the so-called rare earth elements are mined in China. Russian Railways JSC and other carriers transport volumes of critical metals needed by the European defense industry.
The volume of Chinese rare-earth metals shipped by train in Russia rose to 36,074 tons in the first nine months of last year, more than doubling the amount transported in all of 2021, according to European Union data seen by Bloomberg News. The value of that trade has more than quadrupled, to €377 million ($408 million) through September.
“It’s amazing that despite all the sanctions, this supply chain still works,” said Michael Wurmser, founder of Norge Mining Ltd.
Wurmser spoke from Davos, Switzerland, where he met with industry executives who are testing various strategic mineral supply chains. Norge Mining has claims in Norway that include large deposits of vanadium and titanium, two critical metals for the defense industry, and whose production is now dominated by China and Russia.
US Defense Secretary Lloyd Austin and North Atlantic Treaty Organization Secretary General Jens Stoltenberg met on Friday at Ramstein Air Base in Germany along with other allies. The talk, which was meant to highlight the unity of the allies, was slightly covered by Germany which continues to refuse to provide its Leopard 2 tank.
China supplies more than 90% of the rare earth elements used in Europe, and the latest EU data shows Russian railways remain a busy shipping route and key to Beijing’s “Belt and Road” initiative.
Russian Railways cargo routes remain important for European industry, and the EU published guidance in July clarifying that goods transiting the country are not subject to sanctions.
Chinese-mined rare earths like lanthanum are widely used by Western arms manufacturers for armor-piercing ammunition. Most of Europe’s demand for tungsten – a heavy metal used for anti-tank weapons made by Thales Air Defense Ltd and Rheinmetall AG – is covered by China.
The war in Ukraine has exposed Europe’s dependence on Russian railways and corridors for trade with China, according to an EU assessment previously reported by Bloomberg.
Although the volume is only 3% to 4% of the overall China-EU goods trade and is a fraction of sea freight, rail shipments can reduce shipments by several weeks. It takes 16 days for a freight train from Wuhan, China, to cross Russia and reach Duisburg, Germany. Sea freight from Asia to northern Europe can take twice as long.
Train travel from China to Europe can take several routes. The volume through the northern corridor has increased significantly since 2016 reaching 692,500 containers measured in units equal to 20-feet in 2021. But the number has decreased since the invasion of Russia in the neighbor, according to the analysis of the EU – 187,000 TEU were brought between January and April 2022. .
The alternative central and southern corridors have capacity constraints, are not fully developed and cannot absorb losses from the northern route. This could be a problem in the medium to longer term, but should not be a cause for concern as most essential goods are not allowed, EU officials said.
Having adversaries with overlapping supply chains is not a new phenomenon, says European Council on Foreign Relations military trade analyst Rafael Loss. Japan used US scrap metal for its navy in World War II. During the Cold War, Soviet metal supplies helped supply western arsenals aimed at Moscow.
“What has changed is that compared to the Cold War era, coercive economic tools have become more important to manage competition,” said Loss from Berlin. “It’s not always clear that it has the intended effect, but it certainly has the capacity to disrupt the supply chain.”
While the value of goods passing through the railway line only reflects overall EU-China trade relations, Russia could increase costs and challenges for European importers if Moscow moves to block the 15 daily rail cars that normally pass through the route.
Disrupted access to China’s tungsten mines, which account for more than 83% of world production, could leave western economies particularly vulnerable.
The metal is critical for a variety of products – from batteries to magnets and microchips and together, China and Russia control almost two-thirds of identified reserves – and demand is driven by “defense spending fueled by the Ukraine-Russia conflict,” according to the report. for Tungsten West Plc, which is trying to bring a new mine in southwest England online this year.
“Competition for resources will become more intense,” Loss said.
–With assistance from Bryce Baschuk.
Learn how to navigate and strengthen trust in your business with The Trust Factor, a weekly newsletter that examines what leaders need to succeed. Log in here.