US rare earth deal with Australian firm Lynas faces Malaysian pushback over US-Israel ties

The US needs to secure a supply of rare earth elements independent of China — but Washington's Middle East policy is now triggering pushback on a $96 million (€84 million) rare earth deal in Muslim-majority Malaysia.

In March, the US Department of Defense (DoD) signed a four-year deal with Australian mining firm Lynas to obtain 17 metals known as rare earths. These elements are at the core of modern industrial production and used for everything from smartphones and electric cars to cutting-edge weapons systems.

The strategic deal, however, hinges on Lynas' main processing plant in Gebeng, a gritty industrial town hugging the east coast of mainland Malaysia — the largest facility of its kind outside of China.

Malaysia's government pressured over US-Israel ties

The news of the deal has prompted strong backlash in Malaysia, which has a long record of championing Palestinian statehood and rebuking Israel over its actions in Gaza and the West Bank.

Locals are urging the government in Kuala Lumpur to either block the Lynas deal or provide guarantees that the rare earths that pass through the Gebeng plant would not end up in any weapons system.

In an open letter to Malaysian Prime Minister Anwar Ibrahim, over 50 non-government groups said the deal risks implicating the country in "credible allegations of violations of international law across multiple theaters" including Gaza, pointing out that the US is one of Israel's main arms suppliers.

The connection between Malaysian rare earths and Israeli weapons, however, is less than straightforward. While the materials can be used to build fighter jets and missiles, they could also end up in washing machines or wind turbines.

"What the Malaysian protesters demand is the equivalent of banning natural rubber exports to the US because the tires might end up on Israeli vehicles in Gaza," Thomas Kruemmer, director of Ginger International Trade and Investment, a Singapore-based firm focused on the rare earths market, told DW.

Lynas key to providing dysprosium and terbium

A parliamentary committee held a hearing last week to determine if the Lynas project would jeopardize "Malaysia's reputation as a staunch supporter of Palestine." Anwar's government now has until the end of the month to state its official position on the deal.

"For the Malaysians, this isn't really a case about rare earths. It's a case about Palestine," Kruemmer said.

The activists hope to use the Gebeng refinery as leverage affecting US geopolitical calculations. The US' rival China currently does most of the world's mining and processing of the rare metals. Beijing has also been restricting exports of these materials to the West.

Moreover, Australia's Lynas is one of the few companies that can provide commercial quantities of two particular rare earths: dysprosium and terbium, according to Kruemmer. He notes that America's flagship rare earths investment project, MP Materials' Mountain Pass mine in California, has little of either.

"And since China stops rare earth exports destined for military applications, Lynas will be the only source available to the Pentagon for the time being," said Kruemmer.

Rare earths 'national security imperative' for US

With few rare earth sourcing options outside of China at the moment, the US government is investing in several projects both at home and abroad. But these can take years to come online, says Meredith Schwartz, an associate fellow at the Center for Strategic and International Studies.

"The Pentagon needs secure supply in the event China continues to deny access — it is a national security imperative. This makes projects that are actively operating, like Lynas' rare earth refinery in Malaysia, especially strategic to the United States," she said.

Australia's rich mineral deposits and mining expertise make it "central" to Washington's plans to break China's near-monopoly on rare earths, Schwartz added. She also called the Lynas refinery in Malaysia, which gets its raw material from Australia, a "key node" in the "mine to magnet supply chain."

Pentagon's involvement indicates wartime use

The deal announcement published by Lynas in March did not say whether any of the material it sells to the US Department of Defense will be used for weapons.

But given that the deal is specifically with the Department of Defense, says Kruemmer, it probably will.

"If the material weren't destined for defense, the Pentagon wouldn't have signed the contract — it doesn't care about Ford Motor's EVs or Whirlpool's kitchen gear," he said.

Neither Lynas nor the DoD replied to DW's requests for comment.

Pollution trauma haunts Malaysia

Foreign miners have a practical need to gain the trust of the local community for their operations, says Schwartz.

That is a tall order for rare earth projects in Malaysia, where a Japanese-backed venture in the 1980s left behind pools of radioactive waste — an inherent byproduct of mining and refining the metals. These have been blamed for a spate of birth defects, cancer cases and deaths in the region.

Lynas has also been hounded by questions over its own handling of radioactive waste.

If the Malaysian government were to try and block or at least "frustrate" the US-Lynas deal, it could possibly raise those concerns again and connect them to license renewals for the Gebeng plant, says Oh Ei Sun, a senior fellow at the Singapore Institute of International Affairs.

International law can also be used as a point of pressure. In their letter to Prime Minister Anwar, groups of activists cited Malaysia's obligation to ensure that anyone in its jurisdiction also respects this broader legal framework, he added.

"It's basically political will. If you want to do something, you can always find an excuse for doing that," Oh said.

Will Anwar's government risk isolation?

Whether the government will actually want to disrupt the project is another question.

"As of this moment, it [Malaysia] is still a major trading power, a major investment destination in the world," said Oh, and "once you do such things, you are going to isolate yourself, and that's a choice the Malaysian government has to make."

At the same time, Malaysia is also an increasingly conservative country. Islamist parties are on the rise and the government is facing pressure to appease the Muslim majority.

Anwar's government could score some political points by moving against the US-Lynas deal, says Oh.

"So, if I'm a politician and political survival is my main goal, I could do something to buttress my religious credentials, and the Palestinian cause is a very convenient and handy way of doing so."