Pakistan’s pursuit of expanded cooperation in critical minerals and rare earth elements, bolstered by recent high-level engagements with the United States, faces substantial domestic hurdles primarily related to security, political stability, and the investment climate. Despite considerable geological potential, including the Reko Diq copper-gold deposit, significant internal reforms are deemed necessary to translate diplomatic momentum into tangible investment outcomes.

US-Pakistan Engagement on Critical Minerals

Last week, US Deputy Assistant Secretary John Mark Pommersheim visited Islamabad for discussions on enhanced cooperation in energy and critical minerals, and to advance a proposed US–Pakistan Critical Minerals Framework Agreement. This followed Federal Minister for Energy Ali Pervaiz Malik’s participation at the US-hosted Critical Minerals Ministerial in Washington, D.C. These exchanges underscore Washington’s broader strategy to diversify global supply chains for essential minerals away from dominant suppliers, such as China, which controls significant processing and midstream capabilities.

Critical minerals, including rare earth elements and copper, are vital for technologies such as electric vehicles, wind turbines, precision-guided systems, and advanced electronics. The US ministerial aimed at coalition-building with South and Central Asian states to secure more resilient supply chains, positioning Pakistan as a potential upstream supplier.

Pakistan’s Mineral Potential and Strategic Projects

The Reko Diq copper-gold deposit in Balochistan is recognised as one of the world’s largest undeveloped reserves. The project is structured with Barrick Gold Corporation holding a 50 per cent stake, while the Government of Balochistan and federal state-owned enterprises each hold 25 per cent. The US Export-Import Bank has approved financing of $1.25 billion related to the Reko Diq project, indicating significant American strategic interest.

Beyond copper and gold, geological surveys have identified occurrences of chromite, antimony, and rare earth elements in parts of Balochistan and Khyber Pakhtunkhwa. However, internationally verified data on commercially viable rare earth reserves remain limited, with extensive exploration and certification still required before large-scale production can be considered credible.

Security Deterioration Impacts Investor Confidence

Security challenges pose an immediate constraint on mineral investment. Balochistan has experienced a surge in attacks by the Baloch Liberation Army in recent months, directly affecting investor sentiment. Barrick has publicly reviewed aspects of the Reko Diq project, including security, scheduling, and capital allocation, following this violence. This review sends a clear signal to other potential investors regarding the prevailing security environment.

Saudi Arabia’s reported interest, via Manara Minerals, in acquiring a stake in Reko Diq, potentially valued between $500 million and $1 billion, is contingent on security conditions. Furthermore, security concerns extend beyond Balochistan, with Tehrik-i-Taliban Pakistan (TTP) and Islamic State – Khorasan Province (ISKP) activity in Khyber Pakhtunkhwa and incidents in Islamabad broadening the perception of risk to transport corridors and workforce safety. Investors typically assess systemic risk rather than isolated project boundaries.

Political and Governance Gaps

Long-standing Baloch grievances over resource distribution, dating back decades with limited local benefit from projects like Sui gas, have fuelled cycles of insecurity. Political reconciliation efforts have faltered, contributing to a reliance on security operations over political settlements. For mining projects, social legitimacy and visible economic inclusion for local communities are considered crucial, beyond the protection offered by security forces.

Provincial politics also present challenges. In Khyber Pakhtunkhwa, a proposed Mineral Development and Management Company law faced backlash, reviving tensions over jurisdictional authority in the minerals sector. Such contested authority introduces regulatory uncertainty, a significant deterrent for investors seeking long-term clarity.

At the national level, political polarisation between the current civil-military leadership and the Pakistan Tehreek-e-Insaf (PTI)-led opposition creates uncertainty regarding policy continuity. Mining contracts typically span decades, requiring institutional stability and a minimum level of political accommodation to assure investors that agreements will not face renegotiation under different administrations.

Macroeconomic and Regulatory Obstacles

Macroeconomic fragility, characterised by exchange rate volatility, fiscal stress, and recurring International Monetary Fund (IMF) programmes, limits investor confidence. Despite the establishment of the Special Investment Facilitation Council (SIFC), bureaucratic bottlenecks and regulatory opacity persist. Long-term mining projects struggle to compete with short-term speculative investments without a foundation of macroeconomic stability and credible contract enforcement.

Navigating Complex Foreign Relations

Foreign policy choices also intersect with investment risk. Tense relations with Taliban-led Afghanistan have led to periodic border closures and trade disruptions, impacting efforts to contain cross-border militancy. Similarly, recurring escalation with India contributes to regional risk premiums. Stability in neighbourhood diplomacy is seen as crucial for lowering investor anxiety.

Pakistan must also carefully manage its relationship with China, a major player in global rare earth processing and a partner in projects like Saindak and the China-Pakistan Economic Corridor (CPEC). Any perception that US mineral engagement represents a geopolitical shift rather than economic diversification could complicate existing partnerships. Reassuring Beijing through transparent policy, improved security for Chinese personnel, and timely resolution of energy payment disputes is considered as important as fostering new ties with Washington.

Recommendations for Sustainable Investment

For Pakistan to capitalise on its critical mineral potential, several key areas require urgent reform:

While international interest has opened a window of opportunity for Pakistan’s critical minerals sector, its transformation into an era of sustained investment is contingent upon robust domestic reforms that address security, political reconciliation, and regulatory clarity. Without these foundational improvements, the current mineral moment risks remaining primarily a promise rather than a performance.