Hasarel Gallage
In June 2026, Sri Lanka launched its new National Mineral Policy, branded as the country’s first attempt in 27 years to streamline its mineral industry. The policy is expected to develop the domestic mineral industry to yield deeper economic gains by integrating Sri Lanka’s mineral sector with the growing global race for critical minerals. While this offers an enticing vision for a country recovering from an economic crisis, the reality could be much more nuanced. Sri Lanka’s mineral industry currently remains small-scale, limited to a few products like premium vein graphite and heavy mineral sands. The new policy expects to open up Sri Lanka’s mineral endowment for foreign investments. But such foreign investments would inevitably raise geopolitical contestations. Given Sri Lanka’s identity as a small state and its strategic foreign policy approach of hedging, the question of whether the country can translate its mineral endowment into geopolitical leverage, or whether it risks becoming a new battleground of geopolitical tension, is therefore one worth probing.
Positioning Sri Lanka in the global critical minerals race
The global scramble for critical minerals has moved from the margins of trade policy to the centre of great power competition. China currently dominates the industry, accounting for 70% of global mining share, 72% of mineral processing, and 85% of rare earth processing. Its strongest chokehold is on mineral processing, the most capital and technology-intensive segment of the value chain. This dominance has left Western industrial states in an asymmetric dependence on China, prompting them to seek alternative suppliers and creating a contentious geopolitical competition. This was evident in USA Rare Earths’ recent acquisition of Brazil’s Serra Verde mines, one of the largest rare earth mines outside China, which ended Serra Verde’s existing offtake agreements with Chinese processors years before their intended deadline.
Sri Lanka remains a marginal player in the global critical mineral rush, with resources of limited commercial viability compared to those of some other Global South counterparts. Even so, its growing mineral industry is drawing attention from foreign investors. But its strategic location in the Indian Ocean, and the competing interests of India and China, could place Sri Lanka in a delicate geopolitical position.
India: Interests and points of friction
India’s critical mineral motivations are primarily driven by its clean energy goals. But India is currently 100% reliant on foreign imports for its lithium, cobalt and nickel demand, while 75% of EV lithium-ion batteries are imported from China, underscoring its asymmetric dependence on China.
India’s interest in Sri Lanka lies mostly in vein graphite and mineral sands. But given the limited scale of production, Sri Lanka is still not a significant supplier to meet India’s mineral demand. For instance, in 2025, India imported an estimated 53,900 tonnes of graphite, of which Sri Lanka accounted for just 0.1%.
Trade data underscores Sri Lanka’s limited market presence. In 2025, Sri Lanka supplied just 0.1% (around 54 tonnes) of India’s 53,900-tonne graphite imports, confirming that its exports remain negligible despite
Still, the prospects are not entirely bleak. In February 2025, India’s Union Minister of State for Coal and Mines met his Sri Lankan counterpart to discuss cooperation in mineral exploration and mining, resulting in a pending Memorandum of Understanding (MoU) on “Cooperation in the Field of Geology and Mineral Resources.” Khanij Bidesh India Limited (KABIL), an Indian state-owned mining enterprise, is also in early negotiations with Sri Lanka regarding investment in the vein graphite industry.
China: Existing footprint and potential interests
China’s interests in Sri Lanka’s mineral sector differ fundamentally from India’s strategy. While an appetite for resource acquisition defines India’s role, China’s approach is defined by an intention to preserve its market dominance and processing power. China is not just a global mineral supplier, but also the world’s largest critical mineral consumer, especially for battery minerals like lithium, copper, cobalt and nickel.
Sri Lanka’s mineral exports to China are currently concentrated in heavy mineral sands and industrial minerals rather than the raw vein graphite sought by the West. While mineral sands imports exceed graphite imports in trade volume, Sri Lanka’s share remains marginal compared with total Chinese imports in the same category. Notably, although Sri Lanka’s share stood at 0.16% out of total Chinese graphite imports, the share for titanium ore and dioxide was even lower, at 0.01%. This limited trade interdependence suggests China may have less immediate incentive to restrict Western access to Sri Lanka’s mineral resources.
| Mineral | HS code | Volume of China’s imports from SL in tonnes | Sri Lanka’s % out of the total Chinese imports in each category |
| Graphite | 250410 | 47.15 | 0.16% |
| Titanium ore and dioxide (Ilmenite, Rutile) | 261400 | 667.16 | 0.01% |
| Natural Quartz | 250510 | 622.07 | 0.07% |
Table 1: Sri Lanka’s share out of total Chinese exports in key mineral categories
However, China’s broader infrastructural network and processing leverage offer other means of influence. Sri Lanka’s mineral sector intersects with China’s broader geoeconomic footprint in the Indian Ocean, particularly through infrastructure under the Belt and Road Initiative. Ports such as Hambantota and Colombo’s South Container Terminal (although they are not part of the BRI), which are operated under Chinese state-owned enterprise China Merchants Port, further underscore Chinese influence in Sri Lanka. The overlap between China and Sri Lanka is perhaps most visibly observed in processing, as Sri Lanka’s limited capacities for domestic mineral processing, especially for heavy mineral sands, means that its mineral output is largely destined for China for downstream processing.
Western Engagement: US, EU and Australia
Western engagement with critical minerals originates from a de-risking logic aimed at diversifying supply chains away from China’s dominance. Some recent examples include the US Minerals Security Partnership, originally launched in 2022, the EU’s Critical Raw Materials Act of 2024, and the 2025 QUAD Critical Minerals Initiative, which mobilises USD 20 billion in funding.
Against this backdrop, Western engagement with Sri Lanka remains thin. Sri Lanka does not appear directly in any of the Western critical mineral plans. This gap likely stems from Sri Lanka’s status as a state recovering from sovereign default, limited institutional expertise, and particularly the absence of large-scale strategic mineral deposits like lithium and cobalt. Yet, there could still be indirect channels of funding via the QUAD Critical Minerals Initiative, through India and Japan, which are key export destinations for Sri Lanka’s minerals. However, these benefits would come at a cost, as Western de-risking priorities would likely impose limitations on Sri Lanka’s trade with China.
Mineral prospects in the deep sea
While onshore mineral prospects remain limited, Sri Lanka’s most promising prospects lie offshore, notably in the Afanasy Nikitin Seamount (ANS), an undersea mountain ridge containing cobalt, nickel, and manganese deposits. In 2009, Sri Lanka formally requested the UN Commission on the Limits of the Continental Shelf to extend its maritime boundary, which, if approved, would include the ANS under Sri Lanka’s maritime jurisdiction. However, driven by its own green energy commitments and alarm over Chinese maritime reconnaissance in the Indian Ocean, in 2022, India filed a formal protest disputing Sri Lanka’s submission.
The result is a legal stalemate neither state has resolved. If the two states were to negotiate, Sri Lanka would hold some leverage, since India’s own mining ambitions in the ANS cannot proceed without solving the dispute with Sri Lanka.
Sri Lanka’s small state leverage
Sri Lanka’s traditional foreign policy approach has been one of strategic hedging. The most critical contention going forward will thus involve balancing relations with regional players India and China, while partnering with West-allied states seeking to de-risk themselves from China’s mineral dominance.
China’s footprint in Sri Lanka’s economy is already a topic of debate, with Western and Indian discourses continuing to accuse China of a debt-trap, despite extensive academic research demystifying it. Any Chinese mineral investment in Sri Lanka, especially if linked to infrastructure like Hambantota port, risks being read through that same lens. On the other hand, West-backed investments, notably via the QUAD, would likely be viewed by China as an attempt to exert undue influence.
As a small state, the best approach for Sri Lanka is polyalignment. Deepening trade relations with India, such as the pending ETCA (Economic and Technology Cooperation Agreement) negotiations, and pursuing regional partnerships like the Regional Comprehensive Economic Partnership (RCEP), could not only link Sri Lanka’s mineral resources to the global supply chains, but also allow Sri Lanka to influence both India and China into fast-tracking its admission into both economic blocs for wider economic gains beyond minerals.
Way forward
Sri Lanka’s mineral endowment, although quite modest in volume, has placed the country at the intersection of competing geopolitical interests. India’s search for supply security, China’s defence of its processing dominance, the West’s call for de-risking its supply chains, and the unresolved disputes over potential deep-sea resources illustrate that Sri Lanka’s mineral future will be shaped by external rivalries as well as domestic structural constraints. Whether this would be a strategic leverage or a new geopolitical tension will depend on how skilfully Sri Lanka can navigate the competing interests of India, China, and the West.
Hasarel Gallage is an independent researcher, specialising in critical minerals and the political economy of resource-endowed states in the Global South.
Note: This article summarizes the first of five policy briefs by Factum on Sri Lanka’s mineral industry. Focusing here on geopolitics and geoeconomics, future briefs in the series will cover production and value addition, policy frameworks, environmental sustainability, and social impact.
