Indonesia’s Critical Minerals Strategy and the Pursuit of Defence Autonomy

by Benedicta Nathania Palit and Maria Evangelina Setiawan

Abstract

Indonesia is taking a step forward towards defence autonomy through critical minerals. This article analyzes Indonesia’s critical mineral strategy as a foundation for defense technology independence amid intensifying great power competition. By prioritising downstream processing and aligning mineral governance with defense needs, Indonesia can reduce supply chain vulnerability and strengthen its strategic position without compromising its non-alignment policy.

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The establishment of the Mineral Industry Agency by President Prabowo Subianto last August reflects a strategic awareness of the importance of managing critical minerals as the foundation of Indonesia’s defense technology independence. Modern defence systems are underpinned by a complex ecosystem of materials and technologies. Minerals such as nickel, cobalt, lithium, copper, titanium, tungsten, and rare earth elements (REE) constitute the essential materials for advanced weapons systems, including precision-guided munitions, rocket and missile propulsion systems, sensors, and advanced electronics.

Despite their name, REEs are relatively abundant in the earth’s crust, yet they are “rare” because they seldom occur in economically exploitable concentrations. Indonesia is often described as a resource-rich country, particularly in nickel, tin, bauxite and other energy transition minerals. However, resource abundance alone does not equate to strategic advantage. Without mastery of processing, refining, and downstream manufacturing, mineral wealth risks reinforcing dependency rather than autonomy. At greater length, mastering the technological development upon these elements should also enable Indonesia to ramp up its defence posture.

Indonesia does not yet possess comprehensive and verified data on its rare earth reserves; much of the existing information remains preliminary and hypothetical. Out of 28 identified rare earth mineral occurrences nationwide, only nine locations, or roughly 30 percent, have undergone initial exploration. This limited geological knowledge is compounded by the absence of clear technical regulations governing the licensing of rare earth mining. The other reason is due to the fact that REEs in Indonesia are largely classified as associated minerals rather than primary commodities. Moreover, concerns surrounding radioactive byproducts have further complicated regulatory development and delayed commercial-scale processing.

Having said that, these constraints also reveal a strategic opportunity. Unlike countries that must undertake costly and politically sensitive primary rare earth mining, Indonesia’s rare earth elements are predominantly embedded within existing mineral streams such as bauxite, tin, and nickel. This geological characteristic allows Indonesia to focus on rare earth development through downstream processing and extraction instead of new exploration activities. If aligned with industrial and defense technology priorities, integrated processing could enable Indonesia to capture strategic value from rare earths while minimising environmental, regulatory, and social risks.

Within today’s strategic environment, rare earth elements are akin to oxygen: their importance often goes unnoticed until supply is disrupted. As competition over critical minerals intensifies, supply chains themselves have become a primary arena of strategic contestation. Control over rare earth processing and refinement increasingly shapes geopolitical leverage, industrial resilience, and military readiness.

In this context, Indonesia’s strategic choice is clear. By transitioning from a supplier of raw materials to a high-value processor, while maintaining a policy of non-alignment anchored in defence self-sufficiency, Indonesia can ensure that its rare earth endowment becomes an asset for national development rather than a source of great power entrapment. Mastery over rare earth elements is no longer merely an economic objective; it has become a prerequisite for sovereignty in the digital and energy-transition era. The central challenge in the rare earth sector lies in extreme market concentration.

From the 1960s through the 1980s, the United States dominated global rare earth production, but this position gradually shifted to China, driven by lower production costs and comparatively permissive environmental regulations. As the U.S.–China geopolitical rivalry heats up, the race has also spilled over to rare earth extraction and refining, noting that these critical minerals affect both civilian and military applications. China accounts for roughly 70 percent of global rare earth mining and an estimated 80–90 percent of global separation and refining capacity, particularly for high-value heavy rare earth elements. As a result, U.S. developments in artificial intelligence, quantum, and biotechnologies—including their supply chains—are now at profound risk due to this concentration.

Such concentration grants a single state substantial geopolitical leverage. Past episodes illustrate the risks inherent in this imbalance. In 2010, China temporarily restricted rare earth exports to Japan following a maritime dispute, triggering global price volatility and exposing the fragility of downstream industries. More recently, in April 2025, China introduced export licensing requirements for seven critical rare earth elements, including samarium, dysprosium, and yttrium, in response to escalating trade tensions with the United States.

For Indo-Pacific states, the growing “weaponisation” of critical mineral supply chains creates a structural vulnerability in which national security and industrial resilience are increasingly shaped by the political calculations of the controlling supplier unilaterally. Within this context, Indonesia’s decision to establish a dedicated Mineral Industry Agency takes on strategic significance. Rather than reacting to supply disruptions after they occur, Jakarta is signaling an intent to address upstream vulnerabilities by embedding mineral governance into its broader defence and industrial planning.

However, institutional creation alone does not guarantee strategic outcomes. Without clear alignment between mineral policy, defence industrial priorities, and downstream technological development, Indonesia risks reproducing existing vulnerabilities under a new administrative framework. Furthermore, keeping up with the global technological advancement pace strongly demands sustained and committed support, including political will.

Indonesia must leverage its position not merely as a resource holder, but as a strategic actor capable of building a resilient and independent downstream mineral supply chain. Under Law No. 16 of 2012 on the Defence Industry, Indonesia formally recognises the importance of local content and technological mastery as pillars of defence self-reliance. Translating this mandate into practice requires prioritising mineral-based technologies that underpin multiple defence platforms. One illustrative avenue lies in the development of stealth-related capabilities. Rare earth-based anti-radar coatings, for example, could support the modernisation of Indonesia’s naval and air assets while reducing long-term dependence on foreign defence suppliers.

Achieving this objective requires a selective and phased investment strategy. First, Indonesia must address upstream knowledge gaps by prioritising geological mapping and targeted extraction of high-value rare earth deposits, particularly ion-adsorption clays, which are enriched in heavy rare earth elements and offer comparatively shorter development timelines. Second, the strategic bottleneck lies in the midstream. Moving beyond the role of a raw material supplier toward that of a lead integrator necessitates domestic capabilities in separation and refining. Strengthening these midstream processes would reduce vulnerability to export controls while ensuring that value added along the “mine-to-magnet” chain remains within the national economy. Finally, regional and minilateral cooperation offers a pragmatic complement to domestic capacity-building. Participation in frameworks such as the Mineral Security Partnership, including joint ventures with trusted firms from countries such as Australia and the United States, can accelerate technology transfer without undermining Indonesia’s non-aligned posture.

Indonesia’s mineral strategy should not be perceived merely as industrial policy, but as a step forward towards strategic resilience. As critical mineral supply chains become increasingly politicized, defence autonomy depends as much on control over processing and materials as on weapons platforms themselves. By prioritising downstream capabilities and aligning mineral governance with defence needs, Indonesia may reduce strategic vulnerability while strengthening its position in global supply chains. The Mineral Industry Agency provides a starting point; its success will hinge on whether institutional intent is translated into sustained technological and strategic outcomes.

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About Authors:

Benedicta Nathania Palit is a Research Analyst at Indo-Pacific Strategic Intelligence (ISI), a Jakarta-based defence think-tank. She holds a B.Soc.Sc from Universitas Indonesia in International Relations. Maria Evangelina Setiawan is also a research assistant at ISI and holds a degree in International Relations from Parahyangan Catholic University