Key Takeaways:
1. Strengthening EU-Serbia Relations: The EU-Serbia strategic partnership could draw the EU and Serbia closer and reduce China’s access to critical minerals in Serbia. However, it is unlikely to improve Serbia’s EU membership prospects. Instead, it supports Vučić’s strategy of hedging in a multipolar world.
2. Domestic Battery Industry Development: Serbia is well-positioned to use the Jadar mine and the EU-Serbia strategic partnership as a foundation to develop a domestic battery industry.
3. Potential for Protests: The project is likely to spark protests across Serbia, but these are unlikely to reach the intensity and influence of those in 2022.
Serbian President Aleksandar Vučić has reinstated Rio Tinto's (RT) Jadar lithium mine licenses, reversing his government’s previous revocation in 2022, thereby paving the way for Europe’s largest lithium mine. The EU and Belgrade have entered into “strategic partnership on sustainable raw materials, battery production chains and electric vehicles” to develop the Jadar mine, enhancing Europe’s access to lithium. However, the project has the potential to trigger protests across Serbia.
Strengthening EU-Serbia Relations:
Restoring RT’s license is unlikely to enhance Serbia’s EU membership prospects. Although joining the EU remains a priority for Vučić, the Jadar project is unlikely to change EU concerns about the rule of law, corruption, and the recognition of Kosovo, which have stalled Serbia’s EU accession. Instead, the mine is likely to provide Vučić with greater geopolitical manoeuvrability while reducing the EU’s dependency on processed lithium from China.
Russia’s invasion of Ukraine and China’s growing control over Serbia’s industry, critical minerals, and infrastructure make the EU-Serbia strategic partnership an essential element for the EU to entice Belgrade away from its proximity to Russia and China. President Vučić hedges against fluctuations in a multipolar world by courting diverse diplomatic and commercial interests. In 2022, annual Chinese FDI into Serbia reached $1.4 billion, focusing on mining, steel, infrastructure, and the automotive sector. The Zijin Mining Group’s acquisition of the Bor copper mine in 2018 gave China a dominant position in Serbia’s mining industry. Vučić also refuses to participate in Western sanctions against Russia, while implicitly agreeing to arm Ukraine by allowing the sale of €800 million worth of ammunition to Western allies.
Restoring RT’s mining license in the Jadar Valley and signing the EU-Serbia strategic partnership gives Vučić a strategic advantage to shore up his position vis-a-vis Brussels and balance against Chinese and Russian influence. Vučić pledged that the lithium would be exclusively earmarked for EU industry. The Jadar mine is projected to produce 58,000 tons of lithium annually, enough to power 1.1 million cars or meet 17% of the EU’s electric vehicle production needs, presenting a potential milestone in reducing the EU’s dependency on processed lithium from China. This development is crucial as Portugal’s lithium reserves, the largest within the EU, face local opposition over water pollution and are implicated in a corruption scandal, while projects to extract lithium from geothermal waters in France and Germany are progressing slowly.
Together with the EU’s involvement in the Jadar project, this indicates a pro-EU realignment of Serbia’s strategic priorities. However, Vučić will likely continue his hedging strategy and seek investments from diverse players, including China, which agreed to invest $2.2 billion into renewable energy and hydrogen production facilities in Serbia earlier this year and is likely to remain Serbia’s largest source of FDI. Contrastingly, Vučić has pledged to sell the lithium exclusively to EU companies and has held discussions with VW, Stellantis, and Daimler. Vučić is, therefore, well-positioned to play off competition between Chinese and EU EV manufacturers to secure European investments in battery and EV manufacturing in Serbia, trading investments against access to lithium. Given these conflicting pledges and actions, KSG assesses that official statements from the Serbian Government are unlikely to be reliable indicators of what access different countries will have to the Lithium supply in actuality.
KSG assesses that Vučić might also aim to use the Jadar project and the EU-Serbia strategic partnership to build battery factories in Serbia and limit raw lithium exports. Serbia has several advantages for this objective, including its close proximity to the EU and favourable investment climate. Serbia offers a conducive investment environment with lower environmental and labour regulations, and has expedited project approvals for national interest.
Potential for Protests and Political Instability:
In 2022, Vučić’s government withdrew RT’s mining licenses in the Jadar Valley in response to large demonstrations, a move seen as politically motivated due to the general elections later that year. The environmentalist Kreni-Promeni (Move, Change) opposition movement launched a petition against lithium exploration, amassing over 295,000 signatures. Restoring RT’s license could trigger another wave of demonstrations. The Kreni-Promeni movement came second in some jurisdictions in local elections after Vučić's SNS party in June, and its co-head, Savo Manojlović, said, “We will organize to defend our ecological standards and constitutional rights.” Opinion polls indicate that environmental issues are a major concern for Serbian voters ahead of the economy and that more than half oppose the mine. In addition to RT’s project, air pollution in Belgrade, in Smederevo near a Chinese-owned steel mill, and in Bor near Zijin Mining’s copper mine have become focal points of popular discontent.
However, protests are unlikely to reach the scale of those in 2022, and RT’s license is unlikely to be revoked again. Vučić comfortably secured victories in the 2022 presidential elections, the 2023 snap parliamentary elections, and most jurisdictions in the June local elections. However, assurances from the EU and RT regarding environmental impacts will remain important in fostering a benign image for the project. Proceeding with the project and emphasizing direct and indirect (battery manufacturing) employment opportunities may diffuse popular opposition.
Looking Forward:
The Jadar lithium project involves four key actors: RT, the Belgrade government, the EU, and China, each with strategic priorities and vulnerabilities.
Rio Tinto: Future reversals on the license, although unlikely, cannot be ruled out. The company should anticipate national and local opposition that attracts international media attention by adopting a sophisticated PR strategy centred on job creation and environmental commitment.
Belgrade: The Jadar mine could trigger new demonstrations. Despite a stronger electoral position than in 2022, Vučić should tread carefully, emphasizing the project’s potential benefits for the Serbian economy and the potential it holds for Serbia to ascend the battery and EV value chain. However, the strong performance of green parties in the municipal elections in June and public opinion polls on the Jadar project and the environment generally show that emphasizing the economy is not enough. Vučić also needs to showcase guarantees from RT and Brussels on environmental protection.
Brussels: To reduce Europe’s dependency on Chinese lithium, the EU has incentives to help Vučić manage public concerns. The critical minerals deal and assurances on environmental impact could, therefore, be vital in ensuring the project's success.
China: The EU-Serbia deal delivers a setback for China's ambitions in dominating critical minerals markets, but KSG views it as a unique instance of Belgrade and Brussels cooperating for mutual economic benefit. This cooperation does not significantly reduce China’s opportunities to expand its economic influence in Central and Eastern Europe. KSG anticipates that Chinese investments in battery and EV manufacturing in Southern, Central, and Eastern European countries will increase to avoid EU anti-dumping tariffs on Chinese EVs. This trend is exemplified by EV manufacturer BYD's planned $1 billion factory in Turkey. UBS estimates that Chinese EVs built in Eastern Europe will have a roughly 25% cost advantage over European competitors. However, KSG expects Serbia to attract fewer Chinese EV investments because it is not a member of the EU Customs Union, which means Chinese EV investments in Serbia could still face anti-dumping tariffs. This potential tariff imposition could reduce Serbia’s attractiveness for Chinese manufacturers in the EV value chain, weakening President Vučić's ability to leverage Chinese interests in Serbian lithium to attract EU investments.
By Hadrian von Kuenheim, Geoeconomics Analyst.