Israel Factor Hinders US Rare Earth Metals Project in Malaysia

The United States wants its rare earth supply to be independent of China. However, Washington’s support for Israel has triggered opposition to a USD 96 million trade agreement in Malaysia. In March 2026, the US Department of Defense signed a four-year deal with Australian mining company Lynas to extract 17 rare earth elements. These elements are central to modern industrial production and are used in everything from smartphones and electric vehicles to advanced weapons systems. This strategic US-Lynas agreement hinges on Lynas’ main processing plant in Gebeng, a densely populated industrial town on the east coast of peninsular Malaysia. The Gebeng plant is the largest rare earth processing facility outside of China.

News of the deal sparked a strong reaction in Malaysia, which has a long history of championing Palestinian independence and strongly condemns Israel over military operations in Gaza and the West Bank. The public has urged the government in Kuala Lumpur to block the Lynas agreement or provide guarantees that the rare earths processed at the Gebeng plant will not be used in any weaponry. In an open letter to Malaysian Prime Minister Anwar Ibrahim, more than 50 non-governmental groups stated that the deal risks implicating Malaysia in serious accusations of international law violations in various regions, including Gaza, while highlighting the US as a primary arms supplier to Israel.

However, the link between Malaysian rare earths and Israeli weaponry is not straightforward. While the raw materials can be used to make fighter jets and missiles, they can also end up in washing machines or wind turbines. Thomas Kruemmer, director of Singapore-based rare earth market firm Ginger International Trade and Investment, told DW that what the Malaysian protesters are demanding is equivalent to banning the export of natural rubber to the US because the tyres might be used on Israeli vehicles in Gaza. Lynas is key to supplying dysprosium and terbium. A parliamentary committee held a hearing last week to determine whether the Lynas project would jeopardise Malaysia’s reputation as a staunch supporter of Palestine. The Anwar administration has until the end of the month to state its official position on the deal. For Malaysians, this is not really about rare earths, it is about Palestine, Kruemmer said.

Activists hope to use the Gebeng refinery as a lever to influence US geopolitical calculations. The US rival, China, currently dominates the world’s rare earth mining and processing and has restricted exports of these materials to the West. Furthermore, according to Kruemmer, Australia’s Lynas is one of the few companies capable of providing commercial quantities of two specific rare earth elements: dysprosium and terbium. He noted that the flagship US rare earth investment project, the MP Materials’ Mountain Pass mine in California, has very little of these two elements. With China halting exports of rare earths destined for military applications, Lynas is currently the only available source for the Pentagon.

Given the current scarcity of rare earth supply options outside of China, the US government is investing in several projects both domestically and abroad. However, these projects could take years before they become operational, according to Meredith Schwartz, a researcher at the Center for Strategic and International Studies. The Pentagon needs a guaranteed supply if China continues to deny access, making it a national security imperative. This makes active projects like the Lynas rare earth processing plant in Malaysia highly strategic for the United States. Australia’s abundant mineral reserves and mining expertise make it crucial to Washington’s plan to break China’s monopoly on rare earths. Schwartz described the Lynas processing plant in Malaysia, which sources raw materials from Australia, as a key point in the mine-to-magnet supply chain.

The announcement of the deal published by Lynas in March did not specify whether the materials sold to the US Department of Defense would be used for weapons. However, given that the contract was specifically with the Department of Defense, Kruemmer said it is highly likely. If the materials were not intended for defence purposes, the Pentagon would not have signed the contract, as they do not care about Ford Motor’s electric cars or Whirlpool kitchen appliances. Neither Lynas nor the US Department of Defense responded to requests for comment. Foreign mining companies face a practical need to gain the trust of local communities regarding their operations, Schwartz said. This is a major challenge for rare earth projects in Malaysia, where a Japanese-backed venture in the 1980s left behind pools of radioactive waste, an unavoidable byproduct of rare earth mining and refining. The waste has been blamed for a range of genetic defects, cancers, and deaths in the area. Lynas has also been persistently questioned about its handling of radioactive waste.