The European Union (EU) has reached a deal with Serbia to secure supply of lithium following the reinstatement of Rio Tinto’s (ASX:RIO,NYSE:RIO,LSE:RIO) license for its Jadar lithium project.

Lithium is critical for electric vehicle (EV) production, and the arrangement is seen as a strategic move to enhance the EU’s self-sufficiency in raw materials that are essential for the green transition.

The 2022 decision to revoke Rio Tinto’s license for Jadar was overturned by a court ruling on July 11.

The July 19 agreement between the EU and Serbia was overseen by German Chancellor Olaf Scholz and Serbian President Aleksandar Vucic. Key figures from the automotive industry, including representatives from Mercedes-Benz Group (OTC Pink:MBGAF,ETR:MBG) and Stellantis (NYSE:STLA), also participated in the signing ceremony.

European Commission Vice President Maros Sefcovic emphasized the strategic importance of this partnership, stating that Serbia will play a central role in the EU’s supply chain for critical materials.

The EU’s demand for lithium — a crucial component in EV batteries — is projected to increase significantly, driven by the bloc’s commitment to reducing carbon emissions and transitioning to renewable energy sources.

Germany in particular, with its strong automotive industry, has high demand for lithium.

‘This is not a chance we’re going to miss,’ said Serbian Finance Minister Sinisa Mali. The agreement with the EU is estimated to create 20,000 new jobs and bring 6 billion euros in investment to Serbia.

Despite these economic promises, the agreement has sparked controversy and protests in Serbia. Environmental activists, who previously succeeded in halting the Rio Tinto project, have vowed to continue their opposition.

Scholz addressed these concerns, saying that the project will adhere to high environmental standards and will comply with both Serbian and EU regulations. Rio Tinto has also pledged to meet stringent environmental requirements, including extensive legal environmental impact assessments and public consultations.

The EU’s push to secure lithium supply from Serbia is part of a broader strategy to reduce reliance on imports from countries like China. Currently, a significant portion of the EU’s processed lithium imports comes from Chile, but the bloc is aiming to diversify its sources and enhance its domestic production capacity.

Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.