Will Iran's lithium discovery be a game changer?

The backstory: Lithium is a pretty big deal in the world of rechargeable batteries, especially for electric vehicles (EVs). With EV sales on the rise and supply chain hiccups affecting the global market, the demand for lithium, or "white gold," has shot through the roof over the past year, causing prices to skyrocket. But, there has been a bit of market correction recently due to a slowdown in EV sales in China, which is also the world's fastest-growing EV market.

But overall, the demand for lithium is still pretty high. German Chancellor Olaf Scholz sees lithium as crucial for his country's sustainable energy plans, and he just flew to Latin America to broker some deals on the sought-after metal. China has also ramped up investments in the region, home to some of the world's largest lithium reserves.

More recently: Iran has been hit hard with heavy sanctions from the West, affecting its ability to export and earn foreign currency. This has caused its economy to take a serious hit, resulting in a spiraling currency and years of economic struggle. Russia and China are some of Iran's few remaining economic allies.

The development: Now, Iran says it's struck "white gold" with a massive lithium discovery in one of its western provinces. The country's ministry thinks this deposit could contain 8.5 million tons of lithium. That's huge.

In fact, if that number is accurate, it would make it the second-largest known lithium reserve globally, just behind Chile's 9.2 million tons, according to the US Geological Survey. Iran being able to export this lithium could shake things up in the global market and even bring down lithium prices.

It's worth noting that this news comes just after Goldman Sachs predicted that the price of lithium could drop even further over the next few years because of an overabundance of supply and waning EV sales.

Key comments

“For the first time in Iran, a lithium reserve has been discovered in Hamedan,” said an official at Iran’s Ministry of Industry, Mines and Trade on Iranian state television Saturday.

“Over the next 9-12 months, we are progressively more constructive on base metals, whilst expecting a move lower in lithium prices alongside cobalt and nickel,” said analysts at Goldman Sachs in late February.

“Hence, whilst a recovery in EV sales into 23Q2-Q3 could temporarily lift sentiment and support falling battery metal prices, the likely supply surge and downstream overcapacity are set to bring lithium prices down subsequently in the medium term,” said Goldman Sachs.