As the war between Iran, Israel, and the U.S. enters its tenth day, missile and drone strikes continue unabated across parts of the Middle East. The U.S. and Israel have continued to launch attacks on hundreds of targets in Iran over the weekend, including oil storage facilities located near Iran’s capital Tehran and in Karaj, while Israel’s military also struck targets in parts of Lebanon.
In Iran, members of a clerical body picked Mojtaba Khamenei, a son of the late Ayatollah Ali Khamenei, as the country’s new supreme leader, a choice U.S. President Donald Trump had already labeled unacceptable days before the announcement. While the Iranian President Masoud Pezeshkian initially apologized for the retaliatory strikes that hit targets in multiple Gulf countries last week, the Islamic Revolutionary Guard Corps (IRGC) have since warned that strikes will continue if the Gulf countries allow Isael and the U.S. to use their territory to launch attacks on Iran.
As shipping traffic through the Strait of Hormuz remains all but halted, operational impacts have started to spread outside of the Middle East’s oil and gas sector, with companies in sectors such as aluminum, nickel, chemicals, and semiconductor manufacturing warning of production impacts. If energy and raw material shipments in and out of the Middle East remain halted for a prolonged period of time, operational disruptions in many industries are likely to worsen as energy supply is cut off and raw material stockpiles run dry.
Impact of Strait of Hormuz closure spreads beyond energy market
With shipping traffic through the Strait of Hormuz effectively halted due to security concerns amid military strikes across parts of the Middle East, the impact of shipping disruptions in and out of the region has started to spread beyond global energy markets.
In addition to a fifth of the world’s energy shipments, the Strait of Hormuz also handles 15% of global aluminum supply, with aluminum producers in the Middle East accounting for almost 10% of total global aluminum production. While smelters in countries like Saudi Arabia, Qatar, Bahrain, and the United Arab Emirates export around 5 million metric tons of aluminum through the waterway per year, they also rely on imports of raw materials like bauxite to keep aluminum production facilities in the region running.
Major aluminum makers in the region have already confirmed operational disruptions due to the conflict. Aluminium Bahrain B.S.C., which runs one of the world’s biggest aluminum smelters, suspended deliveries to some customers last week after shipping traffic through the Strait of Hormuz came to a halt. The company is looking into alternative shipping routes, but it was not immediately clear when it will resume customer deliveries.
A day earlier, Norsk Hydro ASA, one of the world’s biggest aluminum producers, declared force majeure on supply from its Qatar Aluminium Limited (Qatalum) smelter and announced a controlled shutdown of the facility. The shutdown was triggered by a disruption in natural gas supply and is expected to be completed by the end of the month. No further details about the shutdown schedule have been announced yet, but a full restart of the facility could take between six months to a full year.
Following these announcements, aluminum prices on the London Metal Exchange increased to $3.418 (€2.956) per ton, the highest price since April 2022, with some estimates suggesting that prices could jump as high as $3.600 (€3.113) if regional production disruptions last for several weeks.
Companies in Asia warn of production impacts due to energy supply disruptions and raw material shortages
Disruptions to the movement of vessels through the Strait of Hormuz have also started to cause knock-on effects on a range of companies in Asia, which is a major destination for energy and raw material shipments from the Middle East.
Several urea makers in Bangladesh halted production for at least two weeks due to gas supply shortages, while officials in South Korea warned that prolonged disruptions to raw materials shipments from the Middle East could impact the country’s semiconductor industry, which imports crucial materials such as helium from the region. Industry representatives also cautioned that rising oil prices could lead to higher electricity costs in South Korea, which sources around 70% of its oil from the Middle East, and in turn undercut the chip industry’s competitiveness.
In Indonesia and China, concerns are growing about disruptions to sulfur supply, a chemical used in nickel processing and fertilizer production. Indonesia’s nickel industry, which produces around half of all global nickel supply, relies on shipments from the Middle East for around 75% of its sulfur supply and may be forced to cut output if stockpiles run out in the coming weeks. According to industry representatives, high-pressure acid leaching nickel plants in Indonesia usually hold sulfur stockpiles of 1-2 months’ worth of consumption.
In China, the agricultural sector could also see operational impacts during the spring planting season if the country’s phosphate fertilizer producers use up existing sulfur stockpiles in the coming weeks. Shipments from the Middle East account for more than half of China’s sulfur imports.
Outside of Asia, nickel and fertilizer producers could face additional competition for sulfur supply from copper producers in Africa, who also use sulfuric acid to leach metals from ore during copper processing, and often rely on sulfur imports from the Middle East.
In total, companies in the Middle East produce around a quarter of global sulfur supply, according to an estimate by the U.S. Geological Survey, with much of the supply coming from Saudi Arabia, Qatar, Kuwait, Iran, and the United Arab Emirates.
Lastly, localized knock-on impacts on production activities have also been confirmed in the chemicals and automotive sectors in countries such as India, Pakistan, Japan, and Vietnam.
Everstream clients are receiving more detailed insights and recommendations about this risk.
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