Introduction
Following Israeli/US strikes and Iran’s retaliatory missile attacks, geopolitical tensions in the MENA region have escalated sharply. For metals, transmission occurs both directly (logistics, regional production disruption) and indirectly via energy markets (oil, natural gas, LNG and power).
Direct impacts: supply, logistics and regional production
- Strait of Hormuz disruption risk is acute: Hundreds of tankers have already halted operations near the strait as a precautionary move. Persian Gulf and Gulf of Oman disruption, other port disruptions via the Red Sea, Suez Canal and Gulf ports force potentially rerouting around the Cape, lengthening voyage times and tightening near‑term availability.
- War‑risk insurance premiums rise sharply, increasing landed costs and discouraging spot shipments—a particular burden for high-value, low‑volume critical materials.
- Port congestion raises demurrage costs and reduces working stock availability.
- Smelter/refinery outages in the MENA region can curtail regional supply if power or fuel access is constrained.
Indirect impacts: energy markets
- Oil: Brent crude has already jumped 10% to $80 per barrel as of today). Barclays analysts expect Brent to test $100 per barrel on Monday: a 37% spike from Friday’s close. An oil price spike strains oil-importing nations such as China, India and directly affects demand, inflation, fiscal stability and currency strength.
- Gas/LNG and electricity: A Qatari LNG blockade could significantly increase European gas benchmarks through fierce Asian competition for non-Hormuz supplies. Aluminum and electrolytic processes face sharply higher smelter electricity costs.
- Upstream costs: Energy inflation increases prices of fluxes, anodes and processing chemicals across metals.
Demand effects and macro risks
Higher energy costs can slow manufacturing, construction and industrial activity, reducing metal demand.
On the inflation front, a prolonged Strait of Hormuz closure could create severe inflationary effects for the global economy.
Resource implications by metal
Aluminium: Most sensitive. Smelting is power-intensive; gas/LNG and electricity spikes can force curtailments and tighten markets. Freight/insurance cost rises further lift delivered prices. Expect substantial volatility and potential regional premiums.
Copper: Highly demand sensitive. Direct Middle East supply exposure is limited, but logistics/route shocks and higher transport costs can cause short-term tightening.
Nickel: Exposed to battery demand and stainless steel cycles. Shipping and sanction spillovers can affect flows from major producers.
Zinc & lead: Less energy intensive than aluminium, but tied to industrial demand; higher transport and input costs, and weaker manufacturing demand are possible.
Minor and critical metals: Cobalt, molybdenum and speciality metals are high-value, low-volume and often sit in complex supply chains with concentrated processing or limited refining capacity. Logistics disruption, elevated insurance premiums and port diversion delays disproportionately increase landed costs. Many of these metals are also byproducts of larger mining operations; energy or transport issues that impact primary production can ripple through.
Rare earth elements (REEs) and other critical materials: Supply concentration in processing makes REEs uniquely vulnerable. Even if mining occurs elsewhere, most separation and refining capacity is regionally concentrated. Disruptions to shipping lanes, higher war‑risk insurance, or elevated electricity and chemical costs can reduce throughput at separation plants and delay deliveries of oxides, metals and permanent magnets.
Operational and portfolio recommendations
- Hedging: Pair metal hedges with energy hedges (oil/gas); size and tenor to match exposure. For metals and REEs, consider contractual hedges and longer-dated supply agreements.
- Inventory strategy: Maintain flexible buffer inventories and diversify storage locations to mitigate transit risk.
- Supplier diversification: Diversify the supplier network to include alternative suppliers and reduce single‑point-of-failure exposure.
- Scenario planning: Stress test current supply and sales structure and cash costs for scenarios for example such as a 30% oil spike, 60% LNG price surge, a 30-day Red Sea closure, or a 30-day Strait of Hormuz disruption.
- Contracts and clauses: Ensure force majeure, rerouting and fuel/insurance pass-throughs are robust in contracts.
MM Markets Geopolitical Risk Management & Structure Development
MM Markets is an expert in geopolitical risk management and structure development. We directly observe the development from our UAE office. MM Markets supports your organisation with:
- Inventory strategy development: Design flexible buffer inventories and geographic storage diversification.
- Supplier diversification and regional sourcing: Reduce geographic concentration by identifying emerging supply regions and alternative processing hubs outside of the usual supply network.
- Scenario planning and stress testing: Model P&L and cash-flow resilience across multi-year frameworks. Stress for oil shocks, LNG surges, Forex volatility, shipping route closures, sanctions escalation and demand destruction. Incorporate geopolitical volatility as an entrenched, enterprise-wide challenge requiring sustained strategic attention.
