World Faces Crisis in Fertiliser, Aluminium and Helium Supply Due to Iran Conflict

The Iran conflict is now shaking global commodity markets far beyond oil. Fuel and chemical shortages are beginning to threaten various industries, from agriculture to pharmaceuticals.

Since the third Gulf War began three weeks ago, crude oil prices have dominated global attention. On 16 March, Brent, the global benchmark, briefly surpassed US$106 per barrel, the highest level since July 2022, several months after Russia’s invasion of Ukraine.

According to The Economist, United States President Donald Trump is attempting to suppress prices, seeking assistance from NATO allies and even overseeing the release of the largest strategic oil reserves in history. However, these measures have yet to convince traders that the Strait of Hormuz will reopen soon. Approximately 10-15% of global oil supplies remain trapped.

However, oil is not the only commodity in shortage. Over time, it has become increasingly clear that Gulf nations play a vital role in supplying various other commodities.

Their large hydrocarbon reserves have made the region an ideal location for raw material processing industries. Its location is also strategic, positioned between rapidly growing Asia and wealthy Europe.

Consequently, approximately 22% of global urea trade, 24% of global aluminium, one-third of the world’s helium, and 45% of sulphur originate from the region. When drone attacks strike industrial facilities and the Hormuz blockade impedes exports, these vital supply chains face enormous pressure.

Three major sectors — transportation, manufacturing, and food production — are already beginning to feel the impact, and damage is expected to spread further.

The transportation sector is one of the first affected, particularly regarding refined oil products. The loss of most crude oil from the Gulf creates serious problems for refineries in Asia.

In addition to being significantly more expensive, alternative supplies are lighter and contain lower sulphur content compared to oil designed for processing by those refineries. This condition raises operating costs, risks damaging equipment, and produces less diesel and jet fuel, two products currently in shortest supply.

Refinery profit margins have collapsed, prompting production cuts of 5-15% in China, India, Japan and Thailand, and larger cuts elsewhere.

Simultaneously, refineries in the Gulf region, among the world’s largest, have sent almost no products since late February. Oil diverted through pipelines in Saudi Arabia and the United Arab Emirates remains largely unrefined crude. The same applies to tanker cargo daring to transit the Strait of Hormuz. Ship tracking company Vortexa estimates approximately 125 oil product tankers, or around 5% of the global fleet, are now trapped in the Gulf.

This double impact has led China to halt all refined oil product exports, which in turn has triggered surging prices for petrol, diesel and jet fuel in Singapore, Asia’s oil trading hub.

Europe is also experiencing pressure. Last year, approximately 69% of Europe’s jet fuel imports originated from the Gulf region or Asia. Shipping costs for fuel have now spiked sharply almost worldwide.

This crisis is likely to worsen before improving. Modelling by Michelle Brouhard from data company Kpler shows that if the Strait of Hormuz remains closed, the Oceania region could deplete 80% of its jet fuel stocks within 36 days, whilst Africa would do so within 23 days. Asian countries outside China, Japan and South Korea even risk experiencing critical petrol shortages in just 12 days.

Many poorer countries have already begun closing schools, shortening working weeks and implementing fuel rationing. Even if Hormuz reopens soon, supply normalisation will not occur quickly due to refinery damage, destroyed infrastructure and shipping companies’ reluctance to return to the region.

The manufacturing industry also faces severe pressure due to its dependence on petrochemical plants in the Gulf region, which now struggle to export their products.

The region accounts for almost 45% of global seaborne naphtha flows and approximately 23-30% of exports of important raw materials such as styrene and polyethylene. Several plastic producers in Asia have even declared force majeure, meaning they cannot fulfil contracts due to circumstances beyond their control.

Active ingredients in most medications from aspirin to antibiotics also require petrochemical materials. China imports large volumes of petrochemical raw materials from the Gulf, whilst India, the world’s largest generic drug producer, is also heavily dependent on such supplies.

Additionally, the Gulf region supplies approximately 26% of the world’s industrial diamonds used for cutting and drilling tools, 26% of glycol used in paints, and 30% of methanol employed in the production of plastics, resins, chemicals and construction materials.

The most striking impact is visible in aluminium, a metal used in packaging, transportation, electrical grids and renewable energy. Large smelters in Qatar face gas shortages, whilst plants in Bahrain and the United Arab Emirates cannot export their products. Many of these facilities depend on imported raw materials that no longer arrive. Oman continues to export aluminium from ports outside the Strait of Hormuz, but the region itself also faces attack threats and shipping costs have spiked sharply.

As a result, aluminium prices on the London Metal Exchange for three-month delivery contracts rose US$300 to US$3,440 per tonne, approaching four-year highs. The heaviest impact is felt by regions most dependent on Gulf supplies, such as Europe, which relies on the region for 14% of aluminium imports, and the United States, with approximately 21%.