Unintended Consequences: The Ripple Effects of a Strait of Hormuz Shutdown on Global Commodities
As tensions rise in the Strait of Hormuz, the immediate risks to oil and LNG prices dominate headlines. However, a deeper analysis reveals potential second-order effects on base-metal commodities, such as copper, cobalt, nickel, zinc, and manganese. The ongoing conflict could disrupt these markets significantly, impacting investors and industries worldwide.
Is Anyone Prepared?
The prevailing assumption is that the Strait of Hormuz will soon return to normal operations. However, if the situation persists, we may face a series of disruptions that military planners have not fully anticipated. Recently, former President Trump attempted to reassure shipping companies by offering insurance and naval escorts for those willing to navigate the Strait. Yet, the world’s largest shipping industry association deemed these promises “unrealistic.”
Shipping firms are expressing concerns about the evolving risks in the region. Unlike the naval mines and attack boats of the past, the current threat landscape includes highly mobile drone strikes. These drones can be launched from commercial trucks in mountainous areas, complicating the security situation. As a result, the resolution of these threats may take longer than many expect, leading to prolonged market instability.
In light of these uncertainties, it is crucial to examine the potential impacts of an extended shutdown on global markets. The ramifications could be far-reaching, affecting not only energy prices but also the supply chains of essential commodities.
The Chemical Nobody Talks About
While oil often steals the spotlight, another critical element at risk is sulphur. Approximately 45% of global sulphur exports transit through the Strait of Hormuz, making the Gulf the largest sulphur producer worldwide. Sulphur is primarily a by-product of refining sour crude oil, with 85-90% of the global supply originating from oil and gas operations.
Qatar’s Ras Laffan complex, which processes around 20% of global LNG, also produces 10,000 tonnes of liquid sulphur daily. However, recent Iranian drone strikes have forced its closure, removing an estimated 3.8 million tonnes of annual sulphur capacity from the market. This loss could have significant implications, as sulphur is essential for producing sulphuric acid, the most widely used industrial chemical globally.
Sulphur plays a vital role in various industries, including copper extraction, uranium processing, and fertiliser production. The cascading effects of a sulphur shortage could disrupt multiple sectors, highlighting the interconnectedness of global supply chains.
Copper’s Hidden Bottleneck
About 25% of global copper production relies on a process known as solvent extraction and electrowinning (SX-EW), which requires substantial amounts of sulphuric acid. This method is particularly prevalent in major copper-producing regions such as Chile, Peru, the Democratic Republic of the Congo (DRC), and Zambia. The DRC alone imports over 500,000 tonnes of elemental sulphur annually to sustain its acid plants for cobalt and copper production.
If the Strait of Hormuz remains closed for an extended period, the supply of imported sulphur will dwindle, leading to a critical shortage of sulphuric acid. Regional inventories are limited, often measured in days rather than months. This situation could halt operations in African mines and curtail output in other regions, resulting in a significant copper supply constraint.
As copper prices were already near record levels before the conflict, the ongoing situation may lead to further volatility. While higher energy costs and economic slowdowns weigh on industrial metals demand, the physical supply squeeze from acid shortages could tighten the market unexpectedly.
Beyond Copper
The sulphuric acid shortage extends beyond copper, impacting uranium extraction and cobalt production as well. Kazatomprom, a major uranium producer, has already reduced its 2026 production forecast by 10% due to a sulphuric acid shortage. Similarly, cobalt production, which relies heavily on high-pressure acid leaching, could face significant constraints if acid supplies are rationed.
As various industries compete for the same limited resources, fertiliser producers are likely to receive priority, leaving miners vulnerable to rationing that could render marginal operations unviable. The law of unintended consequences serves as a reminder that complex systems often behave unpredictably, leading to unforeseen challenges in global markets.
