What is the Strait of Hormuz Crisis and Why Does it Matter?
The Strait of Hormuz has recently become a focal point of geopolitical tension following US airstrikes on Iranian nuclear facilities on June 22, 2025. In response, Iran's parliament approved a proposal to potentially block this critical maritime passage, triggering immediate market concerns. The US issued stern warnings that such action would be "self-destructive for Iran," whose own oil exports depend heavily on this shipping route.
This narrow waterway, just 21 nautical miles wide at its narrowest point, serves as a vital artery for global trade, with approximately 20% of the world's oil price rally passing through it daily. For the aluminium industry specifically, the strait represents a crucial export route for Middle Eastern producers who collectively account for 23% of global primary aluminium production.
"Any move to close the strait would be self-destructive for Iran, as their economy relies heavily on exports through this same maritime corridor." – US State Department spokesperson
The significance of a strait of Hormuz blockade and its impact on the global aluminium market cannot be overstated. Middle Eastern producers, primarily located in the Gulf Cooperation Council (GCC) countries and Iran, have strategically positioned their smelters near the Persian Gulf, making them entirely dependent on this shipping route for both exports and raw material imports.
Historical Context of Strait of Hormuz Tensions
Despite recurring threats over four decades, Iran has never fully closed the strait, even during severe conflicts or sanctions. This historical pattern suggests Iran typically uses blockade threats as negotiation leverage rather than implementing actual closures.
Previous tensions emerged during several key periods:
- The Iran-Iraq War (1980-88), when tanker attacks disrupted approximately 25% of global oil shipments without causing a complete closure
- Island disputes with the UAE (1990s)
- Heightened confrontations (2008, 2012, 2018, and 2019)
As one SMM analyst noted, "Iran's blockade threats are often used as a bargaining chip in geopolitical negotiations but rarely translate into action." This historical context provides important perspective when assessing the current situation.
How Likely is a Full Blockade Scenario?
Probability Assessment
Most analysts currently estimate the probability of a complete, sustained blockade at less than 50%. This assessment is based on a combination of military, economic, and historical factors that make such an extreme action unlikely.
More probable outcomes include:
- Targeted disruptions through selective mining of shipping lanes
- Increased vessel inspections slowing maritime traffic
- Short-term harassment of commercial vessels
- Temporary restrictions followed by de-escalation
Security experts point out that Iran lacks sufficient mine-laying capacity to effectively block the entire 21-mile-wide channel, and US Navy antisubmarine and mine-countermeasure assets could neutralize such threats within 72 hours.
Deterrence Factors
Several factors make a prolonged blockade unlikely:
- The US Fifth Fleet's established presence in Bahrain (with over 40 vessels)
- Iran's economic dependence on the strait for its own exports
- Historical precedent showing threats rarely materialize into action
- International diplomatic pressure and potential military response
- Self-inflicted economic damage to Iran's already struggling economy
Military simulations conducted between 2020-2023 showed that US naval forces could effectively repel mock blockades within 48 hours, further reducing the likelihood of a sustained closure.
The aluminium sector faces less exposure than oil markets, with the primary risks being short-term volatility and temporary supply chain disruptions rather than a systemic crisis.
How Would a Blockade Affect Global Aluminium Trade Flows?
Middle Eastern Production Impact
The Middle East (GCC countries and Iran) represents a significant portion of global aluminium production:
- 23% of global primary aluminium output
- Annual capacity of approximately 6.92 million tonnes
- Export volume of 5.14 million tonnes in 2024 (75.2% of regional production)
Most smelters in the region are positioned near the Persian Gulf with export routes dependent on the Strait of Hormuz. A blockade would:
- Immediately cut off export capabilities
- Force inventory buildup at production facilities
- Potentially trigger production cuts as storage capacity fills
- Disrupt raw material imports creating a "double squeeze" on output
"Inventories would build up, forcing smelters to cut production and disrupting raw material imports — a double squeeze," explains Cathy Liu, an SMM analyst specializing in Middle Eastern aluminium markets.
Regional Market Impacts
Asia
- Japan, South Korea, and other Asian economies partially rely on Middle Eastern aluminium
- Would need to secure alternative supplies from Russia, India, or Southeast Asia
- Might increase imports of semi-finished products from China
- Likely to experience logistical bottlenecks and premium increases
Regional contingency plans would require pivoting to Russian or Indian metal, adding 10-14 days to transit times and creating port capacity challenges throughout the supply chain.
China
- Produces nearly 60% of global primary aluminium
- Minimal direct reliance on Middle Eastern metal
- Would experience price impacts through global market transmission
- SHFE prices would likely rally alongside international benchmarks
- Domestic supply would remain stable despite global disruption
China's dominance in global aluminium production provides it with significant insulation from direct supply disruptions, though it would not be immune to price effects.
Europe
- Highly import-dependent region
- Middle East supplied approximately 1.2 million tonnes in 2023 (18.8% of EU imports)
- Already facing restricted Russian supply due to sanctions
- Would need to increase imports from India, Africa, or Canada
- Would face higher transport costs and significant logistical challenges
- Manufacturing sector could experience supply shortages
The European situation mirrors what occurred during the 2018 US sanctions on Rusal, when European premiums spiked 30% within just three weeks due to supply uncertainty.
United States
- Primarily imports from Canada (main supplier)
- Middle East accounted for 16.3% of US primary aluminium imports in 2024 (640,000 tonnes)
- Would likely increase Canadian and Latin American purchases
- Already experiencing high premiums due to recent 50% import tariff
- Would face additional cost pressures and short-term volatility
The US market's reliance on Canadian supply provides partial insulation from Strait of Hormuz disruptions, though secondary effects would still impact prices and premiums.
What Would Happen to Bauxite and Alumina Supply Chains?
Raw Material Vulnerabilities
The impact timeline differs between finished aluminium and raw materials:
- Aluminium ingot exports would face immediate disruption
- Raw material impacts would be delayed by existing 1-2 month inventory reserves
- Short-term disruptions (most likely scenario) would have limited impact on bauxite/alumina
This inventory buffer provides critical breathing room for smelters, though a prolonged crisis would eventually deplete these reserves.
Middle Eastern Dependencies
The region faces significant raw material vulnerabilities:
- Limited local alumina capacity (4.95 million tonnes annually)
- Virtually no domestic bauxite resources
- Heavy reliance on imports from Guinea, Australia, and Brazil
- Potential forced shutdowns of refineries if blockade persists
- Shipping detours around Africa's Cape of Good Hope would substantially increase costs
"If West African bauxite vessels detour around the Cape of Good Hope, transport times and costs rise sharply," notes SMM's supply chain analysis. Such detours would increase Freight All Kind (FAK) rates by $8-12 per tonne and add 0.3-0.5% to CIF costs through higher insurance premiums.
Global Supply Chain Resilience
Other regions show greater resilience:
- China's bauxite import routes bypass the Strait of Hormuz
- China maintains self-sufficiency in alumina with small net exports
- Most Guinea-to-Asia bauxite shipments take southern routes unaffected by the strait
- Higher freight insurance and fuel costs would impact economics but not availability
- Long-term contracts for bulk carriers provide some cost stability
- Reduced Middle Eastern demand could partially offset cost increases elsewhere
The 2021 Suez Canal blockage provides a useful comparison, as alumina shipping costs rose approximately 15% but normalized within 60 days once the route reopened.
How Would Aluminium Prices React to Different Scenarios?
Immediate Market Response
The market has already shown sensitivity to the situation:
- LME aluminium prices jumped nearly 4% on June 23, 2025
- Three-month contract reached $2,636 per tonne (three-month high)
- Risk premiums have increased across metal markets
- Volatility has intensified with pronounced price swings
This initial price reaction reflects the market pricing in geopolitical risk rather than actual supply disruptions.
Scenario Analysis
Worst-Case Scenario (Full Blockade)
- Removal of approximately 23% of global aluminium supply
- Significant upward price pressure across all markets
- Supply shortages in import-dependent regions
- Production disruptions in Middle Eastern facilities
- Substantial premium increases, especially in Europe
- Considered unlikely by most analysts
Price transmission mechanics suggest every 1% of global supply loss historically correlates to a 5-7% price spike, meaning a worst-case scenario could potentially trigger price movements of over 100%.
Most Likely Scenario (Temporary Disruption)
- Short-term trade flow disruptions followed by normalization
- Initial price spike followed by gradual realignment with fundamentals
- Continued pressure from soft demand and macroeconomic headwinds
- Potential price correction once geopolitical tensions ease
- Varying regional premium impacts based on supply exposure
This scenario aligns with historical patterns where geopolitical price spikes typically normalize once immediate threats recede.
Regional Premium Divergence
Different regions would experience varying premium impacts:
- European Premiums: Fastest and largest increases due to high Middle Eastern dependency and limited alternatives (Rotterdam duty-paid premiums were $195-215/tonne before the crisis)
- Asian Premiums: Moderate increases cushioned by more diversified supply sources
- US Premiums: Limited additional upside given already elevated levels following recent tariffs impact markets (Midwest premiums exceeded $1,220/tonne after tariff implementation)
"European premiums rise faster than Asia's due to greater exposure to Middle Eastern supply, while US tariffs limit upside potential in that market," according to SMM's premium analysis.
Secondary Price Factors
Additional considerations affecting price dynamics include:
- Oil Price Correlation: Higher energy costs would raise both production and transport expenses (every $10/bbl oil increase raises smelting costs by approximately $35/tonne)
- Inventory Levels: Currently low visible inventories (1.2 million tonnes globally) provide limited buffer against supply disruptions
- Production Costs: Energy-intensive smelting would face margin pressure from higher fuel prices
- Currency Effects: Dollar strength during geopolitical crises could partially offset price increases
The 2022 European energy crisis demonstrated how premiums can reach extreme levels ($600/tonne) even without physical supply deficits when market uncertainty prevails.
What Are the Long-Term Implications for the Aluminium Industry?
Supply Chain Resilience
The crisis highlights several structural aspects of the global aluminium market:
- Geographic concentration risks in Middle Eastern production
- Importance of diversified supply chains for consuming regions
- Relative adaptability of the aluminium industry compared to oil
- Need for strategic inventory management during geopolitical tensions
Industry experts note that aluminium supply chains can reconfigure approximately 30% faster than oil markets, with smelter restarts taking 3-6 months versus 12-18 months for refineries.
Market Outlook
Unless the crisis escalates dramatically, the long-term outlook suggests:
- Short-term volatility followed by fundamentals-driven trading
- Limited systemic supply shock compared to oil markets
- Continued importance of monitoring Middle Eastern developments
- Potential for supply chain reconfiguration if tensions persist
- Gradual price normalization as alternative supply routes develop
Following the 2018 sanctions, UAE producers accelerated supply partnerships with India, demonstrating the industry's ability to adapt to geopolitical challenges.
Strategic Considerations
Market participants should consider:
- Reviewing supply chain diversification strategies
- Evaluating inventory management policies during geopolitical events
- Assessing hedging strategies for periods of heightened volatility
- Monitoring regional premium divergence for arbitrage opportunities
- Preparing contingency plans for various disruption scenarios
These steps can help mitigate risks while potentially identifying opportunities that emerge during market dislocations.
What Should Market Participants Watch For?
Key Indicators
Several indicators will signal how the situation evolves:
- Military deployments and naval movements near the strait
- Official statements from Iranian and US authorities
- Insurance rates for vessels transiting the region
- Shipping traffic patterns and vessel tracking data
- Inventory builds at Middle Eastern production facilities
- Premium developments across different regions
- Changes in freight rates for alternative shipping routes
Real-time monitoring of these indicators can provide early warning of escalation or de-escalation.
Early Warning Signs
Potential escalation signals include:
- Increased naval presence or military exercises
- Implementation of selective shipping inspections
- Rising maritime insurance premiums
- Rerouting announcements from major shipping companies
- Production curtailment announcements from Middle Eastern smelters
These indicators typically precede actual supply disruptions and can provide valuable lead time for contingency planning.
FAQs About the Strait of Hormuz Crisis and Aluminium Markets
How much of global aluminium production comes from the Middle East?
The Middle East accounts for approximately 23% of global primary aluminium production, with an annual capacity of around 6.92 million tonnes. In 2024, these countries exported 5.14 million tonnes, representing 75.2% of their total production.
Which countries are most vulnerable to aluminium supply disruptions?
European countries face the highest vulnerability due to their 18.8% import dependence on Middle Eastern aluminium (1.2 million tonnes in 2023). The US has moderate exposure at 16.3% of imports (640,000 tonnes in 2024), while Asian countries have varying levels of dependency but more alternative supply options.
How does this crisis compare to previous Strait of Hormuz tensions?
While threats to close the strait have occurred multiple times over four decades, Iran has never implemented a full closure. The current situation follows a similar pattern of heightened rhetoric during periods of geopolitical confrontation, suggesting that while disruptions are possible, a complete blockade remains unlikely.
What would happen to aluminium prices in a worst-case scenario?
In the unlikely event of a prolonged, complete blockade, approximately 23% of global aluminium supply would be removed from the market, potentially causing significant price spikes. However, the more probable scenario of temporary disruptions would likely result in short-term volatility followed by a return to fundamentals-driven trading.
How would China's aluminium market be affected?
China, producing nearly 60% of global primary aluminium, has minimal direct reliance on Middle Eastern metal. The main impact would come through global price transmission, with SHFE prices likely rallying alongside international benchmarks, though domestic supply would remain stable.
Conclusion: Navigating Uncertainty in the Aluminium Market
The Strait of Hormuz situation represents a significant but manageable risk to global aluminium markets. While the immediate response has been price volatility and risk premium increases, historical precedent and strategic realities suggest a full, prolonged blockade remains unlikely.
The global aluminium supply chain—particularly outside the Middle East—demonstrates considerable resilience and adaptability. Regional impacts would vary significantly, with Europe facing the greatest potential disruption while China remains relatively insulated from direct supply effects.
Market participants should prepare for continued volatility while recognizing that, absent a major escalation, fundamental supply-demand dynamics will likely reassert themselves over time. The situation underscores the importance of supply chain diversification and strategic inventory management during periods of geopolitical uncertainty.
"The aluminium industry's geographic diversification provides inherent resilience against regional disruptions, though the Strait of Hormuz represents a uniquely concentrated risk point." – SMM strategic review
For traders, manufacturers, and other stakeholders, this crisis highlights the value of maintaining flexible sourcing strategies and sufficient inventory buffers to weather geopolitical storms. While the impact of a strait of Hormuz blockade and its impact on the global aluminium market would be significant, the global aluminium market has demonstrated its ability to adapt to similar challenges in the past.
Furthermore, the Saudi Arabia exploration activities and growing OPEC oil market influence could play crucial roles in how the region responds to any prolonged crisis. Meanwhile, ongoing trade war impacts between major economies add another layer of complexity to an already volatile situation.
Disclaimer: This analysis reflects market conditions as of June 2025 and is subject to change as the geopolitical situation evolves. All forecasts involve uncertainty, and actual outcomes may differ from those projected.
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