- Extended disruption in Hormuz could add 15-25% to freight costs
- Iran exported around 25 mnt of iron ore, over 12 mnt of steel, semis in CY’25
The conflict involving Iran, the United States, Israel, and the GCC countries has injected a clear geopolitical risk premium into global energy and shipping markets. Crude oil, LNG, and freight costs are rising simultaneously, transmitting cost pressure directly into steel and steel-related commodity markets.
Crude and bunker transmission
Brent crude has moved from the low $60s toward $mid-70s per barrel within days. This materially alters shipping cost structures. A $20 rise in crude can translate into a 25 to 35% increase in marine bunker fuel prices, depending on refining spreads and regional availability.
Because bunker fuel accounts for 40-60% of long-haul voyage costs, this magnitude of increase lifts total voyage expenses by low double digits. If rerouting around high-risk corridors adds 10-14 days to transit times, fuel consumption per voyage increases further, tightening effective vessel supply and supporting firmer freight rates.
Information from shipping market participants who spoke to BigMint indicates that bunker prices are expected to move higher following the crisis, with owners increasingly reluctant to enter the Persian Gulf until conditions stabilise. An extended disruption to Hormuz traffic could add 15-25% to freight costs and embed a $5-10 geopolitical risk premium in trades.
Insurance repricing and vessel hesitancy
Insurance markets are reacting in parallel. War risk premiums for Gulf port calls are reportedly rising by 100-200%, and some marine policies are under review or temporarily paused.
“We are still awaiting clarity on fresh offers, as suppliers are currently not offering material in the market. Most participants are adopting a wait-and-watch approach due to the prevailing uncertainty,” said the director of a Middle East scrap trading company.
“A key concern is the ongoing marine insurance situation. Several policies are reportedly under review or on hold, and there is strong speculation that war-risk premiums could increase by 100-200%. This has made exporters and shipping lines hesitant, further slowing activity,” he added.
Even without a formal closure, tanker hesitancy and higher war-risk insurance are tightening freight markets. “Even without a full closure, the risk perception itself is enough to tighten the market,” said a regional trader.
Energy infrastructure and LNG tightness
The Strait of Hormuz handles roughly 20% of global oil consumption and a similar share of LNG trade. Iranian supply accounts for about 5% of global oil output, and severe disruption could remove 1.5 to 2 million barrels per day under an extreme scenario.
Risk is no longer limited to transit. QatarEnergy has suspended LNG production at key facilities in Ras Laffan and Mesaieed following military attacks on energy infrastructure, tightening supply at one of the world’s largest LNG export hubs. Even precautionary shutdowns at such facilities materially reduce near-term availability and increase price sensitivity across Asian gas markets.
Under sustained disruption, crude could move toward $100 per barrel, while LNG prices could rise by up to 25%. If the conflict persists beyond a few weeks and materially constrains production and exports, some market participants expect crude to approach $120 per barrel. Higher crude widens oil–coal spreads, improving coal’s relative competitiveness.
Coal markets and supply constraints
Indonesian supply constraints are expected to persist at least through March, as Rencana Kerja dan Anggaran Biaya, known as RKAB, the annual mining work plan and budget approval required for Indonesian coal producers, faces delays in final approvals while Ramadan slows mine activity. Limited forward contracting adds to near-term tightness.
Extended disruption could push Australian 6,000 NAR coal toward $130/t, Indonesian low-grade coal above $65/t, particularly if LNG tightness accelerates substitution demand across Asia.
For Indian steelmakers, this feeds directly into coking coal and thermal coal import costs. Higher freight and insurance amplify the delivered price impact, tightening blast furnace margins.
EU DRI & steel prices may rise
Gas-based DRI producers face a parallel shock. Natural gas accounts for roughly 60-70% of cash costs at gas-based direct reduced iron plants, meaning that sustained LNG and regional gas price increases translate directly into higher production costs.
European DRI operators, already exposed to structurally elevated gas prices, would see further margin compression if LNG tightness persists. Middle East producers, despite domestic gas advantages, could face rising opportunity costs or volatility if regional energy infrastructure remains disrupted, narrowing their relative cost edge.
Scrap, ore, and regional steel flows
Freight inflation and insurance repricing also affect ferrous scrap and manganese ore flows into India. Higher bunker and insurance costs lift landed prices even if physical supply remains available.
Iran itself is a significant exporter of steel and raw materials. CY25 exports total roughly 24.8 million tonnes (mnt) of iron ore, 2 mnt of sponge iron, 7.8 mnt of semi-finished steel, 1.3 mnt of finished flat products, and 3.2 mnt of finished long products, according to BigMint data. Any sustained disruption to regional trade flows would therefore affect both input and finished steel supply chains.
“In the short term, prices may firm up if supply lines are disrupted. However, the larger concern is the actual physical availability of material rather than just paper price movements. Even if sentiment pushes prices higher, real trade will depend on logistics clarity and vessel movements,” said the owner of a north Indian secondary aluminium producer that imports from the Middle East.
Aluminium markets are also exposed. Gulf producers are expected to account for about 6.16 mnt of primary aluminium output in 2025, nearly 10% of global production. LME aluminium has already moved above $3,200/t, and export disruptions would tighten physical availability.
Impact on India
India imports nearly 90% of its crude, with 40-50% of volumes transiting Hormuz. Strategic petroleum reserves and commercial inventories cover about 74 days of consumption, providing short-term supply security but not insulation from higher prices.
Every sustained $1 per barrel increase in crude raises India’s annual import bill by roughly $2 billion. A $10 rise can widen the current account deficit by 30 to 50 basis points of GDP. Higher oil prices also pressure the rupee, increasing the local currency cost of coal, scrap, and ore imports and reinforcing inflation across industrial supply chains.
A prolonged 25% spike in crude could add around $15 billion to the import bill, lift inflation by roughly 0.7 percentage points, and trim about 0.2% from GDP growth.
Outlook
If tanker flows continue, the impact may remain confined to elevated freight and insurance costs that compress margins without halting trade. However, a sustained constraint on Hormuz transit or regional energy production would likely push crude toward $100 and potentially $120 per barrel, tightening LNG and coal markets simultaneously.
Under that scenario, Indian steelmakers would face sustained input cost inflation across coal, scrap and ore, with freight and energy reinforcing one another.
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