Europe’s aluminium sector faces supply, energy crisis amid Middle East conflict

• EU policies under scrutiny as aluminium costs rise
• Persian Gulf supplies 14% of EU aluminium imports

The ongoing Iran war has emerged as a major disruptor for Europe’s aluminium sector, intensifying existing structural challenges and threatening competitiveness across the region. Aluminium, a critical raw material for green technologies, automotive, construction, and defence, is central to Europe’s industrial ecosystem. The latest geopolitical tensions in the Middle East are exposing vulnerabilities in supply chains and driving up production costs, creating risks that could have long-term implications for the industry.

Gulf supply pressures push prices higher

The Persian Gulf produces around 6.8 million tonnes of primary aluminium annually, making it the world’s largest exporting region and a key supplier to global markets. The EU is significantly exposed to this supply, sourcing nearly 14% of its aluminium imports from the region.

Since the escalation of the conflict, aluminium prices on the London Metal Exchange (LME) have risen by approximately 7%, reflecting concerns over supply disruptions and market uncertainty. Curtailments of Gulf production, combined with partial shipping disruptions through the Strait of Hormuz, are tightening global supply and adding volatility to already fragile markets.

Energy costs amplify competitiveness challenges

Europe’s aluminium industry is also facing soaring energy costs. Gas prices have surged from around EUR 30/MWh to EUR 46/MWh, briefly spiking above EUR 60/MWh, while electricity prices in major European markets now range from EUR 80-120/MWh, up to three times higher than competing regions. For this energy-intensive sector, these costs have a direct impact on production economics.

Because aluminium is globally priced, European producers cannot pass these costs to buyers, putting pressure on margins and threatening industrial capacity. If current market conditions persist, further production curtailments or even plant closures are possible.

Structural challenges compound pressure

Europe has already lost nearly 50% of its primary aluminium production capacity since the energy crisis, weakening domestic supply. Meanwhile, increasing exports of aluminium scrap are impacting the recycling and transformation sector, jeopardising the circular economy and raw material security. This dual pressure on both primary and secondary aluminium segments threatens the stability of the entire value chain.

Policy action urgently needed

Policymakers are being urged to take targeted action to strengthen Europe’s aluminium sector. Recommendations include:

• Reducing energy costs to ensure globally competitive electricity prices for European production.
• Pausing or adjusting the 2026 ETS update to avoid additional cost pressure during volatile markets.
• Supporting the restart and long-term viability of primary aluminium production, including ETS cost compensation beyond 2030.
• “Stopping the clock” on CBAM for aluminium until its impact on competitiveness is fully assessed.
• Safeguarding downstream sectors that depend on stable, competitively priced metal supply.
• Implementing effective measures to prevent aluminium scrap leakage by Spring 2026.
• Aligning EU trade policy with industrial objectives to prevent asymmetrical market conditions.
• Ensuring the Industrial Accelerator Act (IAA) supports the entire European aluminium industry.

The way forward

The Iran war has acted as a catalyst, intensifying supply risks, price volatility, and cost pressures for Europe’s aluminium sector. The situation underscores the urgent need for timely policy intervention to stabilise markets, support domestic production, and safeguard the competitiveness of Europe’s aluminium value chain amid growing geopolitical uncertainty.