The Iran war and sulphur markets

The strikes, which began on February 28th, have led to retaliation from Iran, initially striking at bases and petrochemical facilities in neighbouring Gulf states, before beginning to concentrate on shipping, especially around the strategically vital Strait of Hormuz. The length of the campaign remains uncertain on both sides, but for the time being the Strait is effectively closed, with no seaborne cargoes transiting and maritime insurance unavailable. Iran has warned of attacks on any vessels passing through the Strait of Hormuz, adding that “not a single litre of oil will be exported to hostile parties or their partners until further notice”. IRGC Navy official Mohammad Akbarzadeh said the Strait of Hormuz was under “full control” of the Revolutionary Guard’s naval forces on 4th March. The UK Maritime Trade Operations (UKMTO) says that it has received 17 reports of incidents affecting vessels operating in and around the Arabian Gulf, Strait of Hormuz and Gulf of Oman between 28 February and 11 March. A cargo ship has caught fire in the Hormuz Strait and three vessels were hit by ‘unknown projectiles’ on 11 March.

LNG

One of the major effects has been on LNG cargoes. The strike at the Ras Laffan facility in Qatar has shut down production there, and QatarEnergy has declared force majeure and shut down LNG operations. Even if all hostilities were to end tomorrow, Qatari LNG shipments would not be able to resume for 5-6 weeks. One rapid knock-on effect of this was that India invoked emergency measures to cut natural gas supplies to its fertilizer industry, forcing the sector to operate at approximately 70% of recent capacity, according to a 9 March government order. Under the new regulation, fertilizer plants have been designated a “second priority” and will receive 70% of their average gas consumption over the past six months. Top priority is given to households and transport fuel, which will receive 100% supply.

The impact has been felt in gas markets worldwide, with gas prices for April delivery on the Dutch TTF hub reaching €50/MWh. To rein in energy price rises, the European Union is considering a natural gas price cap or subsidies, the European Commission President Ursula von der Leyen told MEPs in Strasbourg on 11 March.

Oil

The International Energy Agency said it will release 400 million barrels of emergency oil stocks held by its members – the largest release in its history and about a third of total public emergency reserves. Brent crude and European natural-gas prices climbed, despite the news, with Brent increasing to near $93/barrel. Lost production via Hormuz is around 15 million barrels/day, according to some estimates, and the IEA release amounts to about 5 million barrels/day through March.

On the other hand, Iran is exporting more oil through the Strait of Hormuz than before the war, according to the Wall Street Journal, citing Kpler data. Over the week to March 11th, tankers have loaded a daily average of 2.1 million barrels of Iranian oil, higher than the 2 million barrels/ day Iran exported in February.

With storage rapidly filling up, oil production is being curtailed in Iraq, Kuwait, Bahrain and the UAE. If the current logistical situation persists, around 10-11 million bbl/d of potential oil supply (crude and refined products) will be prevented from reaching world markets.

Sulphur

CRU’s sulphur price forecast has been revised radically higher to reflect the unprecedented supply shock caused by the conflict in the Middle East. While the disruption is expected to be short-lived, the immediate paralysis of a region responsible for 48% of global seaborne trade has created extreme upside risk in the near term.

The immediate reaction saw Middle East producers roll over March contract prices, while buyers, already pushing back against poor affordability, retreated to the sidelines. This initially resulted in a frozen physical market, with limited spot activity to guide price discovery.

The metals industry, particularly nickel producers, has much stronger margins and is expected to drive prices higher to maintain operations. In contrast, the phosphate industry has very limited capacity to absorb these higher costs and will be forced into significant demand destruction. Furthermore, buyers in Indonesia and southern Africa likely have two to three months of inventory, allowing these consumers to avoid rushing into the spot market. The eventual peak of the market will therefore be determined by the price the metals sector is willing to pay.

When shipping through Hormuz resumes, the market will have to contend with a massive volume of pent-up supply. With Middle East producers currently accumulating an estimated 40,000 t/ day of inventory, the downward pressure on prices will be immense. While logistical challenges will temper the speed of this correction, producers will be keen to reduce stocks, likely leading to a sharp price drop once trade flows normalise.

Despite the overwhelmingly bullish narrative, a few bearish developments are providing very minor relief. In Indonesia, the temporary shutdown of four nickel plants following a fatal landslide is expected to cut sulphur demand by an estimated 50,000 t/month, weakening a key demand sector. Additionally, some minor supply relief is expected, but it will not be enough to balance the market. The end of Russia’s export ban on 31 March should add around 100,000 t/month, a fraction of the Middle East’s lost volume, and this supply carries its own infrastructure risks. Compounding the tightness, severe Baltic Sea ice is also slowing exports from Russian ports, a bottleneck that will ease as the weather warms.

In China, the country is expected to rely heavily on its substantial port inventories of more than 1.7 million tonnes, effectively largely withdrawing as a major buyer from the international spot market in the near term. While this demand destruction will not be enough to halt the global price surge driven by the metals sector, the absence of the world’s largest importer will act as an additional drag on the market.

Interest has naturally turned to alternative supply sources, particularly North America, but buyers are finding limited relief. Producers in both Canada and the US Gulf are reportedly well-committed for March and April loading, leaving little to no spot availability to meet the sudden surge in new enquiries. This lack of a viable alternative supply outlet is a key factor supporting the extreme upward price forecast, as it removes a potential escape valve for the market.

Sulphuric acid

The primary market impact from the Middle East conflict has been logistical. Rerouted cargoes originally destined for Saudi Arabia’s Maaden have created unexpected prompt availability, putting a temporary ceiling on any intense price surge. While the sulphur crisis is prompting some to look to acid as an alternative, overall acid supply is limited to solve the larger potential sulphur deficit, giving major buyers little incentive to enter the spot market. It is also expected that Morocco will not return to buy large acid volumes in response to the sulphur shortage, as availability is tight.

Looking ahead, significant bearish pressure is building in Indonesia. Following a fatal landslide, four Chinese-operated nickel plants have ceased operations, including the 1.5 million t/a PT QMB facility. The shutdowns are expected to remove around 260,000 t of monthly acid demand from the market for up to three months, creating a significant pocket of weakness in the Asian seaborne market.

The long-term supply landscape is set to shift significantly with the anticipated return of several major smelter operations in 2H 2026. Increased output from facilities, including Freeport’s Manyar smelter (1.6 million t/a), the Gresik operation (1.2 million t/a), and Amman Mineral’s Sumbawa smelter (900,000 t/a), is expected to add an estimated 0.5-0.7 million tonnes of additional by-product acid supply in the second half of the year alone. This increase in domestic production will lower the country’s import requirements.

Escalating disruption across Middle East shipping routes is beginning to feed through into sulphur supply chains, with implications for sulphuric acid availability into southern Africa and elevating near-term risk to DRC SXEW acid supply. While sulphur production may continue, constrained logistics can still translate into delayed arrivals, tighter spot availability and a higher probability of operational disruption for consumers that depend on imported sulphur and sulphur-derived acid.

Copper production in the DRC is particularly exposed to sulphur availability because a large share of its acid supply is generated via sulphur burning. An estimated 3.6 million t/a of sulphur-burned acid production is reliant on imported sulphur flows, which are heavily linked to trade in the Middle East.

The realised impact depends on how long disruption persists versus inventory cover, how intermittent the disruption is (partial flow versus full stoppage), and the availability of mitigation options such as alternative imports, domestic/by-product acid and logistics flexibility. It is estimated that there is 600–800,000 tonnes of elemental sulphur in the regional chain (~60% at ports), implying about two to three months’ stock on paper. However, consumers need to begin replenishing within one to two months to avoid tightening.

Zambia’s exposure profile differs. From a copper-output perspective, it is typically less directly exposed to sulphur import disruption as a large portion of its copper production is derived from sulphide ores through the smelting of concentrates. Moreover, the country is a net exporter of sulphuric acid, with flows primarily into the DRC. This trade linkage creates a second layer of risk for the DRC. If Zambian exports tighten, the DRC loses an important regional balancing source of acid.

Phosphates

The Strait of Hormuz closure removes supply from Saudi Arabia, the source of around a fifth of global traded DAP/MAP supply. China had already temporarily halted DAP, MAP, and NP exports until August 2026, suggesting even tighter global P2O5 availability in 2026, when the country’s P2O5 exports increased despite exceptionally low DAP/MAP volumes. As sulphur prices are set to remain high and limit potential for decreases in domestic Chinese phosphates prices, exports from China are now only expected to return around September, with only around 1 million tonnes of DAP/MAP exports expected, down from 5.4 million t/a last year, which was already a 12-year low.

Tight availability and high prices for raw materials may also lead to production constraints in other regions. Morocco’s OCP is also heavily reliant on raw materials from the Middle East.

Where now?

At the moment it remains unclear as to how long the war and associated disruption will last; will it be a short-lived disruption, a longer, deeper disruption, or could there be wider regional escalation? At present the single most likely outcome is a de-escalation in the next few weeks, as domestic political pressure on president Trump builds as higher oil prices feed through to pump prices, and he chooses to end airstrikes (probably declaring that military objectives have been reached). However, there are serious risks of disruption continuing for longer. Even if president Trump decides to end military action, ending disruption to shipping through Hormuz is not immediately within his control. Either Israel or Iran may seek to continue action.

The probability of further escalation – with energy infrastructure severely damaged on both sides – has probably reduced somewhat, with Iran stating over the weekend that it will no longer attack the infrastructure of its neighbours, and with a wind-down of US military operations looking more likely. However, this risk – and the associated risk of Iran collapsing or disintegrating as a state – have not disappeared.