Middle East war: After oil and gas, concerns grow over minerals crunch

Until war erupted on 28 February with the Israeli-US bombing of Iran and counterstrikes across Gulf States, a wide range of key minerals and related products was available, according to the UN Economic Commission for Europe (UNECE).

But as the conflict goes on, the pressure has increased to obtain these same raw materials, to ensure the continuing production of everything from semiconductors to solar panels. 

The result has been higher prices on commodities markets and a potential pivot to new production sites where there’s less geopolitical uncertainty, increasing the number of countries that can process minerals such as rare earths.

Sulphur, helium and naphtha shock

“The impact of the Gulf War, it is not only in the energy market, it’s been impacting some sub-products coming from oil” such as sulphur, helium and naphtha – said Dario Liguti, Director of UNECE’s Sustainable Energy Division. 

All are byproducts of oil refining and used in a wide range of manufacturing applications, from fertilizers to insecticides, plastics and matches, along with cooling and semiconductor production. 

Naphtha is another byproduct of oil refining and a key building block of the chemicals industry.

“The first reaction – besides of course the increase in prices – will be industries lowering their use and therefore lowering their production…whether it’s solar panels, whether it’s magnets, whether it’s batteries, et cetera, going forward,” Mr. Liguti maintained.

Before the war, a full 30 per cent of the world’s production of sulphur – which is used in metals processing – transited through the Strait of Hormuz. 

But that was when some 140 ships per day transited the crucial trade waterway. Today, shipping is at a virtual standstill, following attacks on vessels and an ongoing stand-off between Iran and the US over use of the strait. 

If the conflict situation continues, shortages in key minerals “will become evident”, the UNECE official continued, forcing industry “to lower their production” of critical minerals used in renewable energy equipment and digital technology. 

“Therefore over time, that will have an increasing impact on prices first…and then secondly on the availability of that equipment.”

Today, industries that relied on supplies from the Strait of Hormuz “are using their existing stocks and they’re using the reserves and they’re ramping up production elsewhere”, Mr. Liguti said.

Hunt for new suppliers

He highlighted a “drive from many Member States around the world to secure those minerals” which will result in countries increasingly building “strategic stocks…to avoid a similar disruption in future.

“So far, the situation is being felt in some regional markets, particularly in South Asia and Southeast Asia, where there is a lot of refining and processing going on of these initial commodities. But over time, the geographical scope will become larger.”

In addition to the massive human cost of the war, the UNECE official noted how the oil and natural gas crisis also threatens to undermine the global shift to green energy sources.

“You can see how a crisis which is fundamentally focused on the old traditional fossil fuels sector, how that that impacts the new renewable energy, and the transition that we have been undertaking and we actually need to accelerate, as you know, as we are falling behind in the Paris 2030 targets”.

UNECE encompasses 56 Member States in Europe, North America and Asia; it is making efforts to align critical raw materials with the UN Sustainable Development Goals.