Iran War Disrupts Steel Abrasive Trade: Shipping Obstruction, Cost Surge, and Exchange Rate Volatility Create Dilemma in the Middle East

Following the US-Israeli military strike against Iran on February 28, 2026, Iran swiftly announced the closure of the Strait of Hormuz, instantly blockading a vital global artery for energy and trade. For China's steel Shot And Grit industry, this conflict is generating profound shocks through three distinct channels—shipping obstruction, cost transmission, and exchange rate fluctuations—significantly impacting the export trade landscape with the Middle East.

1. Shipping Market at a Standstill, Freight Costs Undermine Export Viability

The paralysis of the Strait of Hormuz has strangled the logistical lifeline for Chinese steel abrasive exports to the Middle East. As the sole maritime passage from the Persian Gulf to the Indian Ocean, the strait handles approximately 11% of the world's total seaborne trade. Following the conflict, numerous vessels became stranded in the open waters of the Persian Gulf, with no ships entering or exiting.

Major global shipping lines reacted swiftly: CMA CGM announced a war risk surcharge of $1,500–$3,000 per container, MSC followed with a $1,000 per container surcharge. HPL suspended all Middle East routes, and PIL stopped accepting new bookings. More critically, several P&I Clubs withdrew war risk insurance coverage.

For relatively low-value steel abrasives, the surge in freight has directly eroded their price competitiveness in export markets. Currently, over 60% of steel traders have suspended quotations for new orders on Middle East routes, effectively halting market activity. As Abrasive Media, steel shots and grits primarily supply industries like shipbuilding and oil and gas pipelines in countries such as Saudi Arabia and the UAE. These industries are heavily dependent on Persian Gulf ports, meaning the shipping obstruction translates into a significant risk of delayed order fulfillment.

2. Minimal Impact from Iranian Market, but Broader Middle East Under Significant Pressure

In terms of direct trade, the proportion of steel abrasive exports destined for Iran is extremely low. Referencing steel export data, China's steel exports to Iran in 2025 were only 267,000 tons, accounting for merely 0.22% of the national total. As a niche product category, the direct impact is negligible.

However, the real challenge lies in the indirect impact – the disruption affecting countries within the Persian Gulf whose access requires passage through the Strait of Hormuz. This includes Saudi Arabia, the UAE, Iraq, Kuwait, Qatar, and Bahrain. In 2025, China's total steel exports to these seven countries reached 12.35 million tons, representing 11.72% of total exports. Saudi Arabia alone accounted for 5.82 million tons, a year-on-year increase of 42.3%. As complementary consumables, the export flow of steel abrasives closely mirrors that of steel products. This means that over one-tenth of China's relevant export share is now facing obstruction risk.

3. Two-Way Exchange Rate Fluctuations and Cost Pressure

The Renminbi (RMB) has shown resilience, with banks seeing a net inflow of **$79.851 billion** from foreign exchange settlements and sales in January. Nevertheless, the **imported inflationary pressure from rising oil prices** is significant. Brent crude oil prices jumped from $67/barrel pre-conflict to $72.87/barrel. The steel industry is energy-intensive. Costs for traditional blast furnace steelmakers have accumulated increases of RMB 120-180 per ton, while electric arc furnace mills face cost hikes of RMB 160-220 per ton. For steel abrasive production, fuel costs account for over 30% of total costs. This cost-side pressure directly squeezes already thin profit margins.

The RMB has depreciated approximately 0.8% against the US dollar in the short term. This dual effect increases the cost of imported raw materials like iron ore, but also slightly enhances export price competitiveness. However, the core contradiction for exports is currently not price, but the logistical bottleneck: "orders exist but cannot be shipped."

4. Trade Dilemma: Order Freeze and Risk of Market Share Erosion

Orders for early-to-mid March that were booked in February have not yet been significantly affected. However, new orders booked in March and exports scheduled for April onward are directly facing the crisis. Scenario analysis suggests:

· If the stalemate lasts one month: New orders in March will be completely frozen. The average monthly impact on affected steel exports is approximately 1.1624 million tons.
· If the stalemate lasts two months: Middle Eastern buyers will move from a "wait-and-see" stance to actively seeking alternative sources from competitors like Turkey and India.
· If the stalemate lasts three months or more: Chinese steel abrasives would face the risk of permanent loss of market share in the Middle East.

It is worth noting that Iran, as the world's 10th largest steel producer, produced 31.8 million tons of crude steel in 2025. The conflict has halted Iran's own exports, creating a supply gap that could theoretically be filled by China. However, the shipping obstruction makes realizing this substitution impossible.

5. Future Outlook

The impact of the Iran war on the steel abrasive trade is characterized by "minimal direct impact, but significant indirect consequences." The shipping paralysis in the Strait of Hormuz has effectively crippled China's export channel to the seven Persian Gulf countries, with over ten percent of the relevant export share frozen. The industry must closely monitor three key variables: the status of navigation through the Strait of Hormuz, fluctuations in international oil prices, and changes in maritime freight rates. If the shipping standstill extends beyond one month, orders from April onward face significant default risks. If it persists for more than three months, the loss of market share in the Middle East could become permanent. Amidst this geopolitical storm, Chinese steel abrasive enterprises are undergoing a difficult transition from being "order-driven" to prioritizing "risk management."