Strait of Hormuz Still in Flux: Six Months After Operation Epic Fury, Global Metals Market Faces Uncertainty

Six months after Operation Epic Fury sent shockwaves through the complex metals market, the Strait of Hormuz remains in a state of flux, with global markets still uncertain about whether it will truly reopen. Just days after two countries signed a memorandum of understanding on June 17, Iran's military declared the strait closed again, only for the Iranian Foreign Ministry later to inform state media that shipping was proceeding "normally."

Under the same agreement, Washington had until July 19 to completely lift the naval blockade, while Tehran only committed to making its "best efforts" to restore pre-war traffic flows. Basic metals spent the first half of the year pricing this very uncertainty. What is changing as we enter the second half of the year is which risks are actually moving the market.

The Basic Metals Market: From Euphoria to Despair

The London Metal Exchange (LME) index, the exchange's basket of six base metals, has oscillated between euphoria and despair and closed the first half of the year at a middling level. The dispersion beneath that figure tells the real story - metals with direct exposure to the Gulf are unwinding the war premium, while those without never needed it in the first place.

The London Metal Exchange (LME) has been a barometer of these geopolitical tensions, with different metals reacting according to their specific supply chain vulnerabilities. While the index as a whole has remained relatively stable, the underlying divergences reveal a market segmenting along geopolitical exposure lines.

Direct Impact on Aluminum Production

Missile attacks on metallurgical plants in the UAE and Bahrain damaged approximately 2 million tons of regional annual production from February to May, pushing LME 3-month aluminum prices to 4-year highs above $3,780/ton in early June. Much of that premium has been unwound as the market prices something resembling normalcy, even though oil flows through Hormuz remain years away from full recovery.

The closure of the strait squeezed sulfuric acid supplies, affecting leach producers, while collapsed terms for toll processing left refiners dependent on byproducts to survive. The ripple effects extended beyond immediate supply constraints to create structural shifts in regional processing capacity that may have long-term implications for aluminum markets.

Industry analysts note that the Gulf region represents approximately 15% of global aluminum smelting capacity, with the UAE and Bahrain being critical processing hubs. The disruption highlighted the vulnerability of specialized supply chains concentrated in geopolitically sensitive regions, prompting some manufacturers to reassess their geographic diversification strategies.

Copper: The Decisive Factor Shifting from Gulf to Washington

Copper prices peaked at $14,000/ton in June, within striking distance of January's record highs. But the real swing factor for copper now lies in Washington, not the Gulf.

Commerce Secretary Howard Lutnick reviewed the domestic refined copper market on June 30, expected to report to President Trump whether to impose tariffs beginning at 15% in January 2027, with the decision still pending. BNP Paribas metal strategist David Wilson noted that opposition remains "active and significant lobbying against tariffs," a sign that the outcome remains genuinely contested.

Copper's unique position as both a critical industrial metal and a geopolitical bellwether has made it particularly sensitive to policy decisions. The metal's price movements increasingly reflect trade policy considerations rather than traditional supply-demand fundamentals, creating a new paradigm for market participants.

The potential tariffs could reshape global copper flows, with significant implications for producers, consumers, and traders alike. Industry experts suggest that any implementation of such measures would trigger a realignment of supply chains, potentially accelerating the shift toward regionalized production and consumption patterns.

Analysis of Other Metals

• Zinc: Largely insulated from the conflict, it was the surprise performer of the first half, rising 14% in June due to an unexpected global deficit outside China. The zinc market has demonstrated remarkable resilience, with its price movements driven primarily by fundamental factors rather than geopolitical considerations.
• Nickel: Following Indonesian ore export quotas more than anything in the Gulf, it surged on production cuts before retreating on rumors of easing. The Indonesian export restrictions have emerged as the primary price driver, creating a supply-side dynamic that overshadows geopolitical tensions in other regions.
• Tin and Lead: Completely unaffected by the conflict, simply following their own fundamental factors - tin up 27% on structural supply tightness, lead down 7% on surplus and warehouse arbitrage. These metals have largely decoupled from the broader geopolitical narrative, trading on their own specific fundamentals.

The divergent performance of these metals highlights the increasing segmentation of the base metals market, with different segments responding to distinct drivers. This segmentation is likely to continue as the global economy faces multiple simultaneous challenges, from geopolitical tensions to energy transitions.

Future of the Basic Metals Market

As Vandana Hari of Vanda Insights noted, the strait "continues to reopen but it's patchy, unpredictable and not fully transparent." As that premium completely unwinds, base metals will trade as they always have - based on their own supply and demand fundamentals, and for copper, based on whatever Washington decides next.

Six months after tensions escalated in the Strait of Hormuz, the metals market remains in transition. While some metals have reacted to the relative normalization in maritime transport, geopolitical factors remain intact, with policy decisions in Washington potentially shaping copper's future - the geopolitically most sensitive metal.

Meanwhile, metals without direct links to the Gulf region continue to follow their own fundamental dynamics, suggesting the segmentation in the base metals market will continue through the second half of the year.

Market participants are increasingly focusing on the interplay between traditional fundamentals and geopolitical considerations as they navigate the complex landscape of modern metals trading. The coming months will likely see continued volatility as these various factors interact and potentially reinforce or offset each other.