Increasing geopolitical tensions in the Persian Gulf region and disruptions in liquefied natural gas (LNG) supply have raised concerns about energy supply in the upcoming cold months. This situation has created serious challenges for Iran's steel industry, which is heavily reliant on natural gas.
Impact of Regional Tensions on the LNG Supply Chain
Disruptions in the Strait of Hormuz since February 28 and military attacks on key energy facilities in March have increased pressure on the LNG supply chain. Israel's attack on South Pars and Iran's response to the Ras Laffan facilities in Qatar are among the significant events in this regard. Estimates indicate that LNG exports from the Persian Gulf region have decreased by about 80 percent compared to last year, which could affect the balance of supply and demand in global markets.
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Price Changes and Gas Supply in Europe
The current gas market situation in Europe differs from the energy crisis of 2022. Currently, gas prices on the TTF index are reported to be around 90 euros, while this rate exceeded 300 euros during the previous crisis. Additionally, the level of gas storage in Europe has reached 74.6 percent, down from over 90 percent last year. This situation could lead to rising prices and increased pressure on energy-intensive industries.
Natural gas is one of the main inputs for sponge iron production in Iran. In the direct reduction process, gas not only provides energy but also plays a crucial role in converting pellets into sponge iron. Therefore, changes in gas prices can directly affect the cost of production.
In this context, the increase in gas rates for reduction units from spring to September 2026 is reported to be about 66 percent. Furthermore, the share of gas in the cost of sponge iron production may reach about 20 percent, which, if realized, could put additional pressure on production costs.
As winter approaches, revising gas pricing policies has become one of the proposed measures to alleviate pressure on the steel industry. Among these proposals are the removal of European hubs from the gas pricing formula and ensuring a minimum gas supply for operational units in winter.
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