As the war in Iran drags on, concerns are growing over what Oxford Economics describes as a "systemic, multi-channel supply shock" to the world's aluminum and steel markets.

According to data released by Oxford Economics on May 11, roughly half of aluminum smelting capacity in the Persian Gulf region is currently offline, representing as much as 5% of the global supply. Those disruptions are also expected to persist for the foreseeable future, given that fully restarting production would take anywhere between six and 12 months in a best case scenario.

"Given long restart timelines and power constraints, this points to a structural shock," said Oxford Economics lead economist Stephen Hare. "We expect deficits to persist into 2027, with limited scope for offsets elsewhere."

The Middle East accounts for around 7 million tonnes of aluminum smelting capacity each year, totaling 8-9% of the global supply. With several major smelters in the region either operating at reduced capacity or completely offline, global aluminum prices are now at multi-year highs. That's had direct impacts on a range of products that use aluminum in the manufacturing process, including vehicles, packing, construction, batteries and generators.

Iran is also the 10th largest producer of steel in the world, and U.S.-Israeli strikes have cut into a sizable portion of its capacity. The result has been tightened steel capacity for Middle Eastern neighbors that rely on Iran for its steel exports, Oxford Economics noted.