The Iran war is exposing the fragility of the Lithium‑Ion battery supply chain

The ongoing conflict involving Iran has significantly disrupted the Strait of Hormuz, a critical shipping corridor responsible for nearly 30% of global oil flows, leading to a sharp rise in energy and logistics costs. This disruption is acting as a financial stress test for the electric vehicle battery sector, impacting everything from raw material refining to the manufacturing of finished cells. As oil prices surge and shipping lanes are rerouted, the industry faces increased production costs and potential shortages of essential chemical components like sulfuric acid and naphtha.

The disruption of the Strait of Hormuz has forced a massive rerouting of global shipping, slashing oil supply by millions of barrels per day and driving prices to between $90 and $140 per barrel. For the electric vehicle sector, these inflated energy costs are directly impacting battery cell manufacturing; in Germany, S&P Global Mobility reports that gas-fired energy generation costs have risen by nearly 50%. For a prismatic NCM811/Gr cell, production costs are estimated at $103.4/kWh, with the energy component now representing approximately 5% of the total cost at $5.2/kWh. These rising overheads are placing additional pressure on manufacturers already grappling with a broader EV market slowdown and a push toward energy storage systems.

In response to high energy prices, the industry may see a temporary pivot from synthetic graphite, which requires high-energy inputs, toward natural graphite. Furthermore, the Rotary Kiln-Electric Furnace (RKEF) process used for nickel matte production—which accounted for 33% of light-vehicle high-voltage batteries last year—is highly sensitive to energy costs, potentially accelerating a shift toward hydrometallurgical processing. However, this transition is complicated by a tightening supply of sulfuric acid, a critical reagent for processing mixed hydroxide precipitate (MHP). Mainland China has reportedly banned sulfuric acid exports to secure its own supply, a move that particularly threatens Indonesia’s rapidly expanding nickel-processing infrastructure, which is highly dependent on these imports.

Beyond primary cathode materials, the conflict is destabilizing the supply of essential supporting components such as separators, electrolytes, and binders, which rely on naphtha. With Asia sourcing over 60% of its naphtha from the Gulf, the closure of the Strait of Hormuz is expected to trigger price spikes followed by potential factory shortages for these refined petroleum products. Additionally, aluminum prices have surged to over $3,700 per metric ton, up from under $3,000 in mid-February, further inflating the cost of battery hardware. These cumulative pressures underscore how geopolitical instability in the Middle East affects the entire EV value chain, from refined petroleum products to industrial chemical feedstocks and primary metals.