Iran Conflict Disrupts Sulphur Supply to Indonesian Nickel Refineries - 2026

The escalation of the military conflict between the United States, Israel, and Iran starting on February 28, 2026, has created a severe disruption to the global sulphur supply chain, directly threatening nickel production in Indonesia, the world's largest nickel-producing country.

Sulphur is a critical raw material used to manufacture sulphuric acid, an essential chemical in the High-Pressure Acid Leaching (HPAL) process employed by Indonesian nickel refineries to extract metals from laterite ore. Indonesia sources approximately 75% of its sulphur imports from the Middle East, making the country highly vulnerable to any disruption in shipping through the Strait of Hormuz.

Since the outbreak of Operation Epic Fury on February 28, Iran's Islamic Revolutionary Guard Corps (IRGC) effectively halted commercial shipping through the Strait of Hormuz by issuing warnings and launching attacks on vessels. Tanker traffic dropped by roughly 70% within days and soon came to a near-complete standstill. The strait handles around 20% of global seaborne oil trade and is a major route for bulk chemical shipments, including sulphur from producers in Saudi Arabia, the UAE, Qatar, and Iran.

Before the conflict, the Middle East accounted for about 24% of global sulphur output, estimated at 83.87 million metric tons in 2025 by the U.S. Geological Survey. Sulphur prices had already climbed to approximately $500 per ton due to strong demand and tightening supply. Since the war began, indicative prices have risen an additional 10-15%, according to CRU analyst Peter Harrisson.

Indonesia is home to more than 50% of global nickel production. Its nickel output is primarily used in stainless steel manufacturing and, increasingly, in battery-grade materials for electric vehicles. Sulphur costs already represented roughly half the operating expenses of an HPAL plant before the crisis, according to Marco Martins, an analyst at Project Blue. With stockpiles at Indonesian HPAL facilities averaging only one to two months of consumption, production cuts could begin as early as April 2026 if shipping remains disrupted.

The situation is compounded by Indonesia's own policy decisions. In late 2025 and early 2026, the Indonesian government significantly reduced nickel ore mining quotas (RKAB) from 379 million wet metric tons in 2025 to approximately 260 million for 2026. The world's largest nickel mine, PT Weda Bay Nickel, saw its quota slashed by 71%. These measures were designed to curb oversupply and support prices, but combined with the sulphur shortage, they threaten to push HPAL plant utilization down to 70-75% capacity, from around 90% in 2025.

Importantly, the sulphur supply crisis does not affect all nickel-producing nations equally. The vulnerability is specific to Indonesia's laterite nickel operations, which rely on the HPAL chemical leaching process. Other major producers use fundamentally different extraction methods. Russia's Nornickel, the world's largest nickel-producing company with approximately 210,000 tons of annual output, mines sulphide nickel deposits and processes them through pyrometallurgy, a high-temperature smelting technique that does not require sulphuric acid. The same applies to Canadian operations such as the Crawford project in Ontario and to Australian sulphide mines. The Philippines, the second-largest nickel producer at around 330,000 tons per year, primarily exports raw laterite ore to China and Indonesia for processing, with minimal domestic refining capacity. Philippine mining operations are currently more affected by seasonal weather disruptions, including heavy rainfall in Mindanao's key mining regions of Surigao and Caraga, than by the Middle Eastern conflict. New Caledonia and South Africa also operate largely outside the HPAL supply chain. This distinction underscores why the crisis is so heavily concentrated on Indonesia: it is the only country that combines massive nickel refining capacity with near-total dependence on imported Middle Eastern sulphur for its chemical processing plants.

The scramble for alternative sulphur supplies is intensifying global competition. Indonesian nickel refiners are now competing directly with copper producers in Africa, particularly in the Democratic Republic of the Congo and Zambia, as well as fertiliser manufacturers worldwide, all of whom depend on Middle Eastern sulphur. The DRC imported between 1.3 and 1.4 million tons of sulphur in 2025, mainly from the Middle East, to support copper extraction. In southern Africa, existing sulphur stockpiles of around 900,000 tons are expected to last only a few weeks.

Some copper operations are partially insulated. First Quantum Minerals' Zambian operations produce their own sulphuric acid from on-site copper smelters. Similarly, Ivanhoe Mines and Zijin Mining operate a sulphuric acid plant producing 1,200 tons per day at the Kamoa-Kakula copper project in the DRC. However, many miners remain dependent on purchased sulphur and face mounting supply risks.

If the Strait of Hormuz disruption persists beyond two weeks, analysts warn that industrial consumers will be forced to either defer production or significantly slow operations. According to CRU, vessel flow constraints would make it inevitable for consumption to either be postponed or reduced across nickel, copper, and fertiliser sectors.

A prolonged nickel supply disruption would have cascading effects across multiple industries. Stainless steel, which accounts for roughly 70% of global nickel demand, would face rising input costs, impacting construction, food processing equipment, and industrial machinery. The electric vehicle battery sector, which relies on nickel-rich cathode chemistries for high-energy-density batteries, could see production delays and higher costs, potentially slowing EV adoption globally. Aerospace and defense applications using nickel-based superalloys would also be affected. Consumer electronics, medical devices, and power generation equipment all depend on nickel components.

Nickel prices on the London Metal Exchange have been volatile throughout early 2026. After trading around $15,000 per ton for much of 2025, prices surged above $18,000 in January 2026 following Indonesia's quota cuts. The added pressure from the Gulf conflict and sulphur shortages could push prices significantly higher if physical supply tightens further. Some analysts suggest that sustained disruption could eventually test the $20,000-$22,000 per ton range.

The situation highlights a critical vulnerability in the global nickel supply chain: the concentration of both mining capacity in Indonesia and key chemical inputs from the Middle East. Any prolonged conflict affecting Strait of Hormuz transit could trigger a genuine physical shortage, reversing the surplus conditions that had depressed nickel markets for several years.