Middle East escalation and its implications for the Russian steel industry

The implications for Russian steel producers will depend less on immediate trade volumes and more on how energy markets, transport infrastructure, and political scenarios evolve over the coming months and years.

Trade Structure and the North–South Corridor

In 2025, trade turnover between Russia and Iran reached $47 billion. A substantial share of this trade moves through the International North–South Transport Corridor (INSTC), with total cargo volumes of approximately 20 million tons. The bulk of shipments consist of grain, fertilizers, timber, and metals, and roughly 85% of the cargo flow represents Russian exports to Iran.

Despite this, transit traffic through Iran remains limited, largely due to sanctions-related compliance risks and restrictions affecting buyers and financial institutions. Container traffic in 2025 stood at approximately 11,000 TEU, modest by international standards.

In the short term, baseline trade volumes between Russia and Iran are likely to remain stable. However, rising geopolitical risk could increase insurance premiums, freight rates, and logistical uncertainty. For Russian steel exporters, higher transportation costs and longer delivery routes may compress margins, especially in price-sensitive markets.

At the same time, disruption of traditional maritime routes, including potential rerouting away from the Suez Canal, could increase the strategic importance of overland and Eurasian corridors, potentially benefiting Russia’s broader transit positioning.

Energy Markets and Cost Dynamics

The most immediate global impact of Middle East escalation is typically observed in oil and gas markets. Risks to navigation through the Strait of Hormuz affect not only Iran but also major Gulf exporters.

For the Russian steel industry, the consequences are complex:

• Higher global energy prices can raise production costs for steelmakers in competing regions.

• However, elevated energy prices may also dampen global industrial demand, putting downward pressure on finished steel prices.

• Increased volatility in energy markets can lead to uncertainty about input costs, investment planning, and export competitiveness.

Thus, the net effect on Russian steel producers will depend on whether cost advantages outweigh potential demand contraction.

Political Scenarios in Iran: Medium and Long-Term Considerations

Over the medium term, the political trajectory of Iran will be a decisive variable.

If a government more aligned with the United States were to take power, sanctions could be eased, potentially enabling Iran to rapidly expand its oil and especially natural gas exports. Given that Iran’s gas reserves are comparable in scale to Russia’s, the removal of technological and financial constraints could transform Iran into a stronger competitor in global energy markets.

For Russia, intensified competition in energy exports could affect federal revenues, currency dynamics, and indirectly the investment environment for heavy industry, including steel.

Conversely, if the current political framework remains in place and sanctions persist, Iran’s infrastructure development is likely to continue at a limited pace. Under this scenario, Russia–Iran trade would likely grow gradually, broadly in line with inflation, while transit capacity expansion would remain constrained.

Logistics Costs and Structural Risks

In the near term, several structural risks emerge for the Russian steel industry:

1. Rising freight rates and insurance costs due to regional instability.

2. Increased delivery times and route uncertainty.

3. Limited expansion of transit flows through Iran due to sanctions and compliance concerns.

4. Potential contraction in containerized trade if subsidies decline or logistical risks intensify.

While these factors may not immediately reduce export volumes, they can erode margins and reduce flexibility in destination markets.

The Russian steel industry is unlikely to face direct demand shocks from the Middle East escalation. Instead, the impact will be transmitted indirectly through energy price volatility, logistics costs, geopolitical risk premiums, and long-term shifts in transit and energy competition.

In the short term, trade volumes between Russia and Iran are expected to remain broadly intact, though transportation costs will likely increase. In the medium to long term, Iran’s political trajectory and infrastructure development will be critical determinants of regional trade architecture.

For Russian steel producers, the key challenge will be managing cost volatility while preserving export competitiveness in an increasingly fragmented and politically sensitive global market.