EV Battery Costs Rise as Iran-Israel Conflict Hits Oil Price

With tensions between Israel and Iran rising, the ongoing impact of conflict extends beyond geopolitics. 

EVs supply chains, particularly those relying on oil-shipping routes and global energy markets, now face another layer of disruption. 

Oil markets typically react quickly to events in the Middle East, meaning that any potential disruption or uncertainty could quickly impact logistics and materials for EV production.

Oil shock hits global transport and energy

On 13 June, Israeli forces confirmed strikes on Iranian territory. 

This "pre-emptive strike" was described by Israeli officials as a response to Iran’s nuclear programme. 

That same day, the price of Brent crude, the international oil benchmark, spiked more than 10%, reaching US$73.12 a barrel - the highest since January. 

West Texas Intermediate, traded on the Nymex exchange in the US, followed suit at US$73.20.

Brent crude is a reference point used to price roughly two-thirds of the world’s oil trades. 

It now covers a blend of six oils, Brent, Forties, Oseberg, Ekofisk, Troll and Midland, originating from Europe and the US that are used as a pricing guide for exports across the Middle East, Africa and beyond.

Any instability in this region affects energy prices globally. Brent’s spike immediately triggered concern over logistics costs, critical for EV manufacturers relying on global supply chains. 

Battery minerals like lithium, cobalt and nickel are energy-intensive to transport and price hikes in fuel feed straight into freight costs.

"It's an explosive situation, albeit one that could be defused quickly as we saw in April and October last year, when Israel and Iran struck each other directly," says Vandana Hari, Founder and CEO of Vanda Insights, speaking to the BBC.

"It could also spiral out into a bigger war that disrupts Mideast oil supply."

Markets reacted sharply. The FTSE 100 dropped 0.6% after hitting a record high the day before. 

Across Asia, Japan’s Nikkei fell 1.3%, the Kospi in South Korea dropped 1.1% and Hong Kong’s Hang Seng lost 0.8%. 

European indices in Germany, France, Italy and Spain fell by more than 1%. US futures indicated further losses.

"We expect, absent a wider war, today's rise in prices will likely prove to be a sell-the-news event,” says Allen Good, Director of Equity Research at Morningstar.

"Oil markets remain amply supplied with OPEC set on increasing production and demand soft. 

“US production growth has been slowing, but could rebound in the face of sustained higher prices."

Allen also cautions: "Meanwhile, a larger war is unlikely, the Trump administration has already stated it remains committed to talks with Iran,”

"We expect a response from Iran, but it will likely be modest, like past retaliatory strikes and not spark a wider war. 

“Ultimately, fundamentals will dictate price, and they do not suggest much higher prices are necessary. Although the global risk premium could rise, keeping prices moderately higher than where they've been much of the year."

Strait of Hormuz in the spotlight

For EV companies watching fuel prices and shipping times, the key risk lies in the Strait of Hormuz.

This narrow waterway connects the Persian Gulf to the Arabian Sea and sees around 20% of the world’s oil shipments pass through its lanes, along with large volumes of liquefied natural gas (LNG). 

Iran controls the northern shoreline; Oman and the UAE the south.

Any attack or blockade here would create significant issues. 

The cost of bunker fuel, used in cargo ships, is already trending up, which can have a knock-on effect on sea freight charges for everything from battery packs to aluminium casings.

"There’s not just the outlook for Iranian exports that’s a concern but also the potential for disruption to shipping in the Persian Gulf’s Strait of Hormuz," says Derren Nathan, Head of Equity Research at Hargreaves Lansdown.

"It’s a key route for about 20% of global oil flows and an even higher proportion of liquified natural gas haulage."

A single day’s disruption would affect millions of barrels. With freight already under pressure from port backlogs and container shortages, EV manufacturers may need to prepare for alternative routes or longer delivery times.

Meanwhile, gold prices – a traditional hedge during geopolitical unrest – climbed 1.5% to US$34,434 an ounce. 

The Swiss franc and Japanese yen each gained 0.4% against the US dollar, while the dollar index rose 0.5%.

Aviation and ESG sectors take a hit

The situation also impacts air freight – a growing component of EV part transport. 

Airlines are now avoiding airspace above the region, leading to longer routes and delayed shipments. 

Shares in IAG, the owner of British Airways, and low-cost carrier easyJet fell more than 4%.

Defence shares are also seeing investor support - BAE Systems rose 3%, while oil majors BP and Shell gained around 2%. These modest increases reflect investor caution. 

Michael Field of Morningstar points out: "With sentiment negative towards the sector, energy is currently the cheapest sector in Europe."

That creates a challenge for ESG-aligned portfolios, which typically avoid fossil fuels.

"A serious military escalation in the Middle East could deal another blow to ESG funds, which have already been battling against poor performance and rising anti-ESG sentiment – particularly in the US," says Kenneth Lamont, Principal for Morningstar's Manager Research Department.

"Traditional sectors often excluded from ESG portfolios, such as defence and fossil fuels, are likely to benefit, widening the performance gap. 

“The recent EMSA ESG naming guidelines, which emphasise climate objectives for sustainable funds and have further curtained fossil fuel exposure, further cementing this divide.”

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