The Russia-Ukraine war, while having a devastating humanitarian impact, presents an opportunity for Iran’s mining sector to grow, says Mohammad Reza Bahraman, chairman of Iran Mine House, in an article for the Persian economic daily Donya-e-Eqtesad. A translation of the text follows:
World War II, which began in 1939 after a series of political disputes among European countries, affected the beginning of Iran’s industrialization in two phases. It slowed down and disrupted Iran’s international trade. The first phase spanned from the start of the war to the occupation of Iran in September 1941 and the second phase began after the occupation of Iran by the Allied Forces.
At that time, Iran needed German industries and specialists to establish, equip and maintain its fledgling industries. Severance of ties with Germany as a result of the British naval siege of the country threw the Iranian industry, which had become dependent on German industries, in crisis.
Later, the occupation of Iran by the Allied Forces led to the closure of Iran’s factories. Iranian statesmen tried to find new ways of importing industrial and military equipment from the very first days of the war.
Importance of International North-South Corridor
Today, the experiences of World War II and the development of the International North-South Transportation Corridor are of vital importance to our country; it will also form the backbone of the development of Eurasian Economic Union and Iran. This corridor is the shortest route from Europe to South and Southeast Asian countries through Iran and Russia; it is of great importance for these countries.
The INSTC agreement, signed by road and transport ministers of Iran, India and Russia in St. Petersburg in September 2000, envisions the establishment of a freight route from India to Northern European countries. It connects the countries of Northern Europe and Russia to Iran and the Caspian Sea, and then to the Indian Ocean littoral states, the Persian Gulf and South Asia.
Instability in the Middle East and insecurity of sea routes have increased the importance of replacing the Suez Canal with the north-south corridor. This railroad branches out from China to India to Pakistan and then into Iran to Gilan Province (Rasht); the only missing link is the 170-kilometer Rasht-Astara section, which is yet to be built.
Wide-Ranging Impact
The developments of recent months in Europe and Russia and clashes between Russia and Ukraine are likely to have a significant impact on food, mining and energy industries.
Russia-US relations have been volatile in recent years; issues such as expansion of the West’s influence in the vicinity of Russia, the geopolitics of energy transmission lines, the deployment of the US-NATO missile defense system to Eastern Europe and North Korea’s nuclear ambitions have affected Russia-US relations immensely.
The crisis in Ukraine and Europe can be considered a turning point in Russia-US relations; it is the culmination of geopolitical rivalries between the two sides. The international aspect of the new crisis in Europe and Russia will have profound consequences for international relations, especially in Europe and Asia.
Ukraine has grappled with numerous crises since its independence, particularly in 2014 and the US-Russia confrontation over it. These crises have their roots in the Russian-American rivalry over the Orange, Blue and Red revolutions. The 2014 crisis strengthened Moscow-Tehran relations.
But now, at a time when the world is facing the escalating war between Russia and Ukraine, we see an unexpected rise in commodity prices, especially prices of food and minerals. Following the conflict’s impact on market developments, minerals are expected to become the suppliers of energy for European countries and instruments for creating a new world order.
At the beginning of the Ukraine-Russia war, the director of global macro-research at Oxford Economics predicted the world economy would shrink by about 0.2%, from 4% to 3.8%, but this was only probable if the conflict did not turn into a war of attrition. Obviously, if we see a longer war in the future, its effects on the global economy will be even more catastrophic.
A Full-Blown Energy Crisis
Under the current conditions, the world is on the verge of a full-blown energy crisis.
In a report entitled “The Role of Vital Minerals in Clean Energy Transmission”, the International Energy Agency says the quick implementation of clean energy technologies is likely to lead to a shortage of some non-ferrous, rare metals and consequently the likely shortage of vital minerals such as copper, cobalt, nickel, lithium, coal, rare earth metals and aluminum.
Over the past 20 years, Ukraine and Russia have supplied raw materials needed by many industries, especially food and minerals; the escalation of sanctions on Russia and the continuation of the war in Ukraine is bound to have a significant impact on the supply chain of the global mining industry.
With the production of 178,000 tons of nickel per year, the Russian company Nornickel is the world’s top producer of nickel; it now meets the needs of many alloy industries in the world. Nickel is now called a silent life-saving product, especially in the steel industry. It is used as one of the key metals in the global transition to clean energy and also plays a key role in electric car batteries.
Nornickel produces 68% of the nickel in the world. Following the war in Ukraine and sanctions on Russia, the prices of this basic metal increased by more than 70%, which marks the highest rise in the past 11 years.
Russia is a leading producer of copper, nickel, platinum and other minerals that are crucial to the building of a low-carbon future. The world is planning to move away from fossil fuels; this requires the establishment of new sources of energy and a great deal of special metals, many of which Russia produces.
Therefore, having access to these mineral products will become difficult in the future thanks to sanctions imposed on Russia. As a result of the war in Ukraine and the economic impacts of the pandemic, high prices of metals (metallic minerals) have so far outpaced inflation. The rise in prices is partly to blame on supply constraints associated with the pandemic and the labor market downturn, and partly on Russia’s decision to cut off energy supplies to European countries in response to their sanctions.
Note that energy accounts for 20-25% of the operating costs in mining, so we will definitely see a sharp rise in prices for minerals, especially metals, in the very near future. The sharp rise in energy and raw material prices today, with $110 oil and the price of a megawatt hour of gas exceeding €200 in Europe, will have adverse effects on European countries.
The International Monetary Fund predicts that “price increase around the world will affect low-income households in particular, with food and energy costs accounting for more than their average budget”.
In addition to energy prices, the prices of wheat and corn are also skyrocketing because Ukraine is an important supplier of agricultural raw materials to Europe, Asia and even Iran.
Today, amid the Russia-Ukraine war, mining companies are profiting from the rise in prices, but they will soon see high inflation, which could hit short-term demand and ruin their development plans.
Ukraine is one of the largest producers and exporters of iron ore in the world. According to statistics provided by the country in January 2022 and verified by the United States Geological Survey, Ukraine is the second largest owner of iron ore reserves.
Given the destruction to Ukraine’s infrastructures, the country won’t be able to meet its commitments regarding the steel industry. This is an opportunity for Iran to win some of the markets of this country. Ukraine’s main exports have been to Europe; therefore, European steelmakers will certainly suffer the most.
This is while Iranian policies are detrimental to the development of the country’s mining industry. We need to take advantage of the opportunities arising from the conflicts between Europe and Russia. Our strategies should be defined to increase our share in exports and foreign-source revenues.
