Goldman Sachs Warns Gulf Conflict Threatens Aluminum Supply Expansion Plans

Goldman Sachs, until recently the loudest bearish voice on aluminum, reversed course after Iranian strikes on March 28 knocked out two of the world's largest smelters: Emirates Global Aluminium's Al-Taweelah facility in Abu Dhabi and Aluminium Bahrain, known as Alba. The bank raised its second-quarter 2026 LME aluminum price forecast to $3,450 per metric ton from $3,200 and projected a 900,000-ton global supply deficit for the quarter, a sharp departure from the surplus it had been forecasting for most of 2025.

The Gulf's role in global aluminum supply makes the disruption structurally significant. The region accounts for roughly a fifth of global production outside China, with approximately 7 million tons of annual smelting capacity concentrated in the UAE, Bahrain, and Qatar. That base was already expected to expand: the Gulf had been identified as one of the few viable zones for large-scale capacity additions in the coming years, given access to cheap energy and proximity to Asian and European buyers. Goldman's co-head of China equities, Trina Chen, said in a Bloomberg Television interview that the conflict has materially complicated that expansion picture. The halt of EGA's Al-Taweelah plant alone removes one of the world's largest single-site operations from the supply chain for an indeterminate period.

Three interlocking failure points are tightening physical premiums simultaneously. Power grid damage at key Gulf production sites makes restart timelines opaque; aluminum smelting requires enormous, continuous energy input, and rebuilding grid capacity after precision strikes can run weeks to months. War risk surcharges are repricing shipping lanes through the Strait of Hormuz, with Maersk already suspending India-Upper Gulf bookings and maritime insurers applying conflict premiums to all Gulf-origin bulk cargo. Port access at Jebel Ali in the UAE, the ninth-largest port globally, has also been disrupted, meaning existing stock cannot move even where production remains intact.

Markets absorbed the news faster than analysts could publish. LME cash contracts hit a $61.23 premium over three-month futures on March 27, the widest backwardation since 2007, before settling at a $47.21 premium on March 30. Three-month aluminum closed at $3,585 per ton on March 31, a four-year high. More than 150,000 tonnes of metal registered on the LME have since been pulled from warehouses, draining whatever physical buffer the market held entering the conflict.

Goldman quantified the inventory exposure directly: one month of full production loss from the region would reduce first-quarter 2026 global aluminum inventory from 51 days of cover to 48 days. Combined with the energy price surge running through the Gulf, the bank said that scenario could temporarily justify a price near $3,600, roughly $400 above pre-strike spot.

For commodity desks and the clients pricing exposure over the next week, Goldman's framing points to three concrete watch indicators. The LME cash-to-three-month spread remains the clearest barometer of physical tightness; widening from current levels would confirm the squeeze is intensifying. Regional power and gas prices in the UAE and Bahrain will signal whether smelter restarts are weeks or months away. And war risk premiums on Gulf-origin shipping insurance are the most direct read on how long the market will price in the disruption at all.

Downstream, the impact concentrates first in automakers and beverage packaging manufacturers, both of which operate on thin aluminum inventory buffers and face immediate exposure to spot market pricing. Construction materials suppliers follow. The sector Goldman spent most of 2025 warning investors to avoid has become, in the span of five days, one of the most volatile commodity trades on the exchange.