I. First-Half Overview: The Hardest-Hit Core Market
According to publicly available data from China's General Administration of Customs, China's steel exports to the six Gulf Cooperation Council (GCC) countries totaled 4.542 million tonnes in the first half of 2026, down approximately 997,000 tonnes (a decline of 18%) from 5.539 million tonnes in the same period of the previous year-making it the worst-performing major region for Chinese steel exports.
Behind this headline figure lies the direct impact of the Strait of Hormuz and Red Sea shipping crises on the global trade landscape. The Middle East-particularly the GCC countries-has long been one of China's core export markets for steel products, accounting for roughly 11.7%–23% of China's total steel exports depending on the period and data source.
II. Country-Level Breakdown: Divergence Hidden Behind the Aggregate
The headline 18% decline masks dramatic divergence across individual countries. Country-by-country data is key to understanding the true nature of this shock:
| Country | H1 2025 (10,000 t) | H1 2026 (10,000 t) | YoY Change | Volume Change (10,000 t) |
|---|---|---|---|---|
| UAE | 232.1 | 140.4 | −39.5% | −91.6 |
| Saudi Arabia | 262.7 | 258.0 | −1.8% | −4.7 |
| Oman | 29.6 | 45.4 | +53.3% | +15.8 |
| Kuwait | 15.2 | 5.1 | −66.4% | −10.1 |
| Qatar | 13.2 | 4.7 | −64.7% | −8.5 |
| Total | 552.8 | 453.6 | −18.0% | −99.2 |
Two signals in this table are more revealing than the decline itself:
Signal 1: The UAE is the single largest source of decline-and it is still falling
The UAE alone accounts for over 90% of the total volume decline, and the downtrend had not stabilized by July. Customs monthly statistics show that China's July steel exports to GCC countries totaled only 701,000 tonnes, down another 16.6% month-on-month.
The attribution here is critical: the core reason is not trade remedies, but the Red Sea and Hormuz tensions that forced shipping lines to reroute and elevated risk premia, raising costs and transit times to key ports such as Jebel Ali and Khalifa . Industry data indicates war-risk premiums have surged 200%, container freight has jumped by USD 3,000 per box, and voyages have lengthened by 14–20 days-directly squeezing export margins .
Signal 2: Saudi Arabia is essentially flat, while Oman is up more than 50%
This is perhaps the most counterintuitive finding. Why such divergence among neighboring Gulf states? Because the change over the past six months is not "the Gulf stopped buying," but rather "goods are being rerouted through different channels."
This rerouting logic is corroborated by multiple data points:
Oman as the alternative gateway: With direct shipments to UAE ports (Jebel Ali, Khalifa) facing elevated risk, cost, and delays, a portion of steel cargoes has shifted to Omani ports such as Sohar and Salalah, which lie outside the most congested risk zones. Oman's +53.3% growth is essentially a "transit substitution effect" rather than genuine end-demand expansion.
Saudi Arabia's resilience: Despite being the largest single market (262.7 million tonnes), Saudi Arabia saw only a 1.8% decline. This reflects two factors: (1) Saudi Arabia's own domestic steel capacity expansion reducing import dependence on certain product categories; and (2) Saudi Arabia's direct shipping routes with China being relatively less affected by the Hormuz chokepoint, with some cargoes able to call at Saudi ports directly.
Kuwait and Qatar as collateral damage: These two smaller markets depend heavily on transshipment via UAE ports. Once Jebel Ali's efficiency drops, their effective supply chain is disrupted, resulting in −66.4% and −64.7% declines respectively-the most severe contractions in the region.
III. Impact Pathways: Three Transmission Mechanisms
1. Logistics Chokepoint and Freight Cost Surge
The Strait of Hormuz is a critical artery of global shipping. As hostilities escalated, vessel transit risk rose sharply, insurance providers withdrew coverage, and many shipowners refused to call at Persian Gulf ports. Industry feedback indicates that some Chinese steel mills have suspended new order quotations to the Middle East, unable to secure shipping services or obtain clear freight guidance [1]. Some estimates suggest that if the Strait remains stalled for one month, China's monthly steel exports to the Middle East could be impacted by 1.1624 million tonnes, equivalent to 11.72% of total steel exports .
2. Cost Pass-Through and Margin Compression
Even cargoes that do ship face structural cost pressures:
War-risk premiums up 200%
Container freight up USD 3,000/box
Voyages extended 14–20 days
Oil prices pushing up bunker fuel costs globally, lifting the cost floor for seaborne iron ore and coking coal alike
These costs translate into a direct squeeze on Chinese steel's price competitiveness in Middle Eastern markets, with Middle Eastern buyers reportedly pausing inquiries and freezing new order flows .
3. Demand-Side Uncertainty
Middle Eastern infrastructure projects face suspension or delay risks. For example, Saudi Arabia's NEOM new city project and other major construction initiatives may face postponement due to risk premia and capital constraints. Oil price volatility may further suppress investment capacity in petrodollar-funded economies, dampening steel demand at the source.
IV. Supply-Side Response: Domestic Market Pressure and Structural Substitution
The export shock does not vanish-it redirects into the Chinese domestic market:
Domestic "Involution" Intensifies
Originally Middle East-bound steel is being forced back into the domestic market. While apparent consumption of rebar has shown some recovery, absolute levels remain subdued, and social inventory destocking has been slow. The export channel disruption will exacerbate domestic competition, particularly in hot-rolled coil and coated sheet-the two product categories most heavily exported to the Middle East .
V. Outlook: Short-Term Floor, Long-Term Pressure
The Chinese domestic steel market is entering a period of "strong costs, weak demand" . On one side, raw material cost increases (crude oil, freight) limit the downside for steel prices, providing clear cost support. On the other side, the loss of export orders and high domestic inventories will cap any rebound in steel prices.
Three Key Variables to Watch
Duration of Hormuz disruption: If normalized within 1–3 months, the current rerouting pattern (UAE decline, Oman surge) may partially reverse. If prolonged beyond 3 months, market share will be permanently lost to Turkey and India.
Whether the rerouting model becomes structural: The UAE's Jebel Ali port has been the transshipment hub for the entire Gulf. If Sohar and Salalah absorb capacity permanently, the center of gravity for Gulf steel distribution may shift northward to Oman-a structural change with long-term implications.
Domestic demand recovery pace: The export-to-domestic substitution effect will only be manageable if domestic construction activity accelerates enough to absorb the redirected volumes. Otherwise, the "involution" pressure will intensify.
Strategic Recommendations
Optimize order management: Sign long-term shipping agreements, adopt FOB terms to hedge transportation risk
Financial hedging: Use hedging instruments to lock in exchange rates and freight rates, and purchase export credit insurance
Diversify import channels: Accelerate expansion of mainstream iron ore sources from Brazil and Australia, reducing dependence on non-mainstream Middle Eastern sources
Product mix upgrade: Focus on high value-added plate products such as pipeline steel to capture premium opportunities while low-end billet exports may contract under compliance cost pressure
Conclusion
The Strait of Hormuz crisis has not simply reduced China's steel exports to the Middle East-it has restructured the geography of trade flows within the Gulf. The UAE is bearing the brunt as a transshipment hub under stress, Saudi Arabia demonstrates resilience through alternative routing, and Oman is emerging as the unexpected winner of geographic arbitrage. For China's steel industry, this crisis is simultaneously a short-term logistics shock and a long-term catalyst for green transformation and market diversification. The companies that will emerge stronger are those that can simultaneously manage shipping risk, absorb carbon compliance costs, and pivot toward higher value-added product portfolios.
