Iran’s Huge Impact on the Global Automotive Industry

On February 28, 2026, U.S. and Israeli forces launched air strikes on Iran, and the following events are well known. To date, the conflict has lasted nearly two weeks with no sign of ceasefire. This conflict appears to be another turmoil in the Middle East, but its impact is rapidly spreading to the global automotive industry.

According to relevant information, on one hand, Iran's domestic automobile sales situation is grim, negatively impacting auto sales across the entire Middle East. On the other hand, disruptions in the Strait of Hormuz shipping lane have driven up international oil prices and interrupted transportation networks. Consequently, automakers worldwide have been forced to adjust production plans and delay overseas shipments.

For example, Toyota has announced a production cut of 40,000 vehicles, multiple Indian automakers have suspended exports to the Middle East, and Chinese automakers may also face risks in their exports to the Iranian market. The impact of the situation in Iran on the global automotive industry is far more profound than widely anticipated.

01Asian automakers suffer direct impact

Undoubtedly, the impact of war on the automotive industry is first reflected in the decline of sales in regional markets. Iran is the largest automotive consumer market in the Middle East. According to data from Bernstein, the overall car sales in the Middle East last year were approximately 3 million, with Iran alone accounting for as high as 38%, or about 1.14 million.

Due to long-term international sanctions, most mainstream automotive brands from Europe, the U.S., Japan, and South Korea have been unable to enter the Iranian market, which is primarily dominated by local manufacturers and Chinese automakers. Iran Khodro and Saipa are the country's two largest automotive companies, followed by several Chinese brands.

Bernstein's statistics show that in the Middle East market, Toyota has a 17% share, Hyundai has 10%, and Chery has 5%. These three combined account for about one-third of the market in the region.

Based on last year’s regional sales volume of approximately 600,000 vehicles in the Middle East, Toyota’s annual sales in the region amount to about 204,000 units, Hyundai’s to about 120,000 units, and Chery’s to about 60,000 units. Following the outbreak of war, sales of these vehicles will face severe challenges. Reports indicate that demand has not disappeared, but rather been hampered by logistics disruptions and declining consumer confidence.

Among them, the pressure on Chinese brands is more pronounced. The most affected Chinese car manufacturers include JAC, SAIC, Chery, Chang'an, and Great Wall.

Additionally, another set of data shows that in the brand sales ranking, Iran Khodro leads by a wide margin with sales exceeding 400,000 units. SAIPA ranks second with 310,000 units. Peugeot’s sales slightly exceed 175,000 units. MVM (Chery models) achieves sales of 46,000 units, followed closely by JAC and Zamyad. Bahman and Chery rank third, while KMC and Haima rank fourth and fifth, respectively, both entering the top ten. FMC ranks 11th, Ramari 12th, Lukano 13th, Phoenix 14th, and Xtrim 16th.

Among Iran’s numerous domestic brands, many produce and sell Chinese-branded vehicles under their own labels. BAC sells the Geely GX3; FMC sells the Forthing T5, retaining the “T5” name; Fownix sells Chery’s badge-engineered models: the F7 corresponds to the Tiggo 8, and the Z6 GT to the Arrizo 6; KMC sells the SWM G01 under the name A5, and the JAC J4 under the name Eagle; Lamari sells the Forthing T5 Evo as the Eama, and the Dongfeng Aeolus Shine as the Echo; the Jaecoo J5, J7, and J8 are marketed in Iran as the Lucano 5, Lucano 7, and Lucano 8, respectively; Xtrim sells six Exeed models.

It can be said that these Chinese automakers have long been deeply engaged in the Iranian market and established a comprehensive sales network; however, all their operations may now be forced to suspend.

Before Chinese carmakers made a statement, Indian carmakers quickly reacted. According to media reports, Tata Motors, Maruti Suzuki, Hyundai Motor India, and Volkswagen India have postponed shipments to the Middle East and North Africa. The reason is the sharp rise in transportation costs, tight container supply, and a significant increase in war risk insurance premiums.

An insider revealed that the emergency surcharge per container has risen to $2,000. A Maruti Suzuki executive stated on March 1 that the Middle East accounts for 13% of its total exports. The situation is even more pronounced for Hyundai India, where the Middle East and North Africa markets account for 40% of its overseas shipments. Elara Capital’s Vice President noted that if shipment disruptions persist for one month, these automakers’ cash flow and inventory will face pressure.

As the world's top-selling Toyota, it has responded most swiftly. According to the Nikkei, Toyota is concerned about potential disruption in Middle Eastern logistics and has decided to cut production by 40,000 units, with the main affected models being large SUVs such as the Land Cruiser, which sell well in the Middle Eastern market.

However, Toyota has not made an official comment on the matter, but the decision to cut production itself speaks volumes, indicating that the world's largest automaker is preparing for a worsening situation.

02The obstruction of the Strait of Hormuz has a greater impact.

In addition to new vehicle sales, the automotive industry faces a second challenge from the logistics and energy sectors. The Strait of Hormuz is the sole maritime outlet of the Persian Gulf, through which approximately one-third of the world’s seaborne crude oil passes. After the outbreak of hostilities, Iran issued a warning that any vessel transiting the strait could be subject to attack.

This statement led shipping companies to avoid the strait en masse, effectively paralyzing the Strait of Hormuz.

Ships are unable to pass through the Strait of Hormuz and must instead detour around the Cape of Good Hope in South Africa. This detour increases the voyage by several thousand nautical miles, extends transit time by one to two weeks, and doubles freight rates. Automobiles are bulk commodities that occupy substantial space per unit, resulting in inherently high transportation costs; combined with emergency surcharges, many export orders have become unprofitable.

Several Indian automakers have suspended shipments, and the root cause is not a lack of orders, but rather that transportation costs have exceeded the profit margin.

The rise in shipping costs is merely the first-tier impact; the second-tier impact stems from surging oil prices. On March 6, the U.S. national average price for regular gasoline stood at $3.32 per gallon, an 11.4% increase from $2.98 per gallon one week earlier. European oil prices rose significantly as well. Disruptions in the Strait of Hormuz have impeded crude oil exports, triggering market concerns over supply shortages and driving up futures prices.

The rise in oil prices is not good news for the automotive industry, especially for car manufacturers that sell fuel vehicles. Bernstein specifically pointed out that Stellantis is the most severely affected by the conflict, as it has invested the most in internal combustion engines, and the increase in oil prices will directly suppress the demand for its products.

Then comes the operating costs of all automakers, such as tire production relying on petrochemical raw materials, and transportation requiring fuel. A rise in oil prices will comprehensively increase costs. According to calculations by Caiye Securities, freight costs usually account for 1% to 3% of automakers' revenue, and a doubling of oil prices will cause this ratio to rise accordingly.

Another issue is the insurance cost. Although ships not passing through the Strait of Hormuz are not completely unable to transit, the war risk insurance premium has risen to an unaffordable level. Indian automotive companies have chosen to suspend shipments rather than purchase insurance, indicating that the premium increase has exceeded a reasonable boundary. Two-wheeler manufacturer Bajaj Auto has also suspended shipments to the Gulf countries. This market accounts for only 3% of its exports, but the profit from this portion has been entirely eroded by the increased insurance costs.

All this pressure will be passed on to consumers, as higher oil prices increase vehicle operating costs, potentially causing prospective buyers to delay their purchase plans. Combined with rising inflation expectations, Bernstein wrote in its report: "The biggest risk of a prolonged war is driving up oil prices, undermining global economic confidence, and triggering a sharp decline in auto sales outside the Gulf region."

Freight costs and oil prices are not the only factors affecting the situation. Supply chain disruptions also play a role. It is said that the modern automotive industry is one of the most finely divided industries globally, with a transmission possibly being transported from South Korea to India, assembled into a complete vehicle, and then shipped to the Middle East. After the disruption of the Strait of Hormuz, the entire chain experiences delays.

Toyota is cutting production by 40,000 vehicles, not only due to a decline in demand in the Middle East, but also because components cannot be delivered on time. A Bernstein report points out that if the war lasts more than four months, the supply chain impact will spread to Turkey and then to Europe. Turkey has a well-developed automotive industry, supplying a large number of parts to Europe. If Turkish factories are forced to halt production due to a lack of components, European car manufacturers will also face a chain reaction.

From the current perspective, the US side has stated that it will continue its offensive until its objectives are achieved, and as the new Iranian government has yet to take shape, the prospects for a ceasefire remain dim. For the global automotive industry, the most severe challenges may still be on the horizon.