Iran, the Fed and Tariffs: Copper’s Worst Week for Years

EBM NEWSDESK ANALYSIS– Katie Winearls

Geopolitical risk, monetary tightening and tariff uncertainty are pulling copper in three directions simultaneously. The structural demand story underneath it all remains intact.

Three Forces, One Metal

Copper is not having a quiet week. The metal — long regarded by commodity analysts as the most reliable barometer of global economic health — is being pulled simultaneously by Middle East escalation, Federal Reserve hawkishness and the unresolved question of US tariff policy. Each of those forces is moving markets independently. Together they are producing a volatility environment that even veteran copper traders describe as historically unusual.

The immediate catalyst is geopolitical. Iran’s missile strikes on Israel over the weekend and the subsequent exchange of fire between the two countries have reintroduced a risk premium across commodity markets that had been gradually fading as ceasefire hopes built through April and early May. Copper is sensitive to geopolitical disruption not simply through supply chain exposure but through its role as a bellwether for global industrial demand — when institutional investors reduce risk appetite, copper tends to feel it early and sharply.

As we examined in our coverage of how oil prices surged as Iran missiles shattered hopes of a lasting ceasefire, the Strait of Hormuz disruption is not merely an energy story. It is feeding through into the broader industrial commodity complex, affecting shipping costs, supply chain confidence and the demand outlook for metals across the board.

The Fed Factor

Friday’s US Non-Farm Payroll release delivered a number significantly stronger than consensus expectations — and copper felt the consequences almost immediately. A robust labour market strengthens the case for Federal Reserve rate hikes rather than cuts, and higher interest rates are structurally negative for copper prices through two channels simultaneously.

First, they strengthen the dollar, making dollar-denominated commodities more expensive for international buyers and suppressing demand. Second, they increase the cost of holding physical inventory, reducing the appetite of traders and industrial buyers to maintain strategic stockpiles.

According to the CME’s FedWatch Tool, the probability of at least one 25-basis point rate hike before year end now stands at approximately 75%. That figure — and the CPI and PPI inflation reports due later this week — will remain the primary macro variable for copper pricing in the near term. A hotter-than-expected inflation print would reinforce the rate hike case and add further downward pressure. A cooler reading could provide the relief rally the metal needs.

J.P. Morgan’s commodities team has framed the oil price risk explicitly: if Brent crude hovers around $110 per barrel for the remainder of the year — a scenario that is now live given this weekend’s Middle East developments — copper demand growth estimates for 2026 could be reduced by 1.4 percentage points. The hit to demand would intensify if elevated oil prices persist, feeding directly into the industrial cost base that copper-intensive sectors are already managing under pressure.

The monetary policy picture extends beyond the Fed. Major central bank rate decisions this month — including from the ECB and Bank of England — will contribute to the volatility picture, as any signal of sustained tightening across the developed world compounds the dollar strength effect on LME pricing. For European industrial buyers whose copper costs are denominated in dollars, the currency dynamic adds a layer of pain that the headline LME price does not fully capture. It is the same structural pressure we identified in our analysis of how the Czech Republic’s currency position is creating commercial costs that its politicians are reluctant to acknowledge.

The Tariff Wild Card

Sitting beneath the geopolitical and monetary noise is a third variable that has the potential to fundamentally redirect global copper trade flows: US tariff policy. Goldman Sachs has raised its year-end 2026 copper price forecast to $13,735 per tonne — more than 10% above its previous target — citing supply-side tightness and the anticipation that a refined copper tariff of at least 25% will be implemented by the Trump administration. The US Commerce Secretary’s recommendation on copper tariffs was expected by June 2026.

The market impact of that tariff expectation is already visible. The Comex futures contract in New York — which settles US domestic copper — is trading at a significant premium to the LME benchmark, as importers accelerate purchases to build inventory ahead of any tariff implementation. CME warehouse totals have risen sharply, with copper cathodes being relocated to the US at a pace that is distorting the usual relationship between the two primary exchanges.

For European copper consumers and producers, a US tariff on refined copper redirects global supply flows in ways that could initially benefit LME pricing by reducing the volume of metal heading to American warehouses. The medium-term consequences depend entirely on whether Chinese demand — currently subdued — recovers sufficiently to absorb the redirected supply. As we noted in our markets coverage of how South Korea’s KOSPI crash exposed the fragility of AI-linked industrial demand assumptions, the Asian demand picture is more complicated than the structural bull case for copper typically acknowledges.

The Long Game

Pull back from the near-term noise and the structural copper story remains one of the most compelling in commodity markets. Goldman Sachs forecasts the LME copper price at $15,000 per tonne by 2035. Bank of America projects $13,501 per tonne by 2027. Both banks cite the same underlying drivers: power grid expansion, renewable energy infrastructure, electric vehicle adoption and — increasingly — AI data centre construction, which requires extraordinary volumes of copper for cooling systems, power distribution and connectivity.

Copper has crossed the psychologically significant $14,000 per tonne threshold on the LME in 2026, driven by a combination of supply disruptions at major mines in Indonesia and the Democratic Republic of Congo, historically low exchange inventories and structural demand that is growing faster than new mine supply can respond. The long-term deficit thesis that copper bulls have been articulating for several years is now showing up in the physical market data in ways it was not two years ago.

The near-term picture is genuinely uncertain. Middle East resolution would remove the risk premium. Fed rate hikes would strengthen the dollar headwind. A US tariff announcement would redirect trade flows in ways the market is still attempting to price. But as we explored in our weekend read on how Formula One’s real estate and infrastructure play reflects the broader institutionalisation of hard asset investment, the most durable commercial opportunities in the current environment sit at the intersection of scarcity and structural demand. Copper sits precisely there.

The Verdict

Copper enters this week with three separate macro forces applying pressure simultaneously — geopolitical risk, monetary tightening and tariff uncertainty — none of which is close to resolution. The metal will remain volatile as markets process US inflation data later this week and central bank decisions through the remainder of the month.

The long-term structural demand case — energy transition, power grid expansion, EVs and AI infrastructure — remains the strongest it has ever been. The short-term trading environment is the most complex it has been in years. For European industrial buyers, that combination requires a hedging strategy rather than a directional bet. The copper price in 2035 may well be $15,000 per tonne. Getting there from here is going to be a turbulent ride.

”J.P. Morgan’s commodities team is explicit: if Brent crude hovers around $110 per barrel for the remainder of 2026, copper demand growth estimates could be stripped by 1.4 percentage points. The Middle East is no longer just an energy story.”

RELATED READS:

• Oil Prices Surge as Iran Missiles Shatter Hopes of a Lasting Ceasefire — The Strait of Hormuz disruption is feeding through the entire industrial commodity complex, not just energy markets.
• Markets in Freefall: Oil Surges, the Fed Turns Tough, and Investors Head for the Exit — The macro backdrop driving copper volatility this week is the same one that sent global equities sharply lower on Monday.
• South Korea’s KOSPI Crashes. The AI Rally Just Got Its Reality Check — AI infrastructure is one of copper’s most powerful structural demand drivers. Monday’s semiconductor selloff raises questions about the timeline.

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