The spatial spillover effect of energy insecurity on total factor productivity in the iron and steel industry, as well as the potential moderating role of industrial agglomeration, remains poorly understood. This study investigated the spatial spillover effect of energy security on total factor productivity and the moderating role of industrial agglomeration in the relationship between energy security and total factor productivity in the iron and steel industry. Panel data from 24 provinces in China spanning the years 2010 to 2019 were used for this analysis. The research findings demonstrate a positive spatial spillover effect of energy security on total factor productivity, which displays a distinct pattern of attenuated spatial spillover effects. Moreover, evidence from quasi-natural experiments shows a negative spillover effect on total factor productivity when using the energy security-policy interaction term, highlighting the significant impact of policy factors on total factor productivity. Threshold effect tests reveal a “strong-weak” V-shaped trend in the impact of energy security with the increase of industrial agglomeration levels. In addition, this study found an inverted U-shaped relationship between energy security and the impact of industrial agglomeration, suggesting that enhancing energy security contributes to the growth of total factor productivity in the iron and steel industry. The ultimate objective of this research is to provide valuable policy recommendations to the government for ensuring energy security and promoting the sustainable growth of total factor productivity in the iron and steel industry.