Has the Iran war been a setback for greener steelmaking?

Five months into the Iran war, the world’s steel industry is feeling the strain. Disruption to oil and gas trade through the Strait of Hormuz has rippled through shipping, insurance, and input costs, nudging global steel demand projections toward stagnation and casting new uncertainty over the sector’s decarbonisation plans.

From rising hub to risk hotspot

Before the conflict, the Persian Gulf was positioning itself as a cornerstone of lower-carbon iron and steel. The region has built formidable expertise in direct reduced iron (DRI), a process that typically uses natural gas but can transition to green hydrogen. Iran, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates and Oman together operated close to 73 million tonnes per year of DRI capacity prior to the war—more than two-fifths of the global total. With abundant solar and wind potential, low-cost gas as a bridge, existing port-based clusters, and export-oriented logistics, the Gulf had drawn at least USD 10 billion into a handful of green iron projects designed to feed steel furnaces directly or ship as hot briquetted iron (HBI).

The war has altered that trajectory. Strikes on plants in Iran and Bahrain have damaged or destroyed more than a tenth of global DRI capacity. Although the facilities hit were not low-carbon projects, the events elevated geopolitics from background noise to a central question for financiers: Can green iron be produced and moved through reliable, insurable, and certifiable corridors?

The bar for credibility has risen. It is no longer sufficient to unveil a hydrogen-ready facility or sign a memorandum of understanding. Investors now expect bankable offtake, assured access to DR-grade ore, robust emissions accounting, resilient ports and shipping routes, and clear frameworks for sharing political risk. One Omani hydrogen-capable DRI project has delayed its final investment decision to the third quarter of 2026 despite having secured offtake; other proposals in Oman and Saudi Arabia, still at feasibility or MoU stage, could face similar slippage.

Shockwaves beyond the Gulf

Energy shocks have been most acute in South and Southeast Asia, where dependence on Gulf hydrocarbons is high. Some electric-arc furnace expansions in the region have been reconsidered amid power shortages and higher input costs. India saw brief disruptions to gas supplies, but with over four-fifths of its ironmaking still coal-based, the direct hit was contained to a handful of gas-reliant producers. Indirect pressures—from pricier freight and shipping insurance to heavy reliance on imported coking coal—have been more broadly felt.

China experienced early turbulence in exports bound for the Middle East but has largely weathered the storm. Decades of electrification and a diversified energy strategy, along with domestic or Australia- and Brazil-sourced inputs, have insulated its steel sector. Recent initiatives that could aid decarbonisation—such as green hydrogen pilots and capacity replacement rules—have proceeded largely intact.

India’s energy-security turn: coal gasification, CCUS and green hydrogen

The fuel shock has revived interest in coal gasification. This spring, a leading Indian steelmaker used coal-derived syngas to bridge fuel gaps in some finishing operations, extending beyond its existing DRI applications. Policymakers have, since 2020, promoted gasification to leverage domestic coal and cut imports, targeting 100 million tonnes of output by 2030. A government support package of roughly USD 3.9 billion announced in May signals renewed momentum.

Yet studies—and the national green steel roadmap—indicate that DRI using coal syngas can match or exceed the lifecycle emissions of prevailing coal-based routes. To mitigate that, officials have earmarked more than USD 2 billion for carbon capture, utilisation and storage (CCUS), and industry roadmaps increasingly frame CCUS as necessary if syngas persists in ironmaking. In parallel, the Green Hydrogen Mission, backed by USD 2.4 billion to reach 5 million tonnes per year by 2030, remains off pace. The result is an “all of the above” approach: it may harden energy security but risks diluting focus and capital away from the cleanest pathways. Some observers argue that green hydrogen should also be seen as a strategic fuel for security, not just decarbonisation.

Who fills the green iron gap?

With key Gulf projects delayed or reassessed, attention has swung to other potential suppliers. Australia—armed with world-class iron ore and strong renewables resources—has been urged to fast-track green iron for Southeast Asian buyers, particularly if China accelerates efforts to diversify away from Australian ore. Brazil, the second-largest ore exporter, is also in the frame thanks to high-grade resources and growing interest in lower-emission HBI/DRI. Recent energy shocks could even accelerate the buildout of renewables and green hydrogen that underpin competitive green iron in both countries.

Europe, meanwhile, has been comparatively shielded by diversified supply chains and policy support against energy price spikes. Carbon pricing has catalysed the first wave of near-zero steel capacity—around 10 million tonnes—now under construction. But another sizable tranche awaits final investment decisions. To unlock it, first movers are seeking greater policy certainty. At the same time, Gulf-based producers that once targeted European buyers are recalibrating toward domestic or regional markets, wary of shipping risk and ongoing debate over free allowances that keep fossil-based steel cheaper for longer.

Setback or reset?

The war is a jolt, not a full stop, for greener steelmaking in the Gulf. Structural advantages—DRI know-how, port-centric logistics, plentiful solar and wind, and affordable gas as a transitional fuel—remain intact. But the premium now sits on resilience: secure ore supply, verifiable carbon footprints, insurable and diversified export routes, and public–private risk sharing. Countries such as Oman, with emerging green iron export hubs, and the United Arab Emirates, with advancing hydrogen-to-steel projects, could still position themselves as credible low-carbon corridors if they address these requirements head-on.

Globally, the episode underscores a broader convergence: energy security and decarbonisation are now inseparable. For steel, that likely means faster electrification, stronger HBI/DRI supply chains anchored in high-grade ore, more renewable power and green hydrogen, and clear, durable policies that reward early investment. The fossil fuel shock triggered by the war will not be the last. How governments and companies rewire risk—and seize the opportunity to cut carbon while stabilising supply—will determine whether greener steelmaking regains momentum or remains stuck in neutral.