Five months since the start of the Iran war, countries around the Persian Gulf are still coping with the direct effects of an ongoing conflict, as are economies around the world.
Global trade, particularly in oil and gas, has been disrupted by repeated closures of the strait of Hormuz, and the steel sector is among those to have felt the impacts, most directly in Iran and the Gulf itself. Beyond the region, the war has interrupted steel flows, raised the costs of insurance and key inputs, and stirred overall uncertainty. Projections for global steel demand growth are almost flat as a result.
The Iran war has also come just as the steel industry’s critical progress towards decarbonisation was seen to be slowing. In recent years, as early decarbonisation leaders in Europe revised and delayed transition plans, the Gulf region had emerged as a prospective hub for lower-carbon iron and steel. This attracted international investments and large-scale projects, several of which are already under construction, or awaiting final investment decisions.
Dialogue Earth spoke with analysts to examine the effects the Iran war has already had and what impact the conflict might bring to global momentum towards greener steelmaking.
War impacting Gulf industry
“The Iran war has turned geopolitics from a background risk into a core bankability variable for green iron and steel projects” in and around the Persian Gulf, said Fatin Durukan, a research fellow at the Carboun Institute, a climate change think-tank focused on the Middle East and North Africa. “Investors are asking not only whether the region can produce low-carbon iron cheaply, but whether it can do so through secure, insured and certifiable corridors,” he added.
The Gulf region is a key hub for direct reduced iron (DRI) production, an alternative to coal-based iron production in blast furnaces. This process usually uses gas but can also be fed by green hydrogen, widely seen as a promising path towards low-carbon steel production. Prior to the war, Iran, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates and Oman had nearly 73 million tonnes per year in operating DRI capacity between them, equivalent to more than 43% of global capacity, according to March 2026 data from Global Energy Monitor’s Global Iron and Steel Tracker.
Production in the Gulf has typically used fossil fuels, but the region has strong renewable energy potential, with cheap gas available while green hydrogen production ramps up. It also has experience with DRI technology, existing iron supply chains, port-based industrial clusters and a strategic location for exports. These advantages have helped attract at least USD 10 billion in investment across half a dozen “green iron” projects in Oman, the United Arab Emirates and Saudi Arabia. These projects use renewable energy to produce DRI that can be fed directly into steel furnaces, or transported in a form known as hot briquetted iron (HBI).
But iron and steel production has come under direct attack during the war. Strikes on Iranian plants in Isfahan, Sefiddasht, and Ahvaz, as well as a plant in Bahrain, have damaged or destroyed more than 10% of global DRI capacity. While none of the targeted plants had low-carbon projects, the war could still have major impacts on prospects for decarbonising the industry.
Durukan noted the tangible impacts of these considerations on several large-scale green iron and steel investments in the region. Among these, he pointed to industry reports that Meranti Green Steel has delayed the final investment decision for its planned 2.5 million tonne per year hydrogen-capable DRI plant in Duqm, Oman until the third quarter of 2026. This is despite having already secured full offtake coverage for the plant’s output. Meranti did not respond to Dialogue Earth’s request for comment.
Durukan added: “For projects still at the feasibility, pre-construction, or memorandum of understanding (MoU) stage, the effect may be stronger.” Such projects could include a 5 million tonne per year DRI plant, also in Duqm, announced by Mitsui and Kobe Steel and originally planned to start production in 2027, and a 5 million tonne per year DRI project in Ras Al Khair, Saudi Arabia.
Optimism in the potential for green iron and steel in the region led to a slew of announcements between 2022 and 2025. “But the war has changed the standard of credibility,” said Durukan, adding “it is no longer enough to announce a hydrogen-ready facility or sign an MoU.” Now, projects will need “bankable offtake, access to DR-grade iron ore, credible emissions accounting, port and shipping resilience, insurance availability and public sector risk-sharing mechanisms,” to demonstrate they can survive geopolitical stress.
Wider steel sector feels ripples
The Gulf region’s position as a key supplier of oil and gas left some nations more exposed to the shock of war than others, while knock-on effects on other sectors’ costs and inputs have also hinged on their existing dependencies.
Countries in South and Southeast Asia have felt some of the most severe energy shocks, given their reliance on imported oil and gas from the Gulf. Steel mills in Southeast Asia have faced energy shortages, with SteelOrbis reporting in May that the Philippines’ SteelAsia was considering a delay to the expansion of its lower-carbon electric arc furnace business as a result.
India did experience a disruption to gas supplies, but as over 80% of the country’s ironmaking is coal-based, this was only felt directly by its few gas-reliant players. These include smaller producers in regions such as Gujarat and Punjab, as well as by some large players including JSW and AMNS. The overall effects of the war on the sector have been “mainly indirect”, Parth Kumar, industry programme manager at the New Delhi-based Centre for Science and Environment, told Dialogue Earth. He pointed to higher freight and shipping insurance costs, alongside India’s dependence on imports for nearly 90% of its coking coal supply.
China, meanwhile, experienced some disruption to its steel exports during the early days of the conflict, given that roughly a sixth of its shipments were bound for the Middle East following rapid trade growth in 2025. But China has been widely successful in weathering the conflict’s shocks, benefitting from decades of electrification and energy security planning, including its five-year plans for energy. Its steel industry inputs are also either domestic or arrive largely from Australia and Brazil. As such, recently launched initiatives that could aid steel sector decarbonisation, including a green hydrogen pilot programme and updates to its capacity replacement policy, have been insulated from energy shocks, even if their conception was not driven by war, analysts told Dialogue Earth.
A coal gasification drive in India
In the Indian steel sector, this energy shock has also brought renewed attention to the use of coal gasification. In April, Jindal Steel announced it had confronted fuel shortages by deploying coal syngas in some of its finishing processes. This expands its existing usage beyond DRI, for which it has been deployed at its plant in Angul, Odisha, since 2020.
The processing of coal into synthetic gas has received increasing focus from Indian policymakers since 2020. They aim to harness India’s vast coal reserves for a range of industrial uses and lessen import dependence, targeting 100 million tonnes of output by 2030. It has been pitched by some in the sector as a “transitional industrial strategy” and “bridge” to lower-carbon technologies in the DRI process. But studies, and the government’s own Green Steel Roadmap, have indicated that coal syngas-based DRI produces a similar or potentially even greater level of lifecycle emissions than the current prevailing technologies in India: burning coal directly for DRI or in a blast furnace.
Kumar emphasised that coal gasification has been a longer-term ambition but described “a further deepening of the shift in mindset” towards energy security among decision-makers since the recent energy shocks. He points to the USD 3.9 billion government support scheme for developing the fuel, announced in May: “The push has been there, and this was probably seen as an opportune time [to advance this].”
On the potential impact on Indian steel decarbonisation, Kumar said: “These policies might make India energy-secure, but they might also push investments from a lot of the other schemes [for steel decarbonisation]. What about green hydrogen then? Double the money has been allocated to coal gasification. What kind of message are we giving to the industry at this point? Probably that it’s okay to do both.”
India’s Green Hydrogen Mission, launched in 2023, laid out USD 2.4 billion in investment to establish 5 million tonnes of annual production capacity by 2030. It is currently off-target.
This year, the government has also announced over USD 2 billion in support for carbon capture, utilisation and storage (CCUS). Both Jindal Steel and the steel ministry’s roadmap have argued that CCUS would be necessary to mitigate emissions from coal syngas-based DRI.
“Faced with a need for fast-paced economic development and a major energy security problem which puts that at risk, India is taking an ‘all of the above’ approach to steel decarbonisation,” said Simon Nicholas, lead analyst for global steel at the Institute for Energy Economics and Financial Analysis. He has, however, previously warned of CCUS as a “technological dead end” for Indian steel, citing uncompetitive costs, no demonstrated capacity to reduce steelmaking emissions, and a “lengthy track record of failure” globally.
Jindal was approached for interview but the company declined to comment.
On India’s green hydrogen development, Nicholas highlighted the fuel’s potential role in its energy security efforts, including for the steel sector: “We’ve already seen a change in tone in China regarding green hydrogen – from decarbonisation tool to energy security tool. Given the progress India has made in green hydrogen already, it may – and in my opinion should – start seeing green hydrogen through that energy security lens.”
A setback for greener iron and steel?
As uncertainty around the war’s resolution has continued, and with final investment decisions on key iron and steel projects in the Gulf pending, some industry focus has turned to opportunities for other potential producers of “green iron”.
Some reports and commentators in Australia, the world’s largest iron ore producer and exporter, have described the Iran war as a “window of opportunity” for its industry. “It ought to be a wake-up call to Australia to get on with green iron project development,” said Nicholas. “Southeast Asia is a key region of opportunity for Australia, especially if China moves to accelerate its reduction of reliance on Australian iron ore.”
Similarly, Brazil, the second largest player in global iron ore, has long been looked to for its green ironmaking advantages. The input could create opportunities for sector leaders, such as the mining company Vale, which is itself an investor in a green iron “megahub” in Oman. Vale declined to comment on the progress of its projects or any impacts linked to the war. But in an interview with the Financial Times, its CEO Gustavo Pimenta said he believed recent energy shocks “can accelerate the development of renewables and the greener steel agenda”.
Ysanne Choksey, the global steel transition lead for the Agora Industry think-tank, has researched the prospective global green iron trade. She said: “The geopolitical shock of the war in West Asia will not change the market fundamentals. HBI’s competitiveness is driven by several factors, such as access to high grade iron ore, and low energy and capital costs.” Those fundamentals, she added, may still work in the Gulf region’s favour over Australia’s, given its closer proximity to potential markets and the cheaper cost of fossil-based energy.
Turning to Europe, Choksey said its steel sector has been “largely shielded” from the impacts of the war due to its supply chains outside of the Gulf region, and government support against energy shocks. She said European Union leadership on pricing industrial emissions has led to the first 10 million tonnes of green steelmaking capacity under construction. Next, she said, “to secure their future and unlock the next 15 million tonnes of capacity awaiting final investment decisions, first-movers need policy certainty right now.”
Amid the uncertainty and disruption caused by the war, and divisions over steelmakers’ allowances under the European Union emissions trading system (which will keep fossil fuel-derived steel cheaper for longer), Gulf producers may be confronting similar concerns. Emirati green steel leader Emsteel, for instance, has an integrated 3.5 million tonne per year low-carbon steel plant, which uses hydrogen-based DRI and carbon capture. The company had been counting on European Union carbon pricing to boost demand. Recently, it announced it would focus on the domestic market, instead of exports to Europe. Emsteel did not respond to requests for comment.
Still, Durukan called the overall outlook for green iron and steel in the Gulf “cautiously positive”. He pointed to structural advantages and said countries – most promisingly Oman, with its green iron export hubs, and the United Arab Emirates, with its existing hydrogen-to-steel projects – can position themselves as resilient industrial corridors and strengthen their low-carbon production potential.
With industry voices still expressing doubt that an eventual resolution to the conflict will bring about a quick return to business-as-usual, steelmakers and governments across Asia are facing similar challenges, and calculating how they can guarantee inputs for their production.
“The war created a major fossil fuel crisis but it won’t be the last one,” said Nicholas. “The scale of it is already making countries rethink their reliance on fossil fuel imports.”
