War in Iran Affects Development of More Eco-Friendly Steel Production in the Persian Gulf Region

The war in Iran coincided with a slowdown in critical progress in the steel industry towards decarbonization. In recent years, as European leaders in decarbonization revised and postponed transition plans, the Gulf region was becoming a promising center for producing low-carbon iron and steel. This attracted international investment and large projects, many of which are already under construction or awaiting a final investment decision.

Impact of the War on the Gulf Industry

Fatin Durukan, a researcher at the Carboun Institute, an analytical center for climate change specializing in the Middle East and North Africa, stated that 'the war in Iran has turned geopolitics from a background risk into a key variable for the viability of green iron and steel projects' in the Persian Gulf area. He added that investors are interested not only in whether the region can produce low-carbon iron cheaply but also whether it can do so through safe, insured, and certified routes.

The Gulf is an important center for Direct Reduced Iron (DRI) production, an alternative to coal-based iron production in blast furnaces. This process typically uses gas but can also be powered by green hydrogen, which is considered a promising path to producing low-carbon steel. According to the Global Iron and Steel Tracker from Global Energy Monitor for March 2026, before the war in Iran, Saudi Arabia, Bahrain, Qatar, the UAE, and Oman had nearly 73 million tons of annual operational DRI capacity, equivalent to over 43% of the global potential.

Although Gulf production traditionally used fossil fuels, the region possesses significant renewable energy potential and accessible gas, while green hydrogen production is growing. Furthermore, the region has experience with DRI technology, existing iron supply chains, industrial port clusters, and a strategic location for export. These advantages helped attract at least $10 billion in investments into more than six 'green iron' projects in Oman, the UAE, and Saudi Arabia. These projects use renewable energy to produce DRI, which can be fed directly into steelmaking furnaces or transported as Hot Briquetted Iron (HBI).

However, iron and steel production has been directly affected during the war. Attacks on Iranian plants in Isfahan, Safidabad, and Ahvaz, as well as on a plant in Bahrain, have damaged or destroyed over 10% of the global DRI potential. Although none of the attacked plants had low-carbon projects, the war could still seriously impact the prospects for industry decarbonization.

Durukan noted the tangible impact of these factors on several major green iron and steel projects in the region. Among them, he pointed to industry reports indicating that Meranti Green Steel postponed its final investment decision for its planned 2.5 million tons per year hydrogen-powered DRI plant in Dukem, Oman, until the third quarter of 2026, despite having already secured full demand coverage for the plant's output. Meranti did not respond to a request for comment from 'Dialogue Earth.'

Durukan added: 'For projects in the feasibility study, pre-construction, or Memorandum of Understanding (MoU) stage, the effect can be stronger.' Such projects may include a 5 million tons per year DRI plant also in Dukem, announced by Mitsui and Kobe Steel and originally planned to start production in 2027, as well as a 5 million tons DRI project in Ras Al Khaimah, Saudi Arabia.

Optimism regarding the potential of green iron and steel in the region led to several announcements between 2022 and 2025. However, Durukan stated: 'But the war changed the standard of credibility,' adding that simply announcing a hydrogen facility or signing an MoU is no longer enough. Projects now require 'a viable procurement volume, access to DR-grade iron ore, credible emissions accounting, port and shipping resilience, insurance, and risk-sharing mechanisms with the public sector' to demonstrate the ability to withstand geopolitical stress.

Wave of Consequences for the Steel Sector

The Gulf region's position as a key supplier of oil and gas made some countries more vulnerable to the shock of the war, while indirect consequences for costs and raw materials in other sectors depended on their existing dependencies. Countries in South and Southeast Asia experienced some of the most severe energy shocks due to reliance on imported oil and gas from the Gulf. Steel mills in Southeast Asia faced energy shortages; in May, SteelOrbis reported that SteelAsia from the Philippines was considering delaying the expansion of its low-emission electric arc furnace steel production business.

India faced gas supply disruptions, but since over 80% of the country's metallurgy is based on coal, this directly affected only a small number of gas-dependent players, including small producers in regions like Gujarat and Punjab, as well as some large players such as JSW and AMNS. The overall impact of the war on the sector was, according to Part Kumar, an industry program manager from the Centre for Science and Environment based in New Delhi, 'mostly indirect.' He pointed to rising freight and marine insurance costs, as well as India's dependence on importing nearly 90% of its coking coal.

Meanwhile, China experienced some disruptions in steel exports in the initial days of the conflict, as about one-sixth of its shipments were destined for the Middle East following rapid trade growth in 2025. However, China successfully managed the conflict shocks thanks to decades of electrification and energy security planning, including its five-year energy plans. Raw materials for its steel industry are either domestic or come from Australia and Brazil. Thus, recently launched initiatives that could help decarbonize the steel sector, including a green hydrogen pilot program and policy updates for capacity replacement, proved resilient to energy shocks, even if their concept was not driven by the war, analysts reported.

Shift Towards Coal Gasification in India

In the Indian steel sector, this energy shock also drew increased attention to the use of coal gasification. In April, Jindal Steel announced that it solved the fuel shortage problem by using synthesis gas from coal in some of its finishing processes. This expands its existing use beyond DRI, which has been applied at its Angul, Odisha plant since 2020.

Processing coal into synthesis gas has attracted growing attention from Indian politicians since 2020. They aim to utilize India's vast coal reserves for various industrial needs and reduce import dependence, targeting 100 million tons by 2030. Some in the sector view this as a 'transitional industrial strategy' and a 'bridge' to low-carbon technologies in the DRI process. However, research and the government's own 'Green Steel Roadmap' indicate that DRI based on coal synthesis gas produces a life cycle emission level similar to or even greater than current prevailing technologies in India: direct burning of coal for DRI or in a blast furnace.

Kumar emphasized that coal gasification was a long-term goal but described a 'further deepening of the shift in mindset' towards energy security among decision-makers after the recent energy shocks. He mentioned a government support scheme of $3.9 billion for fuel development announced in May: 'There was pressure, and this was likely perceived as the right moment [to promote this].'

Regarding the potential impact on Indian steel decarbonization, Kumar said: 'These policies can ensure India's energy security, but they can also divert investment from many other [steel decarbonization] schemes. What about green hydrogen? Twice as much money is allocated to coal gasification. What signal are we sending to the industry right now? Probably that both can be done.'

India's green hydrogen mission, launched in 2023, included investments of $2.4 billion to create 5 million tons per year production capacity by 2030. It is currently behind schedule. This year, the government also announced an allocation of over $2 billion for Carbon Capture, Utilization, and Storage (CCUS).

Both Jindal Steel and the Ministry of Steel's roadmap assert that CCUS will be necessary to mitigate emissions from coal synthesis gas-based DRI. Simon Nicolas, a lead analyst on global steel at the Institute of Energy Economics and Financial Analysis, stated: 'Faced with the need for rapid economic development and a serious energy security challenge that threatens it, India is adopting an 'all-of-the-above' approach to steel decarbonization.' However, he previously warned about CCUS as a 'technological dead end' for Indian steel, citing uncompetitive costs, lack of proven ability to reduce emissions in steel production, and a 'long history of failures' globally.

Jindal was invited for an interview but declined to comment. Regarding the development of green hydrogen in India, Nicolas highlighted the potential role of this fuel in energy security efforts, including the steel sector: 'We have already seen a shift in tone in China regarding green hydrogen—from a decarbonization tool to an energy security tool. Given the progress made by India in green hydrogen, it can—and in my opinion, should—begin to view green hydrogen through the lens of energy security.'

Is This Obstacle Possible for Greener Iron and Steel?

As uncertainty over the resolution of the war persists, and final investment decisions for key iron and steel projects in the Gulf have not yet been made, the attention of some industry circles has shifted to opportunities for other potential 'green iron' producers. Some reports and commentators in Australia, the world's largest producer and exporter of iron ore, have called the war in Iran a 'window of opportunity' for the country. Nicolas stated: 'This should serve as a wake-up call for Australia to accelerate the development of green iron projects.' He added that Southeast Asia is a key opportunity region for Australia, especially if China accelerates its reduction of dependence on Australian iron ore.

Similarly, Brazil, the second-largest player in the global iron ore market, has long been considered for its advantages in green iron production. This raw material can create opportunities for sector leaders such as mining company Vale, which is itself an investor in a 'mega-hub' of green iron in Oman. Vale declined to comment on the progress of its projects or any consequences related to the war. However, in an interview with the Financial Times, its CEO Gustavo Pimenta stated that he believes recent energy shocks 'could accelerate the development of renewable energy sources and the green steel agenda.'

Iszan Choksi, Head of Global Steel Transition at the Agora Industry think tank, examined the prospects for global green iron trade. She noted: 'The geopolitical shock of the Middle East war will not change the fundamental market conditions. The competitiveness of HBI is determined by a number of factors, such as access to high-quality iron ore, as well as low energy and capital costs.' These fundamental conditions...