Has the Iran war been a setback for greener steelmaking?
A regional conflict involving Iran, which began several months before September 2026, included strikes on Iranian steel-producing facilities at Isfahan, Sefiddasht, and Ahvaz, as well as a plant in Bahrain, and disrupted shipping through the Strait of Hormuz.
The strikes destroyed more than 10% of global Direct Reduced Iron (DRI) production capacity, even though none of the destroyed plants were low-carbon (green hydrogen-based) facilities.
The Gulf region — Iran, Saudi Arabia, Bahrain, Qatar, UAE, and Oman — together held roughly 73 million tonnes per year of DRI capacity, more than 43% of global capacity, before the conflict, making it central to global plans for eventually decarbonizing steel via green hydrogen.
Several green/low-carbon steel investment decisions were delayed as a result, including a 2.5 million tonne-per-year hydrogen-capable DRI plant decision (postponed to Q3 2026) and uncertainty around large planned facilities in the region.
The disruption raised insurance and freight costs globally and prompted some countries, including India, to increase investment in coal gasification as an alternative, potentially slowing hydrogen-based steel development.
What Is Direct Reduced Iron (DRI), and Why Does It Matter for Green Steel?
Direct Reduced Iron (DRI), also called sponge iron, is produced by chemically removing oxygen from solid iron ore using a reducing gas — typically hydrogen and carbon monoxide derived from natural gas or coal — without melting the ore, unlike the traditional blast furnace route. DRI is significant to decarbonization because the same basic process, when fed with green hydrogen instead of natural gas, produces near-zero-carbon "green steel," since hydrogen reduction yields water vapour rather than CO₂ as a byproduct.
Key Details
- In a natural gas-fed DRI furnace, roughly half the reducing reaction comes from hydrogen and the rest from carbon monoxide (a fossil byproduct); shifting fully to hydrogen removes the carbon-emitting component.
- DRI is typically melted in an electric arc furnace (EAF) to make finished steel — a lower-emission route than the coal-fed blast furnace-basic oxygen furnace (BF-BOF) route dominant in India and China.
- The Gulf region became a hub for DRI (using cheap natural gas) well before the shift to green hydrogen, giving it existing infrastructure that could, in principle, be retrofitted to hydrogen-based reduction as green hydrogen scales up.
Because the Gulf held over 43% of global DRI capacity, damage to even a fraction of it (>10%) had an outsized effect on the world's most advanced regional cluster for transitioning toward hydrogen-based green steel — showing how geopolitical conflict in one node can slow a global industrial decarbonization pathway.
India's Green Steel and Green Hydrogen Push
India, the world's second-largest crude steel producer, launched a formal decarbonization push for its highly carbon-intensive steel sector, most of which currently uses the coal-based blast furnace route.
Key Details
- The National Green Hydrogen Mission was approved in January 2023 with an outlay of ₹19,744 crore, aiming to make India a global hub for green hydrogen production and export; pilot projects in steel were sanctioned under this mission, including plants operated by SAIL, Matrix Gas and Renewables, and Simplex Castings.
- The Ministry of Steel unveiled a "Green Steel Taxonomy" in December 2024, defining "green steel" by CO₂-equivalent emission intensity below 2.2 tonnes of CO₂e per tonne of finished steel, with a "percentage greenness" rating relative to that threshold.
- India's steel decarbonization roadmap encourages a shift toward the DRI-EAF route, scrap-based steelmaking, and eventual hydrogen-based DRI, alongside efficiency gains in existing blast furnaces.
The disruption to global DRI supply and hydrogen-steel investment (and India's own pivot toward coal gasification as a stopgap) directly affects the input costs and technology pathways available for India's own green steel taxonomy targets.
The Strait of Hormuz as a Global Energy Chokepoint
The Strait of Hormuz, separating Iran from Oman and the UAE, is the world's most important oil transit chokepoint, connecting the Persian Gulf to the Arabian Sea and Indian Ocean.
Disruption of Hormuz shipping during the conflict raised freight and insurance costs, compounding the direct plant-damage impact on Gulf DRI/steel supply chains and reinforcing why India (a major crude and, increasingly, DRI-feedstock importer) tracks developments here closely.
- Gulf region DRI capacity (Iran, Saudi Arabia, Bahrain, Qatar, UAE, Oman): ~73 million tonnes/year, over 43% of global DRI capacity.
- Conflict destroyed more than 10% of global DRI capacity.
- India's National Green Hydrogen Mission: launched January 2023, outlay ₹19,744 crore.
- India's Green Steel Taxonomy threshold: 2.2 tonnes CO₂e per tonne of finished steel.
- Strait of Hormuz: ~33 km wide at narrowest; carries about one-fifth of global oil consumption.
- Roughly half of India's crude oil imports transit the Strait of Hormuz.