The Middle East has established itself as a major potential hub for the production and export of lower-emissions iron to steelmakers in Europe and Asia, with its steel industries long dominated by direct reduced iron (DRI) technology. However, the ongoing conflict in the region may shift the landscape in favour of other emerging competitors in this market – including Australia.

The region’s steelmaking plants have already been significantly affected, particularly in Iran, where several major facilities have reportedly suffered severe damage and may be unable to sustain crude steel production for an extended period. As a result, the global steel industry may have already lost part of its potential lower-emissions capacity, as the affected assets are based on lower-emissions DRI-EAF [electric arc furnace] technology.

The ripple effects of the Strait of Hormuz closure are now becoming more evident across the Middle East. These include disruptions to value chains, higher transportation and insurance costs, shipping uncertainties, shortages of direct reduction-grade pellet and consequently DRI supply constraints. This has also contributed to rising scrap prices, as steel producers attempt to maintain output by increasing scrap charging.

Two major pellet producers in Bahrain and Oman are now facing challenges in sourcing iron ore concentrate, primarily from Brazil, and are unable to reliably supply DRI facilities in the region. Vessels originally destined for these two producers have been diverted to alternative ports across Asia.

The semi-finished steel market has also been significantly impacted, as Iran – accounting for roughly 11% of global semi-finished steel trade – has effectively been taken out of the market.

While many reports highlight the prolonged recovery timeline for the Middle East’s oil and gas export facilities, the outlook for other commodities – including iron and steel – appears to be similar. Steelmakers in Europe and Asia may now think twice about becoming dependent on imports of low-carbon iron from within the Straits of Hormuz.

Uncertainty hits low-emissions projects
This situation is creating a high level of uncertainty for investors, driving inflation, disrupting supply chains, pushing fuel and energy prices sharply higher across all regions, and increasing risk in financial markets. These geopolitical uncertainties, even if they do not lead to project cancellations, could slow the region’s steel decarbonisation and delay new DRI investments.

All of the new low-emissions plants announced in Saudi Arabia were to be built in the Ras Al-Khair industrial zone and port, located on the Persian Gulf, which is now fully blocked. This includes projects from Essar Group; Vale’s Mega Hub; Aramco, Baosteel and PIF; and Tosyali’s flat steel complex.

Japanese companies – Itochu and JFE – were also considering the establishment of a DRI facility in Abu Dhabi, UAE. Apart from Saudi Arabia, Vale’s Mega Hub concept also includes potential developments in the UAE and Oman.

Among the low-emissions iron and steel projects announced in the region, those in Oman appear to be less affected. Meranti Green Steel has stated that the conflict will not delay its decision or construction timeline, and it is also considering future expansion. Jindal Steel is continuing to build a hot-briquetted iron (HBI) plan with a capacity of 2.5 million tonnes per annum (MTPA) and has recently received key plant components from China. Both the Meranti Green Steel and Jindal Steel projects are located at the Port of Duqm, relatively far from the conflict zones and outside the Strait of Hormuz.

However, even the Port of Salalah in southern Oman and the Yanbu oil terminal on Saudi Arabia’s Red Sea coast have been affected by drone strikes, adding another layer of uncertainty to the regional conflict beyond the Persian Gulf.
How ready is Australia to seize this opportunity?
The geopolitical turmoil in the Middle East may create hesitation among investors, leading them to delay final investment decisions (FIDs). Although the underlying fundamentals of the region for green iron production have not changed, the war environment opens a narrow window of opportunity for other contenders. Brazil, for example, is well positioned in this market and is looking to capitalise on this disruption.

Australia is also a key supplier with the potential to revive its green iron ambitions. Some believe that, among all investor criteria, reliability can outweigh other considerations such as energy costs, giving Australia a potential advantage in this regard.

Many geopolitical and macroeconomic factors are beyond Australia’s control. The key is for the country to be prepared to deliver value to the market and position itself as a reliable alternative for potential buyers seeking diversification amid the current conflict.

Mining, iron ore, and steel projects are inherently characterised by long development cycles, typically requiring multiple years of feasibility studies, permitting, engineering design, and financing prior to construction. However, there are notable examples of projects and developers that have successfully compressed these timelines, driven by strong determination to advance projects more rapidly. For instance, Meranti Green Steel was initially spun off from Meranti Steel in May 2023 to develop a green steel capability (including the 2.5MTPA HBI plant in Oman) and is expected to reach a final investment decision (FID) this year. The company has also successfully secured offtake agreements for its HBI.

POSCO’s Port Hedland iron project in Australia has a similar scope and remains in the pipeline, with its FID long awaited. Initial studies were completed in 2022. Several other commercial-scale projects are also progressing in Australia but are still awaiting FID.

A key milestone before reaching FID is securing offtake agreements for the final product. This is where Australian producers in the green iron value chain must actively collaborate with trade partners, particularly in Asia. By 2030, there is an opportunity for Australia to supply up to 5.5MTPA of green iron to the Asia-Pacific market.

Another key barrier facing large-scale projects is the lengthy development timeline, which needs to be streamlined for major projects in the pipeline. One example is Magnetite Mines’ Razorback Iron Ore Project, which has the potential to produce high-grade iron ore suitable for green iron. The project has been granted a three-year “Major Project Status” (MPS), meaning the Major Projects Facilitation Agency (MPFA) will support the streamlining of various approvals. As the only iron ore project currently awarded this status, Razorback could serve as a showcase for how approvals can be accelerated to fast-track progress toward FID and construction.

Australia also must consider that it has a competitive advantage in producing true green iron, using hydrogen instead of natural gas. Early adoption of hydrogen could provide Australian projects with a competitive edge over other market offerings. Without clear differentiation, attracting and retaining international investors will be difficult.

Whether investors will prioritise investment security over considerations such as financial returns and cost competitiveness remains an open question. However, the key differentiator lies not just in having resources, but in how rapidly countries can adapt, scale and deliver to meet shifting market dynamics.
Source: IEEFA