The Institute for Energy Economics and Financial Analysis (IEFA) said in its latest report that the Middle East has become a major hub for low-emission iron production, thanks in large part to the widespread adoption of direct reduction iron (DRI) technology. However, ongoing geopolitical tensions in the region are now changing global supply dynamics and creating significant uncertainty.
Steel production in Iran has been severely impacted, with several major plants reportedly damaged. These disruptions are expected to limit crude steel production and effectively eliminate some of the world's DRI electric arc furnace capacity from the market.
Strait of Hormuz crisis disrupts supply chains
The closure of the Strait of Hormuz is exacerbating supply chain challenges throughout the region. Rising transportation and insurance costs, shipping disruptions and shortages of direct reduced pellets are tightening supply, forcing steel producers to look for alternatives.
As supply of direct reduced steel becomes limited, steel producers are increasingly turning to scrap metal to maintain production. The shift is pushing up global scrap prices and putting additional pressure on commodity markets.
Pellet supply chains face additional strain
Producers in Bahrain and Oman are struggling to source iron ore concentrate, especially from Brazil.
Supplies are being redirected to Asian markets, reducing the availability of raw materials for DRI plants in the region.
The market for semi-finished steel products is tightening
The effective withdrawal of Iran from the market also affects the supply of semi-finished steel products. The country accounts for about 11 percent of global trade in semi-finished products, meaning its absence is tightening global supply conditions.
Geopolitical instability, rising energy prices and financial risks are expected to delay investment in low-emission steel projects. Key projects in Saudi Arabia's Ras al-Khair zone, backed by companies such as Essar, Vale, Aramco-Baosteel-PIF and Tosyalı, now face increased risk.
Alternative suppliers are gaining momentum
Disruptions
