Middle East conflict puts the DRI market under threat

Executive summary

The Middle East has become a pivotal node in the global shift to direct-reduced iron (DRI) and low‑carbon steel—but that momentum is now colliding with escalating geopolitical risk. With the region accounting for a large share of global DRI output and building out new capacity to serve export markets, any prolonged disruption can ripple through high‑grade iron ore demand, DR‑grade pellet flows, freight routes, and energy costs. This research looks at what’s at stake for miners, traders, steelmakers, and investors—starting with how pellet supply chains anchored in Oman and production hubs like Bahrain Steel connect to broader “green steel” ambitions, including Europe’s decarbonization push. In short: the conflict isn’t just a regional headline—it’s a stress test for the supply chain powering the next phase of steelmaking.

Vale SA’s iron pellets business operations in Oman

On the iron ore pellets side, Vale SA's regional operations, which include a pelletizing plant in Oman with 9 million metric tons of annual capacity and the Sohar Port Distribution Center, play a central role in the company's pellet business, shipping pellets and fines across the Middle East and Asia. Total shipments from Oman's ports in 2025 amounted to 14.8 million mt, with about 15% destined for China. The share of exports heading to India has also grown notably, rising to 24% in 2025 from 10% in 2024, according to S&P Global Commodities at Sea data. Pellets represented approximately 9% of total shipments in 2025, or 1.34 million mt. For comparison, the world's largest pellet exporter, Brazil, shipped 23.8 million mt of iron ore pellets over the same period.

Bahrain Steel - Middle East’s largest direct-reduction (DR) pellet producer

Bahrain Steel, one of the Middle East region's biggest direct-reduction (DR) pellet producers, recorded a production milestone of 13 million mt of DR pellets in 2023, sourcing iron ore feed from Brazil, Canada and Sweden. The company produces DR-grade pellets predominantly for steelmakers in the Middle East, with a smaller share directed toward Southeast Asia.

The Middle East is the largest DRI market in the world

The Middle East — here defined as Iran, Qatar, Saudi Arabia and the United Arab Emirates (UAE) — represents the largest DRI market in the world, accounting for over 38% (48 million mt) of global DRI output in 2025. Historically, regional DRI production has been vertically integrated into DRI-electric arc furnace (EAF) steelmaking, but most countries in the region are increasingly positioning themselves as export-oriented suppliers, well-placed to meet growing future demand from Europe, where the Carbon Border Adjustment Mechanism (CBAM) entered its mandatory phase in January this year. By producing DRI and hot briquetted iron (HBI) at competitive cost and exporting it to steelmakers globally, the Middle East is decoupling ironmaking from steelmaking at scale — transforming DRI into a globally traded commodity and accelerating the broader shift toward low-carbon steel.

Critical juncture for global “green steel” transition

This shift is underscored by 12 new DRI projects announced across the region. S&P Global Energy CERA's Low-Carbon Steel report estimates 43.3 million mt of new annual DRI capacity is planned in the region, with a further 33.1 million mt of potential projects in development, together reinforcing its importance for the global "green steel" transition. The war in the Middle East makes these investments subject to reassessment at a critical juncture for global decarbonization efforts. As the energy transition accelerates in Europe and demand for low-carbon steel products rises, we project global DRI demand to grow at a 10% compound annual growth rate between 2026 and 2030 to be about 209 million mt in 2030.

On the pricing side, markets are still digesting the impact of the joint US-Israel strikes on Iran and the ensuing counterattacks. Platts, part of S&P Global Energy, assessed iron ore 67% Fe pellet feed CFR Middle East at $126.3 per dry metric ton on March 5, up 1% from Feb. 27. It is worth noting that Platts' methodology may also incorporate seaborne pellet feed imports into China, where demand has risen amid sintering restrictions ahead of the country's annual Two Sessions meetings held in March, potentially supporting the price.

A prolonged conflict and geopolitical uncertainty will disrupt DRI market dynamics and threaten the decoupling of ironmaking and steelmaking, while potentially accelerating the push for domestic DRI capacity in Europe.

FAQs

What is DRI, and why does it matter for steel decarbonization?

Direct‑reduced iron (DRI) is an ironmaking route that reduces iron ore using natural gas or hydrogen instead of coke, lowering carbon emissions compared with traditional blast‑furnace steelmaking. As steelmakers pursue decarbonization pathways, DRI has become a central technology for producing lower‑emissions iron units at scale.

Why is the Middle East central to the global DRI market?

The Middle East accounts for the largest share of global DRI production, supported by access to natural gas, established steelmaking infrastructure, and growing ambitions to serve export markets. Several producers in the region are positioning DRI and hot‑briquetted iron as strategic export products for Europe and beyond.

Why does the Middle East conflict matter for the DRI market?

Prolonged conflict raises risks across the DRI value chain by threatening energy supply, transport routes, and investment confidence in a region that underpins a significant share of global output. Any sustained disruption can ripple through iron ore demand, DRI trade flows, and long‑term project development.

How could the conflict affect global DRI trade and investment?

Heightened geopolitical uncertainty may delay new DRI projects, complicate cross‑border trade, and increase risk premiums for investments tied to export‑oriented capacity. For buyers, disruption in a major supply hub could prompt reassessment of sourcing strategies and greater focus on supply security.

How does DRI expansion affect high‑grade iron ore demand?

The expansion of DRI capacity reinforces demand for higher‑grade iron ore products that meet the input requirements of direct‑reduction processes. As DRI growth accelerates, availability and reliability of suitable feedstocks become increasingly important to the market.

What are DR‑grade pellets, and why are they different from standard iron ore products?

DR‑grade pellets are iron ore pellets engineered for direct‑reduction processes and typically require higher quality specifications than many blast‑furnace feed materials. These specifications reflect the technical requirements of DRI plants and link pellet supply more closely to the performance of the DRI market.

^{S&P Global Energy produces content for distribution by S&P Global Market Intelligence.
Disclaimer: This content may be AI-assisted and is composed, reviewed, edited, and approved by S&P Global.}