The steel sector accounts for roughly 8–9% of global energy-related carbon dioxide (CO₂) emissions. Conventional coal-based blast furnace–basic oxygen furnace (BF–BOF) production emits around 2.2 metric tons of CO₂ per metric ton (tCO₂/t) of steel, whereas gas-based direct reduced iron–electric arc furnace (DRI–EAF) processes used in parts of the Middle East and North Africa (MENA) emit approximately 1.4 tCO₂/t. Importantly, DRI–EAF systems are compatible with hydrogen, meaning that retrofitting them to use low-carbon or green hydrogen could reduce emissions by up to 90%. This positions the region as a potential early leader in the global transition to “green steel.”

From 2026 onward, the European Union’s (EU’s) Carbon Border Adjustment Mechanism (CBAM) will apply a carbon cost to imported steel based on EU internal Emissions Trading System (ETS) prices — commonly assumed at around €80–90 per metric ton of CO₂ – and route-specific emissions benchmarks. Draft European Commission benchmarks show significantly higher embedded emissions for BF–BOF steel than for DRI–EAF or scrap-based production, implying a much higher CBAM burden for conventional routes. This is likely to shift competitiveness toward low-carbon production pathways, including hydrogen-based DRI. At the same time, uneven carbon pricing regimes across global markets and uncertainty surrounding the long-term design and application of CBAM underline the importance for MENA producers of developing diversified export destinations, rather than relying on a single regulatory market.

The MENA region holds a structural advantage in the emerging green iron economy. In 2024, MENA producers supplied 62.5 million metric tons of DRI out of a global total of 140.8 million metric tons, accounting for 44% of world output. This provides a strong foundation for green steel exports. However, realizing this opportunity will depend on the deployment of clear hydrogen strategies; otherwise, new assets risk carbon lock-in and stranded capital.

MENA’s gas-based DRI capacity, coupled with its exceptional renewable resources, reinforces this advantage. Solar auctions in the region regularly clear around €37 per megawatt hour (€/MWh) with similarly low prices for wind. By 2030, electrolyzer installations in Oman and the Gulf could supply renewable hydrogen at around $1.6–2.0 per kilogram (kg), while blue hydrogen produced from natural gas in combination with carbon capture and storage (CCS) may reach $1.3–1.7 per kg. At these price levels, hydrogen-based DRI could become competitive with conventional steelmaking under favorable assumptions around cost, utilization and policy support. Even so, hydrogen-based steel is expected to retain a near-term “green premium” relative to conventional production, reflecting higher input costs and elevated upfront capital requirements, which continue to constrain project bankability in the absence of long-term offtake agreements or targeted policy support. In the absence of clear hydrogen deployment targets, new investments may also reinforce high-emission pathways.

Falling electrolyzer costs by 2030 could support this transition, although recent evidence points to slower-than-anticipated cost declines and continued high system costs outside China. At the same time, hydrogen-ready DRI technologies like Midrex Flex and Energiron enhance the feasibility of hydrogen-based DRI. Large-scale initiatives – including Oman’s Hydrom, Saudi Arabia’s NEOM and Yanbu Green Hydrogen Hub projects, and pilot facilities in the United Arab Emirates – demonstrate strong regional momentum.

These trends suggest that MENA could emerge as a global industrial hub for green iron, hot briquetted iron (HBI) and green steel by the early 2030s, conditional on successful project scale-up and the establishment of supportive policy and demand-side frameworks, including MENA-specific instruments such as joint-venture structures for first-mover projects, targeted public and blended-finance mechanisms, policy sequencing, and the development of certification systems aligned with international standards.