Can the Hormuz Crisis Reshape the Hydrogen Economy?

Spotlight

• Supply-chain disruptions at the Strait of Hormuz have negatively impacted the fertiliser and steel sectors, redirecting attention towards new production hubs for green hydrogen and ammonia to create corridor redundancies and reduce reliance on hydrocarbons.
• To bypass the Strait of Hormuz, renewable-rich states, including Morocco and Egypt, are receiving investments from the European Union (EU), China, and the Gulf, to establish themselves as alternative secure corridors for green fertiliser.
• Middle Eastern gas-based iron-ore shortage due to shipping challenges has urged steelmakers in Asia to look for alternate sources, opening opportunities for countries such as Australia and India to explore green-iron processing.

The de facto closure of the Strait of Hormuz due to the conflict between the United States (US)-Israel and Iran has had diverging impacts on global energy transition. On the one hand, the rise in fossil fuel cost has promoted clean energy deployment as a foundational aspect of energy security, particularly in areas where renewable energy is abundant. On the other, it has increased immediate hydrocarbon dependency, forcing import-dependent nations to explore parallel investments in immediate hydrocarbon alongside renewable projects to achieve long-term energy security.

Hydrogen was initially seen as a key decarbonisation tool for the industrial sector, which accounts for over 21 percent of direct global greenhouse gas emissions. Its applicability across challenging-to-decarbonise sectors, combined with its ability to be produced from renewable resources, generated ambitious hydrogen development targets among governments in Europe and East Asia. Despite early optimism, however, the pursuit of green hydrogen development became increasingly challenging to justify. Hydrogen infrastructure and technology were evolving at a fragmented pace, and investors were cautious due to uncompetitive pricing, which limited opportunities to coordinate research and development, scale pilot projects, and ensure technological connectivity between cross-continental production and consumption hubs. Global hydrogen output is now expected to be far below early established targets, with hydrogen production expected to fall 50 percent short of early benchmarks.

It has increased immediate hydrocarbon dependency, forcing import-dependent nations to explore parallel investments in immediate hydrocarbon alongside renewable projects to achieve long-term energy security.

However, disruptions to fertiliser supply chains and steel production cycles due to trade bottlenecks at the Strait of Hormuz, as well as rising natural gas prices, have led to renewed attention towards green hydrogen and ammonia because of their potential to contribute to long-term energy security. While some countries are redirecting fiscal capacity to mitigate immediate shocks, others are doubling down on investments in and efforts towards generating clean energy to bolster resilience ahead of the next crisis. According to Michael Liebrich’s evaluation of clean hydrogen use cases, the most resilient demand pockets for hydrogen lie in highly concentrated, non-substitutable industrial applications. This article evaluates how supply-chain disruptions at the Strait of Hormuz are reconfiguring industrial demand and explores the emergence of secure demand markets and relocation of production clusters for green fertiliser and steel.

Shifting Industrial Demand and New Hydrogen Hotspots 

The US-Israel–Iran conflict’s shock to trade flows through the Strait of Hormuz has triggered a two-fold reaction. Import-dependent states are aiming to insulate vulnerable supply chains, while those endowed with renewable resources are capitalising on market changes by accelerating infrastructure announcements. The policy adjustments given in Table 1 highlight how the conflict is contributing to the emergence of new alternative trade corridors.

Source: Author’s own using sources as cited. 

Morocco, Egypt, and India—Emerging Green Fertiliser Hubs

Twenty-three percent of globally traded ammonia passes through the Strait of Hormuz. The disruption to it further underscores Liebrich’s argument that the most immediate demand for green hydrogen lies in fertilisers. Given that ammonia feedstock for nitrogenous fertilisers is not easily substitutable, global food security depends on a highly concentrated group of Gulf suppliers for ammonia, including the UAE, Saudi Arabia, and Oman. Moreover, the advantage of green ammonia is that it does not depend on natural gas for production. Thus, the Hormuz trade bottlenecks have intensified the urgency to advance green ammonia as a diversification and security pathway.

Twenty-three percent of globally traded ammonia passes through the Strait of Hormuz. The disruption to it further underscores Liebrich’s argument that the most immediate demand for green hydrogen lies in fertilisers.

On the production side, Morocco and Egypt carry strategic advantages as renewable-rich nodal points with the capacity to circumvent the Strait of Hormuz. In March 2026, Morocco approved $32.5 billion in green hydrogen projects, including ammonia and fuel production, in partnership with the UAE’s Taqa and Spain’s Cespa. Likewise, Egypt’s Alexandria Fertilizers Company signed an MoU with China’s United Energy Group and others to develop a green hydrogen hub in Alexandria. By adopting multi-alignment strategies and securing investments from the Gulf, EU, and China, Morocco and Egypt are gaining access to low-cost technologies and securing demand off-takers, positioning themselves as emerging hotspots for green ammonia exports.

On the demand side, India is also expanding its domestic green fertiliser market, after experiencing the dual impacts of reduced natural gas feedstock for its domestic ammonia production and reduced ammonia imports from the Gulf. In March 2026, Indian fertiliser manufacturers secured additional long-term contracts for green ammonia. Securing supply contracts amidst such market volatility safeguards them from future price spikes and supply disruptions, increasing green fertilisers’ market viability. Morocco’s and Egypt’s long-term cross-border export strategies and India’s drive for self-sufficiency thus positions these production hubs as crucial diversification and decarbonisation centres for green fertiliser.

Green Iron and Green Steel Opportunities for Australia and Asia

The metals sector is experiencing a parallel restructure. The Middle East dominates gas-based direct reduced iron (DRI) production, supplying 45 percent, which is exported as hot briquetted iron (HBI) and refined into steel. Prolonged and costly shipping reroutes have triggered shortages of DRI grade pellets, affecting steelmakers in Europe and Asia that are highly dependent on HBI shipments from the Middle East. Low-carbon hydrogen can replace natural gas or coal to generate direct reduced iron (DRI) from iron ore through the hydrogen-DRI method. At a time of trade uncertainties at the Strait of Hormuz, investor hesitancy in Middle East projects, and competition with China, Australia and Asian countries have an opportunity to reconsider domestic green-iron processing and manufacturing.

As one of the largest exporters of iron ore, Australia has long struggled to launch a green iron industry due to high production costs and extensive regulatory approvals. However, the Hormuz crisis has rekindled aspirations to accelerate smaller pilot projects, such as the Mid West Green Iron Project partnership that intends to leverage regional green hydrogen pilots to serve domestic and Asian markets, such as Japan. India is also rapidly expanding its DRI sector and could emerge as a hydrogen-DRI leader, given a projected decline in green hydrogen costs.

Capitalising on green iron initiatives will become increasingly important to maintain industry competitiveness. China, for example, is increasingly leveraging hydrogen in its steelmaking, despite a downward trend in steel production due to declining demand. This is further supplemented by a recently announced low-carbon transition fund to support domestic green hydrogen development and green hydrogen quotas for industrial sectors to boost green fuel demand. Countries such as India, Japan, and South Korea are actively boosting green steel production efforts in order to compete with China. These changes will coincide with an increase in the demand for decarbonised steel due to the EU’s Carbon Border Adjustment Mechanism (CBAM), that mandates steel exporters to the EU to report and pay for carbon emissions. Gulf-dependent DRI-importing countries such as Japan will greatly benefit from alternative and geopolitically secure source locations.

The Gulf’s Green Hydrogen Development

Despite the immediate structural shift favouring production hubs outside the Gulf to avoid replicating trade chokepoints, Oman and the UAE’s green hydrogen trajectory should not be discounted. First, these countries are investing in bolstering alternate trade corridors to minimise future vulnerabilities and reallocate risk. For example, Oman continues to expand its green ammonia facility that had previously reached a full-investment decision (FID) at its Port of Duqm, a node that directly bypasses the Strait of Hormuz, by securing additional investment deals.

Second, these countries are procuring investments and building secure partnerships to create infrastructural linkages for green hydrogen development. Oman’s 2025 Liquid Hydrogen Corridor Agreement connecting the Port of Duqm to the Port of Amsterdam in Europe continues to advance. In May 2026, the Abu Dhabi-based Taziz Methanol company secured domestic off-take and feedstock agreements to support the country’s domestic chemicals sector as well as international off-take agreements with European and Asian financial institutions, despite the ongoing conflict. On a macro level, Gulf sovereign wealth funds continue to invest in clean energy projects despite economic losses. While higher insurance premiums and pressure on alternative routes remain challenges for achieving immediate cost feasibility, ongoing clean energy investments and hydrogen partnerships highlight the Gulf’s potential to remain as a structural anchor where declining costs, geographic reach, and technological capabilities converge to advance the global hydrogen economy.

Shaping the Future Hydrogen Economy

The Hormuz crisis reinvigorates the case for hydrogen especially for sectors like fertiliser and steel; however, the potential normalisation of trade following the projected reopening of the Strait might ground these ambitions in the face of technical, regulatory, and financial realities. From a technical perspective, newly announced projects in Morocco and Egypt must navigate certain obstacles, including securing water access for electrolysers in arid zones. Contributing to energy security will thus remain a long-term endeavour.

The emergence of less geopolitically volatile trade corridors is as crucial as cost competitiveness in shaping the future hydrogen economy.

From a regulatory perspective, the EU’s Renewable Fuels of Non-Biological Origin (RFNBO) requirements present a highly complex regulatory framework that fuels investor hesitancy, long-term compliance challenges, and project delays. While Oman has shaped its hydrogen strategy to accommodate Europe as a predictable export market for its green hydrogen products, potential future shifts in RFNBO requirements may destabilise this foundation. A lack of clarity and predictability from the RNFBO may lead to delays in final investment decisions and project execution from non-EU countries. From a financing perspective, green ammonia remains twice as expensive to produce, compared to grey ammonia. Since Hormuz disruptions may be temporary, any resulting cost competitiveness for green hydrogen will be equally transient. Notwithstanding these reservations, this article’s evaluation of Hormuz crisis-era investments and partnerships demonstrates how the emergence of less geopolitically volatile trade corridors is as crucial as cost competitiveness in shaping the future hydrogen economy.

Leigh Mante is Junior Fellow, Climate and Energy, Observer Research Foundation Middle East.