How the Iran war is disrupting India's steel production amid fuel shortages and rising costs

India imports a large share of its crude oil, liquefied natural gas (LNG) and liquefied petroleum gas (LPG) through a region that remains vulnerable to geopolitical disruption, with its energy security heavily exposed to instability in the Middle East and critical shipping routes such as the Strait of Hormuz.

That risk is now shifting into the steel sector as well, where fuel shortages, shipping disruptions and rising input costs have started to affect operations.

Indian steelmakers are already feeling the pressure as they worry about tightening gas supplies and the wider impact of the conflict on their cost base.

The fuel disruption is not limited to one part of steelmaking. LNG shortages are affecting gas-based ironmaking operations, while LPG shortages are disrupting stainless-steel processes.

India’s small steelmakers, who are dependent on LNG, have been facing production cuts as supplies tighten due to the conflict. Some producers warned that output could be cut sharply if fuel supplies do not normalize.

The disruption is not limited to smaller firms. The gas shortages have affected some JSW steel units, with one unit at risk of shutdown due to supply constraints. Given the circumstances, the steel conglomorate has asked the Indian government to intervene to address gas shortages affecting steel operations.

ArcelorMittal Nippon Steel (AMNS) India is also exposed due to its significant use of gas-based direct reduced iron (DRI). About 65% of the company’s 9Mtpa steelmaking capacity is linked to gas-based DRI and electric arc furnace operations. Meanwhile, Jindal Steel has started using synthesis gas (a man-made gas also known as syngas) in some furnaces to manage shortages of natural gas and LPG, highlighting the growing importance of fuel flexibility.

Further, rising oil prices are pushing up input costs. Industry experts suggest that this crisis could drive up input cost inflation for steelmakers as higher crude prices are pushing up fuel and freight rates. The disruption has also affected freight movement through the Strait of Hormuz, tightening supplies of industrial fuels and other steelmaking inputs.

In response, the Indian government has increased commercial LPG allocation and extended relief to selected priority industries, including steel, where fuel substitution is limited. However, no similar steel-specific relief has yet emerged for LNG-linked operations.

The ongoing conflict has once again highlighted a major energy security risk for India’s steel sector: its heavy dependence on imported metallurgical (met) coal, also known as coking coal. India imports about 90% of its met coal requirements, mostly from Australia, exposing steelmakers to global supply and price volatility. The market was already volatile, and the current conflict is now making that dependence even riskier.

Australian premium hard coking coal prices in January 2026 hit a 17-month high, as heavy rains and flooding in Queensland disrupted mining operations. As Australia dominates the global met coal supply, this event reflected supply disruption and stronger price pressure worldwide. Moreover, as the Iran war started to worsen, global coking coal prices rose again in the second half of March, adding to cost pressure on steelmakers.

This matters because India’s steel production – and new capacity project pipeline – is still dominated by coal-based blast furnace routes and even some coal-based DRI. Which means as India aims to increase its steel capacity to 300Mtpa by 2030, the dependence on imported met coal and the risks that come with it are expected to increase as well.

The conflict is making this dependence more expensive, as the cost of getting met coal to India has risen sharply. While the Iran war does not directly affect coal production, it amplifies the risks around it as higher oil prices increase freight costs, shipping routes become less predictable, and insurance premiums rise.

It is worth noting that this is the second time in four years that a military conflict has caused a fossil fuel crisis. The Russian invasion of Ukraine saw coal prices surge sharply, reducing Indian steelmakers’ operating margins by about five percentage points. This shows that, like natural gas, met coal prices can also be highly volatile, often squeezing margins.

For steelmakers, what matters is the delivered cost, not just the mine price. S&P Global has reported that the conflict has sharply increased freight costs, with capesize freight rates rising from $9.80 to $12.20 per tonne within initial weeks of March 2026, driven by higher bunker fuel prices and disruptions around the Strait of Hormuz. This directly increased the landed cost of met coal and iron ore for Indian steel mills, leading them to raise domestic steel prices to protect margins.

The impact of the Iran war is also affecting some of the key inputs India will need for a lower-emissions steel future.

As India aims to transition towards lower carbon pathways such as scrap-based steelmaking and hydrogen-based ironmaking, access to good-quality scrap, higher-grade iron ore and direct reduction (DR)-grade pellets will become essential. The current conflict is also showing vulnerabilities of these supply chains.

These pressures are visible in India’s scrap market, where imports have slowed as conflict-related disruptions have made deliveries more expensive. The Material Recycling Association of India (MRAI) highlighted that about 20-22% (0.5Mt) of India’s imports of metal scrap from the conflict-hit West Asia region has been disrupted.

At the same time, India’s iron ore imports are now expected to rise to a seven-year high in FY2025–26, mainly because domestic steelmakers need higher-quality iron ore that is not always available domestically. A large share of these imports, around 70% has come from Brazil and Oman. Separately, imports of iron ore pellets have risen to around 1.88Mt (Apr 2025–Feb 2026), with India also sourcing cheaper pellets from Iran, which are now at risk due to the conflict.

S&P Global notes that the Middle East countries account for more than 38% of global DRI production, and that ongoing conflict could disrupt DR-grade pellet flows and investment in low-carbon ironmaking. Further, the conflict could lift iron ore freight rates to Asia, increasing the delivered cost of ore and related input.

The real lesson from this crisis is that India’s steel sector remains vulnerable as its growth is still tied to imported and globally exposed inputs. India therefore needs a steel energy security strategy, not just a steel growth strategy.

In the near term, this means strengthening domestic energy, scrap and iron ore security, while reducing exposure to fragile trade routes and fuel systems.

One likely outcome of the regional conflict is that the energy security value of domestically produced green hydrogen will be re-assessed. China is already clearly indicating that it sees green hydrogen as a pillar of its energy security efforts going forward.

Along with China, India is also well placed, with low-cost renewable energy, growing domestic demand, and policy backing under the National Green Hydrogen Mission, which targets 5Mt of annual production by 2030.

In the longer term, India needs to reduce dependence on imported fossil-linked steelmaking inputs altogether. That means:

India’s steel future will depend not only on how much it produces, but on how it can produce without the energy security risk.