IEA Report Flags Hydrogen Supply Chain Vulnerabilities Triggered By Middle East Conflict, Low-Carbon Output Lagging Global Demand

According to Economic Daily, the International Energy Agency has released its Global Hydrogen Review 2026, laying out how military hostilities breaking out in late February across the Middle East have disrupted cross-border production and trade of hydrogen-derived commodities, laying bare systemic fragilities within global fertiliser manufacturing, chemical processing and oil refining supply chains. The regional unrest has pushed governments worldwide to revisit hydrogen and hydrogen-based fuels as core instruments to reinforce long-term energy security, yet volumes of low-emission hydrogen available across global markets remain insufficient to meet evolving industrial and policy targets.

The fertiliser sector bears the most acute commercial fallout from the regional disruption. The Middle East generates roughly one sixth of all hydrogen produced globally, the bulk directed into chemical manufacturing, nitrogen fertiliser output and refinery processing. Hydrogen-derived goods originating from the region account for more than 10 per cent of worldwide refining, ammonia and urea capacity, alongside nearly 17 per cent of global methanol production. 

The region also acts as a linchpin for cross-border hydrogen commodity flows, handling over 25 per cent of international ammonia trade, close to 40 per cent of global urea shipments and almost 45 per cent of methanol export volumes, with one third of its refining capacity built specifically for overseas supply. Commercial vessel movements through the Strait of Hormuz have resumed partial operations, yet full throughput recovery will require a minimum of several weeks, with extended timelines of multiple months if port and processing infrastructure sustains lasting damage. Restricted transit routes create sustained supply tightness and volatile pricing across global fertiliser, refined oil and chemical markets.

Congested shipping lanes through the strait have capped cross-border flows of ammonia, urea and sulphur, all critical feedstocks for fertiliser fabrication. Gas shortages and inflated natural gas tariffs have forced production shutdowns across manufacturing bases in Bangladesh, India and Slovakia, lifting baseline operating costs for fertiliser producers worldwide. Trade data tracking January to May 2026 records a full doubling of urea prices, driven by logistical blockages, surging gas costs and national export curbs. Higher fertiliser input expenses transmit risk through global food supply networks, with agricultural economies in Asia, Africa and Latin America that rely heavily on Middle Eastern fertiliser imports absorbing the sharpest market pressures.

Volumes of low-emission hydrogen continue to trail grey hydrogen, the carbon-intensive variant dominant in current industrial workflows. Global hydrogen consumption exceeded 100 million tonnes in 2025, concentrated almost entirely within refinery and heavy industrial processes. Projections place low-emission hydrogen uptake at 2.5 million tonnes across refineries and industrial facilities by 2030. New emerging use cases for hydrogen are recording accelerating uptake rates, yet these segments still capture only a minor fraction of total worldwide hydrogen demand.

Global low-emission hydrogen output reached nearly one million tonnes in 2025, marking a 20 per cent year-on-year rise, though multiple structural barriers slow wider rollout. Elevated production costs, uncertain long-term demand trajectories, fragmented regulatory frameworks and gaps in dedicated transport and storage infrastructure constrain project scaling. The IEA has revised its 2030 annual output forecast for low-emission hydrogen downwards from 49 million tonnes to 37 million tonnes amid persistent market headwinds.

Investment momentum for low-emission hydrogen development softened through 2025. A small cohort of developments reached final investment decision milestones, yet this pipeline lacks sufficient scale to drive unit cost reductions and sustain consistent expansion. Delayed capital commitments and scaled-back project sizing underscore persistent commercial hurdles. Planned 2030 production capacity for announced low-emission hydrogen schemes has contracted by roughly one quarter since the start of 2025, falling to 27 million tonnes. Projects that have secured final investment approval or stand highly likely to commence operation before 2030 have also seen their aggregate capacity trimmed from the prior year’s 10 million tonne assessment to a figure above six million tonnes.

Weak contracted demand stands as a primary drag on low-emission hydrogen expansion. New offtake agreements finalised in 2025 cover approximately 1.7 million tonnes of low-emission hydrogen, matching volumes secured across 2024. Only around 20 per cent of these contractual arrangements carry binding purchase obligations, with nearly all tied to refinery, heavy manufacturing and power generation applications. The modest scale of secured long-term offtake fails to unlock large-scale industrial investment in low-emission hydrogen production, with demand ambiguity ranked among the most significant deterrents for institutional capital.

Policy backing from European Union institutions supports incremental low-emission hydrogen growth across the continent. EU legislation transposing targets for non-biological renewable fuels within transport into national legal frameworks has advanced project development, particularly for refinery integration. Major flagship hydrogen facilities across Europe are scheduled to enter commercial operation in 2026, yet ambiguous implementation pathways for core regulatory standards risk deferring investment timelines and slowing mass commercialisation.

Multiple large-scale carbon capture, utilisation and storage hydrogen projects in North America have secured final investment decisions, though most regional developments target overseas export markets. The long-term viability of these schemes hinges on the formation and expansion of stable international end-user markets for low-emission hydrogen derivatives. In India, tender rounds administered by Solar Energy Corporation of India and domestic refinery operators have generated multiple hydrogen offtake contracts, with full transaction execution conditional on consistent rollout of central government fiscal incentives for clean hydrogen.

The IEA analysis outlines distinct long-term growth prospects alongside structural constraints for hydrogen development across Africa. Current continental hydrogen consumption and production volumes remain modest, yet untapped renewable energy reserves create scope for cost-competitive low-emission hydrogen generation over extended timeframes. Africa recorded total hydrogen demand of 3.1 million tonnes in 2024, accounting for roughly three per cent of global volumes, with activity concentrated within Egypt, Algeria and Nigeria. Deployment of hydrogen infrastructure sits in early stages, with prohibitive financing costs acting as the primary limiting factor.

Nearly 600 million people across Africa lack consistent grid electricity access, with overall energy consumption and per capita GDP levels lagging advanced industrialised economies, alongside underdeveloped national power networks. Widespread hydrogen rollout can deliver tangible social welfare improvements, support industrial expansion, strengthen domestic fertiliser manufacturing to reinforce food security and elevate value chains within steel production. Over 80 per cent of Africa’s iron smelting capacity utilises direct reduced iron processes, creating built-in compatibility for blending hydrogen with natural gas at existing and newly constructed plant sites. Successful regional hydrogen scaling will depend on cutting financing barriers and aligning national hydrogen roadmaps with broader cross-sector economic development priorities.