The recent geopolitical crisis in the Middle East exposed how fragile global oil & gas systems remain: prices surged, often more than $100 per barrel, supply chains tightened, and fuel availability became uncertain across multiple markets. Beyond energy itself, the shock rapidly cascaded into transport, industry, logistics, and power sectors heavily dependent on oil & gas.
This is not an isolated event, but part of a recurring geopolitical cycle: tension rises, markets panic, emergency measures follow, then temporary normalization returns. Each cycle reinforces the same lesson: energy security, diversification and long-term transition planning are no longer optional. Green hydrogen (GH2) offers one of the few scalable pathways to progressively replace fossil fuels across hard-to-abate sectors while reducing exposure to geopolitical volatility.
Green hydrogen is an important enabler in achieving long-term global decarbonization goals. It is particularly relevant for hard-to-abate sectors such as transport, industry and heating; segments where oil and gas remain difficult to substitute.
Worldwide, significant progress has been made in hydrogen production, storage and end-use applications. Global hydrogen demand already exceeds 95 million tonnes annually, primarily in refining and ammonia production, demonstrating that large-scale industrial demand for hydrogen already exists.
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GH2 can be produced through multiple pathways, primarily via electrolysis of water using renewable energy, or through gasification of biomass and waste.
This momentum is already materializing through large-scale national strategies and industrial ecosystems. India, through the National Green Hydrogen Mission, aims to position itself as a major global production and export hub while accelerating decarbonization of refining, fertilizers and heavy mobility. In the Middle East, Oman is developing integrated hydrogen hubs leveraging abundant solar and wind resources to target future exports of green fuels to Asia and Europe.
There was an initial phase of momentum in sanctioning projects. However, discussions have largely converged on a single issue: cost. GH2 currently costs 3–4 times more than conventional grey hydrogen produced from natural gas.
According to the IEA, renewable hydrogen production costs currently range roughly between $3–8/kg depending on renewable resources and financing conditions, compared to around $1–2/kg for grey hydrogen produced from natural gas without carbon capture. This gap is driven by the cost of renewable electricity, electrolyser capex, and the absence of effective mechanisms to monetize carbon savings.
As a result, projects are struggling to reach financial closure despite public support in several markets. The cost of renewables and economies of scale for electrolyser capex combined with efficiency optimization will play a crucial role in driving the costs down.
During the geopolitical disruption cycles, policy and investment decisions tend to prioritize short-term affordability and immediate supply security. This creates a structural bias against capital-intensive transition technologies such as GH2, despite their long-term strategic value. This bias is economically rational in the short term, but systemically suboptimal. It perpetuates dependence on volatile global fuel markets and delays the transition toward more resilient energy systems.
Maintaining momentum in GH2 development is therefore not only a climate imperative but a strategic necessity. GH2 provides a pathway to decouple key sectors from imported fossil fuels and anchor energy systems in domestically available resources.
This is particularly relevant for oil-importing economies. In many emerging markets, energy imports represent a significant share of total trade deficits, exposing economies to external shocks.
Long-distance transport, largely reliant on diesel, accounts for a substantial portion of oil consumption. Similarly, LPG used for cooking constitutes a major source of imports. Both segments are structurally exposed to international fuel markets, making them priority candidates for substitution.
In this context, green hydrogen emerges as a credible solution. Its strongest near- to medium-term applications are likely to be in hard-to-abate industrial sectors such as refining, chemicals, steel, and maritime transport, where high-temperature processes and energy-dense fuels remain difficult to decarbonize.
In heavy-duty mobility segments such as long-distance trucking, rail, and shipping, hydrogen also represents a longer-term opportunity, particularly for import-dependent economies seeking to reduce exposure to fossil fuel price volatility and supply disruptions.
However, the deployment of GH2 at scale will not happen without deliberate policy intervention. The current market design fails to capture its full value, particularly in terms of energy security and price stability.
At the same time, hydrogen should not be viewed as a universal solution: direct electrification will remain the most efficient pathway. As such, a policy-driven market creation phase for hydrogen is unavoidable, particularly in sectors where electrification alone cannot deliver deep decarbonization.
Several levers, as mentioned below, should be prioritized:
- Targeted subsidies and capital support are required to bridge the initial cost gap, particularly for first-of-a-kind projects and infrastructure.
- Carbon pricing mechanisms must be strengthened and expanded to internalize the true cost of emissions and improve the competitiveness of low-carbon hydrogen.
- Demand-side mandates such as quotas in transport, industry, or gas grids are critical to provide long-term visibility and unlock private investment.
- Long-term offtake frameworks, supported by public guarantees or contracts-for-difference, can reduce revenue uncertainty and improve bankability.
- Infrastructure planning at the corridor or cluster level is needed to avoid fragmented project development and enable economies of scale.
- Niche applications, such as island grids, offer immediate savings and added value. They can be the key to creating a track record and reducing costs.
- Private sector participation will depend on the credibility and consistency of these frameworks. Without clear demand signals and risk-sharing mechanisms, capital will remain sidelined.
From an implementation perspective, multilateral platforms can accelerate coordination and scale. The International Solar Alliance, with 125+ member countries, can play a catalytic role by integrating hydrogen into its initiatives and facilitating the development of cross-border value chains, particularly as solar-rich countries are expected to become some of the world’s most competitive producers of green hydrogen.
Countries with abundant renewable resources have the potential not only to lower production costs but also to anchor emerging regional hydrogen ecosystems and future trade corridors.
By aggregating demand, standardizing frameworks, and leveraging solar resources across member countries, it can help move from isolated projects to structured markets.
Solar PV costs have declined by nearly 90% over the past decade, fundamentally improving the long-term economics of renewable hydrogen production in solar-rich countries.
Green hydrogen should therefore not be assessed solely through the lens of current cost metrics. Its strategic value lies in its ability to strengthen industrial and energy system resilience, diversify supply sources, and reduce long-term exposure to fossil fuel volatility.
In an increasingly volatile energy landscape, the objective is no longer simply to minimize short-term cost, but to optimize for security, sovereignty, and sustainability.
Green hydrogen is not a marginal technology waiting for cost parity. It is a policy-dependent strategic asset, and its deployment will ultimately be determined not by market forces alone, but by the willingness of governments to shape the future of their energy systems.
For energy-importing economies, the parallel with France’s nuclear strategy in the 1970s is instructive: a deliberate sovereign bet made in response to oil shocks to secure long-term energy independence.
Today, green hydrogen plays a similar role, anchoring a structural shift away from imported fossil fuels toward domestically produced, low-carbon molecules that redefine both energy security and industrial competitiveness.
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Mathieu Geze is Executive Director, APAC, HDF Energy, and is a member of the Green Hydrogen Innovation Center, Steering Committee of the International Solar Alliance.
Mridula Bharadwaj is Co-Lead of the Technology Roadmap and Policy group of the International Solar Alliance under the ISA-ADB Technical Assistance program.
The views expressed in this article are those of the authors.
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