Abstract: The present invention relates to an improved method of producing molten iron and steel from iron ore wherein the iron ore is charged to a shaft furnace along with coke and limestone and the mixture is blasted with a heated gas so that the iron ore is reduced to pig iron. By the present invention, at least a portion of the furnace residue gas stream containing carbon monoxide is oxidized so that a heated gas stream is produced and oxygen is combined therewith. The resulting heated oxygen enriched gas stream is recycled into the furnace as blast gas.