A new residual oil upgrading process has been developed. Residual oils were cracked over an iron oxide catalyst with simultaneous generation of hydrogen. The newly-developed iron oxide catalyst containing CaO and Cr2O3 Was found to be a good catalyst for this process because it exhibited stable activity in the steam-iron reaction in the laboratory experiment and also in a large scale pilot plant. Effects of these foreign oxides on redox cycles were investigated. The catalyst was designed so as to maintain the stoichiometric balance between the reduction of magnetite and the oxidation of wustite by adding CaO and Cr2O3.