Hormuz disruption drives global coal demand to record high

Global coal consumption is projected to reach a record 8.94 billion metric tonnes in 2026, driven by energy shortages resulting from the closure of the Strait of Hormuz. The International Energy Agency (IEA) expects demand for the fossil fuel to rise by 1.2 per cent this year as nations seek alternative power sources amid depleted oil inventories and constrained natural gas supplies. This shift marks a significant reversal in energy policy, with several major economies turning back to coal to maintain grid stability and meet industrial requirements.

The IEA’s mid-year update attributes the surge in coal use to higher natural gas prices, which have been driven up by ongoing trade restrictions in the Middle East. The conflict has severely disrupted energy flows, forcing countries to bridge the gap left by reduced liquefied natural gas (LNG) shipments. Japan, India, Bangladesh, the Philippines, South Korea, Thailand, Taiwan, China, and several European nations have all increased their reliance on coal-fired power generation. In China, the impact extends beyond electricity, with coal consumption for chemical product production also rising in response to elevated oil prices.

The outlook for the coming months remains uncertain, with the IEA noting that a strong El Niño weather pattern could further exacerbate demand. Higher-than-normal temperatures and reduced hydropower output are expected to increase power consumption across Asian markets, particularly in India and Vietnam. Despite global coal production matching a record high in 2025, it is anticipated to decrease slightly in 2026. However, this production dip is expected to be outweighed by the sharp rise in consumption, with China and India, the world’s two largest users, seeing demand grow by 1 per cent and 4.2 per cent respectively.

The IEA clarified that while shipping disruptions in the Strait of Hormuz do not directly affect coal markets, as virtually no coal shipments pass through the corridor, the indirect effects are profound. Tighter natural gas supply has pushed up prices, prompting electricity systems to switch from gas to coal. The 2027 outlook remains unclear, dependent on whether LNG flows recover. If trade restrictions persist, global demand is likely to continue increasing, whereas a recovery in gas supplies could drive prices down and spur a shift back towards natural gas.

This trend raises significant climate concerns, as the United Nations has acknowledged that the world is set to overshoot its target of limiting global warming to 1.5 degrees Celsius above pre-industrial levels. At the 2021 COP26 summit in Glasgow, diplomats from nearly every country agreed to phase down global coal consumption. However, recent developments indicate a retreat from these pledges. Italy announced plans in March to postpone the shutdown of its coal-fired power plants for 13 years, while Germany is considering restarting some coal plants to meet energy demand. Chancellor Friedrich Merz stated that the country must secure electricity supply and is not prepared to jeopardise industry due to unrealistic phase-out plans.

In contrast, the United States is expected to see coal consumption fall by around 7 per cent this year, following an unexpected jump in the previous period. The US has been largely insulated from global gas disruptions due to its abundant domestic natural gas reserves. Additionally, the rapid expansion of solar and wind energy capacity has further reduced the need for coal. Nevertheless, the US contributed significantly to the 1.1 per cent rise in global energy-related carbon dioxide emissions in 2025, which reached 35.806 billion tonnes. The Energy Institute reported that the US accounted for about 13.3 per cent of the increase in direct energy-related CO2 emissions, and roughly a third of the global increase under broader measures that include methane and flaring. This underscores the detrimental impact of increased coal consumption on global emissions, which are expected to climb significantly this year in line with higher usage.