IEA: Middle East Conflict Will Lead to Greater Global Use of Coal

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Written by John Egan for IIR News Intelligence (Sugar Land, Texas)

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Summary

Beyond sharply higher prices for crude oil, gasoline and diesel, the U.S. conflict with Iran has upended the global energy market in another way: Boosting worldwide demand for coal that reverses the expected decline that predated the start of hostilities.

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Coal Use Now Expected to Rise in 2026

Worldwide use of coal is expected to increase about 1.2% this year, to a record of approximately 8.94 billion tons, according to a new report from the International Energy Agency (IEA). Increased coal usage this year is a reversal of the agency's prediction made at the end of last year, when it said global demand would decline in 2026.

The biggest reason for the agency's about-face? The conflict between the U.S. and Iran, which began February 28 and effectively closed the Strait of Hormuz, through which about one-fifth of the world's liquefied natural gas (LNG) passes each day.

Removing 20% of the world's LNG from the global energy system has pushed up prices by 30% or more, depending on the specific market. Soaring prices pushed several countries, including China, India, South Korea, Indonesia and Viet Nam to increase their use of coal to generate electricity, the IEA said it its "Coal Mid-Year Update 2026" report, released September 10.

The report made these predictions about full-year 2026 coal demand in several nations:

• China's use of coal is seen rising 1% to about 5 billion tons, driven by increased electric demand, lower electric output from windfarms and higher LNG costs.
• India's use of coal is expected to return to its historical growth trend this year following last year's temporary decline. Demand is predicted to grow about 4.3% this year to approximately 1.4 billion tons. Despite continued sharp gains in renewable electricity generation, the El Niño weather pattern is expected to drive increased demand for cooling while also cutting into hydroelectric generation.
• South Korea's demand for coal is forecast to rise about 6% in 2026, to roughly 119 million tons, reversing an expected decline. The IEA cited low availability of nuclear generation in the first quarter, coupled with higher LNG prices, for the shift.

The IEA report projected that U.S. use of coal would fall about 7% in 2026, to about 381 million tons, following last year's 9.5% surge. It said, "Policy support from the current Administration--including emergency orders and the postponement of plant retirements--has slowed the pace of decline. At the same time, concerns about system reliability and rising electricity demand, including from data centers, have helped keep coal-fired plants in operation. That said, coal-fired generation remains under pressure from cheap natural gas and the expansion of renewable capacity, and coal's share of electricity generation is expected to shrink further in 2026."

The report forecast coal demand would grow in the countries comprising the Association of Southeast Asian Nations (ASEAN). Aggregate demand for that bloc is seen as growing to about 574 million tons this year, driven mainly by increased demand for thermal coal to feed electric power in Indonesia and Vietnam.

Demand for coal in the European Union is seen continuing its "structural decline," IEA said, falling to about 276 million tons this year, which is less pronounced than previously predicted. The report said higher gas prices reduced the expected decline.

By the Numbers

• 5 Billion: Tons of coal that China is expected to use in 2026
• 1.4 Billion: Tons of coal that India is projected to use this year
• 574 Million: Tons of coal that will be consumed in 2026 by members of the Association of Southeast Asia Nations (ASEAN)
• 381 Million: Tons of coal that will be used in the U.S. this year
• 276 Million: Tons of coal, that will be used in 2026 by nations in the European Union

Middle East Conflict Governs Outlook for 2027

Looking out to 2027, the energy agency said the longer-term outlook is "highly uncertain" because it depends on "the volatile situation in the Strait of Hormuz. If LNG (resumes its) flow through the Strait of Hormuz, gradually recover towards pre-war levels and natural gas prices settle below 2026 levels, global coal demand is forecast to fall by 0.4% to 8.91 billion tons. But if LNG shipments through the Strait remain constrained, global coal demand could increase further."

The report continued: "Some of the factors that supported increased coal use in 2026 are projected to fade (in 2027): the natural gas price premium that encouraged gas-to-coal switching in several power markets should narrow, for example, while expanding renewable generation and cheaper LNG will put renewed pressure on coal-fired power. As a result, coal-fired generation is expected to decline, and growth in some sectors--particularly coal-to-chemicals production in China--will not be enough to offset the fall."

The report did not speculate on how global coal markets could be affected in 2027 if the U.S.-Iran war is not brought to a conclusion.

Key Takeaways

• Global demand for coal is project to grow 1.2% in 2026 to a record 8.94 billion tons, according to a new IEA report.
• The new report reverses an earlier IEA projection that global demand for coal would fall in 2026.
• The Middle East conflict, which began February 28, is the biggest reason for the IEA's changed outlook.

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