Almost no coal moves through the Strait of Hormuz. The Middle East is neither a large producer nor a large consumer of the fuel, and the International Energy Agency says as much in its Coal Mid-Year Update 2026. Yet coal has ended up as one of the quieter casualties, and beneficiaries, of the war that began at the end of February. When LNG tankers stopped leaving Qatar and the United Arab Emirates, gas prices in Asia and Europe jumped, and power systems with idle coal units began to lean on them. The result is a year in which the IEA has had to reverse its own forecast of falling global coal demand. Understanding how that happened, and how much of it is likely to unwind, matters for every Asian importer now planning for winter 2026-27.
The gas side of the story sets the scale. According to the IEA Strait of Hormuz factsheet, just over 112 billion cubic metres of LNG transited the Strait in 2025, almost 20 per cent of global LNG trade. Almost 90 per cent of those cargoes went to Asia, where they made up around 27 per cent of the continent's LNG imports. The IEA Gas Market Report for the third quarter of 2026 records that LNG loadings from Qatar and the UAE fell by 35 billion cubic metres year on year between March and June. Non Gulf producers raised output by around 27 billion cubic metres, offsetting roughly three quarters of the loss, but global LNG production still fell by 4 per cent over the period. In March, spot prices in Asia and Europe reached their highest monthly averages since January 2023. In the second quarter Platts JKM averaged USD 17.5 per million British thermal units, up 45 per cent on a year earlier, and the JKM premium over TTF averaged USD 2.1 from March to June.
How the gas shock reached coal
The transmission mechanism is simple. Coal-fired power generation accounted for 5,954 million tonnes of the 8.84 billion tonnes of coal consumed worldwide in 2025, and in systems that own both gas and coal fleets, the relative price of the two fuels decides which plant runs. With LNG suddenly expensive and scarce, coal became the cheaper marginal fuel in several markets. The IEA's demand chapter says tighter natural gas supply prompted some electricity systems to switch from gas to coal, and that temporary measures in some countries allowed greater use of coal-fired generation. An unusually strong El Niño added to the pull by raising cooling demand and reducing hydropower output, particularly in India and Viet Nam.
The headline effect is a 1.2 per cent rise in global coal demand in 2026 to a record 8.94 billion tonnes, compared with 8.84 billion tonnes in 2025. In December 2025 the IEA's annual Coal Market Report had expected a small decline this year. The IEA attributes the upward revision mainly to the Middle East crisis and to El Niño. Its Gas Market Report makes the same point from the other direction: Asian gas demand is forecast to fall by 0.5 per cent in 2026 as higher LNG prices spur gas-to-coal switching in the power sector and lower operating rates in gas-intensive industry.
Where the switching happened
The clearest cases are the mature North Asian importers. In Korea, the IEA now expects coal demand to rise by 6 per cent to 119 million tonnes, reversing an earlier expectation of decline. Coal-fired generation there jumped 30 per cent year on year in the first quarter of 2026, driven by low nuclear availability as well as higher gas prices. On the trade side, Korean coal imports are forecast to rise by more than 10 per cent from 2025. The IEA flags that restarts of nuclear reactors later in the year could slow this trend, which means Korea's coal surge is partly a nuclear story rather than a pure gas story.
Japan shows a smaller but telling shift. Japanese coal demand is still expected to fall by 1 per cent to 161 million tonnes, because industrial consumption is weakening. But the IEA says higher gas prices linked to the crisis have supported coal-fired generation beyond what would otherwise have been expected, and a government decision to remove restrictions on coal plants eligible for capacity payments adds further support. Japanese thermal coal imports are now expected to stay firm at around 124 million tonnes after an upward revision.
China, the dominant force in the market, matters more for what it did not do. Chinese coal demand is expected to rise by 1 per cent to 5 billion tonnes, with higher LNG prices, strong electricity demand and weak wind generation all supporting coal burn. Yet China's seaborne thermal coal imports are projected to fall to around 310 million tonnes from 325 million tonnes in 2025, as the country draws on high inventories and buys more by rail from Mongolia. At the same time, the Gas Market Report estimates that Chinese gas demand fell about 4 per cent year on year in March to June and that Chinese LNG imports dropped 12 per cent, or 3 billion cubic metres. In effect, China stepped back from the spot LNG market, leaving cargoes for others, and covered the gap with domestic coal and domestic gas rather than with imported coal. That restraint is one of the main reasons the seaborne coal market did not tighten more sharply.
India points the same way. Indian coal demand is expected to grow 4.2 per cent to 1,353 million tonnes in 2026, helped by El Niño, but its thermal coal imports are projected to fall to around 160 million tonnes from 167 million tonnes. High inventories, record domestic output forecast at 1,095 million tonnes and record auction volumes aimed at replacing imported coal are doing the work. The only major region with sustained import growth is Southeast Asia, where imports are expected to reach around 164 million tonnes from 156 million tonnes, led by Viet Nam at about 62 million tonnes, up from 55 million tonnes.
Put together, these regional moves leave seaborne thermal coal demand projected at around 1,062 million tonnes in 2026, slightly below the roughly 1,074 million tonnes of 2025. Overall coal trade, by contrast, is expected to edge higher, because Mongolian rail exports to China are surging and metallurgical coal trade is rising. The fallback to coal, in other words, has been real in specific power systems but has not translated into a seaborne boom.
The supply side: Indonesia's uncertainty, Australia's resilience
Exporters faced the shock from different starting points. Indonesia, the largest flexible supplier of thermal coal to Asia, shipped 517 million tonnes in 2025, down from 557 million tonnes in 2024. Its exports are projected to fall further to around 495 million tonnes in 2026. The government has lowered its production target to 641 million tonnes, and policy discussions over export taxes, domestic market obligations and the planned centralisation of exports through a new state company, Danantara Sumberdaya Indonesia, have added uncertainty. The IEA notes that the system entered an experimental phase in June and was scheduled to become fully operational in September. For buyers in South and Southeast Asia that rely on low-calorific Indonesian coal, this is a governance risk sitting on top of a geopolitical one.
Australia, by contrast, looks steadier. Thermal coal exports were broadly stable at 209 million tonnes in 2025 and are forecast to rise to around 216 million tonnes in 2026. Russian exports are expected to increase to around 132 million tonnes, still sold at a discount to Australian and South African benchmarks. South Africa should ship around 71 million tonnes despite rail constraints on the Richards Bay corridor.
Prices: a moderate response from a low base
The price signal in coal has been much weaker than in gas or oil. By late 2025, benchmarks had fallen close to marginal supply costs. In 2026 Newcastle 6,000 kcal/kg FOB rose to USD 150 per tonne in the first half and was assessed at USD 136 per tonne by late August. Indonesian 4,200 kcal/kg FOB climbed from USD 45 per tonne at the start of the year to USD 66 per tonne by the end of August, a sharper relative move reflecting Indonesian regulatory uncertainty. These levels are far from the 2022 crisis, when several benchmarks exceeded USD 400 per tonne. The IEA explicitly compares the two episodes and concludes that the reaction to the Middle East conflict was far more muted than the reaction to the war in Ukraine, because the earlier shock combined a European gas crisis with a ban on Russian coal, while in 2026 coal was affected mainly through its links with gas and power. Forward curves also implied that markets saw the coal price increase as limited and short-lived.
What this means for South Asia
For Pakistan and Bangladesh the picture is less comfortable than for Japan or Korea. The IEA factsheet notes that gas-fired generation made up 50 per cent of Bangladesh's electricity mix and 25 per cent of Pakistan's in 2024, and that Bangladesh, India and Pakistan together imported almost two thirds of their LNG through Hormuz in 2025. The Gas Market Report adds that reduced LNG availability lowered fertiliser production rates in Bangladesh, India and Pakistan. Coal switching requires spare coal capacity, port and rail logistics, and the foreign exchange to buy cargoes at short notice. Richer importers with idle coal fleets could absorb part of the shock that way. Price-sensitive importers with limited spare coal capacity have had fewer options, and for them the lesson of 2026 is that fuel diversity on paper is not the same as switching capability in practice.
The outlook for 2027
The IEA treats the coal bump as conditional. If LNG flows through Hormuz recover towards pre-war levels and gas prices settle below 2026 levels, global coal demand is forecast to fall 0.4 per cent in 2027 to 8.91 billion tonnes, still above 2025. Global thermal coal exports would decline to around 1,087 million tonnes as Chinese, Japanese, Korean and European imports resume their structural fall. If LNG shipments through the Strait remain constrained, the IEA says coal demand could rise further.
That second path is not remote. The Gas Market Report's forecast assumes a full reopening in the third quarter and restoration of undamaged Gulf facilities early in the fourth, and it estimates cumulative LNG supply losses of 140 billion cubic metres between 2026 and 2030, concentrated in 2026 and 2027. Any delay risks tipping the LNG market into its first annual supply decline since 2012. A tight LNG winter would favour coal again in exactly the North Asian systems that switched this year.
Three indicators deserve attention through the coming winter. The first is the JKM to Newcastle relationship, which decides how far gas-to-coal switching runs in Korea, Japan and coastal China. The second is the bedding in of Indonesia's centralised export system, which could change contract terms and availability for low-calorific coal buyers across Asia. The third is Korean nuclear availability, since reactor restarts would remove part of the extra coal demand regardless of what happens in Hormuz. Coal has worked as a shock absorber in 2026, but a partial and uneven one, available mainly to systems that kept the plant, the stocks and the money to use it.