Why the Middle East Conflict is Driving Up Global Coal Demand

Japan is forecast to experience a 1 percent decline in coal consumption in 2026 to 161 million tons. However, higher gas prices have led to more coal-fired electricity generation than previously estimated.

South Korea shows a more pronounced shift. The IEA now expects South Korea’s coal demand to increase 6 percent to 119 million tons in 2026.

This is partly due to limited nuclear power availability. In the first quarter of 2026, coal-fired electricity generation in South Korea rose 30 percent year-over-year.

IEA notes that restarting nuclear reactors by the end of the year could slow coal use growth by reducing dependence on coal-fired power plants.

Demand rises while production falls

This shift in demand comes even as global coal production is expected to decline.

The IEA forecasts a roughly 1 percent drop in coal output in 2026, though production will remain above 9 billion tons for the third consecutive year.

The production decline is partly due to high stock levels at the end of 2025 and policies limiting output in some countries.

China has also reduced production after a May 2026 mining accident in Shanxi Province triggered emergency safety inspections. Coal output in China during June and July fell about 10 percent compared to the same period last year.

This has narrowed the gap between global coal production and consumption. According to the IEA, the recent period of large-scale global coal stockpiling has come to a temporary end.

This rebalancing has supported prices.

Newcastle thermal coal FOB prices reached 115 US dollars per ton in February 2026, up 7 percent since December 2025. The average Newcastle FOB price peaked at 139 dollars per ton in June before falling to 131 dollars per ton in August.

Despite the rise, prices remain well below the 2022 energy crisis levels, when key benchmark coal prices hit around 400 US dollars per ton.

What if the conflict eases?

Coal market developments in 2027 will heavily depend on conditions in the Strait of Hormuz and the LNG market.

If LNG flows through the Strait of Hormuz return to pre-conflict levels and gas prices fall from 2026 highs, the IEA projects global coal demand will decline by 0.4 percent to 8.91 billion tons in 2027.

This would reflect a narrowing price gap between gas and coal that in 2026 encouraged power plants to switch from gas to coal.

Expanded renewable energy and cheaper LNG are also expected to pressure coal-fired power generation.

Conversely, if LNG shipments through the Strait of Hormuz remain restricted, coal demand could rise further.

In other words, coal market trends in 2027 remain closely tied to gas market dynamics and Middle East geopolitical developments.

The IEA also highlights weather patterns, fuel prices, and energy security issues as continuing sources of uncertainty for global coal demand.