The Middle East conflict and subsequent de facto closure of the Strait of Hormuz sent shockwaves through global energy markets. With LNG supply constrained, Asian power producers scrambled to secure alternatives, boosting thermal coal demand.
Japan, South Korea, and Taiwan rely on LNG for 30 – 35% of their power generation. Their LNG dependence made them most vulnerable to the supply crisis. The response across these nations shows how coal fills critical short-term energy gaps.
Japan lifted restrictions on its older coal fleet. Units with efficiency rates below 42% can now operate at capacity factors above 50% from April. South Korea has shelved coal curtailment measures typically imposed during the spring shoulder season. The country is reconsidering coal unit retirements planned for 2026. Taiwan prepares to restart a retired coal-fired power plant should summer operating reserve margins fall below the safe threshold of 8%. The island is also securing short-term supply from independent coal generators.
These measures across northern Asia unlock dispatchable generation previously sidelined. The result in Japan, South Korea, and Taiwan: 17.6 million short tons of additional high-CV thermal coal demand this year. This pushes seaborne imports up 7% to 271 million short tons.
High calorific value coal prices in the Asia-Pacific region experienced a sharp rally during the peak of the conflict. The Newcastle 6000 kcal/kg benchmark surged approximately 20% from pre-conflict levels. Following the recent ceasefire announcement, prices have retreated to the high US$120 per short ton range. This is still considerably higher than previous expectations for the shoulder season.
Even if the Strait of Hormuz reopens in May, prices are expected to remain elevated. Pre-summer restocking demand ahead of the Northern Hemisphere peak consumption period provides support. Buyers want to lock in spot cargoes to avoid the price run-ups seen in 2022. Sellers, burned by last year’s lows, are seeking better returns.
This cautious equilibrium is further complicated by cost pressures cascading across the supply chain. Elevated diesel impacts mine and transport costs. Higher bunker fuel drives up shipping freight. Fertilizer volatility impacts ammonium nitrate-fuel oil (ANFO), a key mining explosive. The interplay of these factors suggests coal markets will remain sensitive to both geopolitical developments and broader commodity price movements in the months ahead.
Unlike 2022, coal supply conditions favour a measured response. Australia’s dry weather forecast for winter (June – September) should support production without the La Niña-driven disruptions that plagued 2022. Indonesia has reversed earlier plans to cut production by 25%. The country stands ready to increase output if prices remain elevated, prioritising revenue over volume restrictions. The market this year is adequately supplied for the base case scenario, assuming the strait reopens in May.
However, upside risks remain significant with several factors poised to support elevated pricing. Geopolitical tensions could reignite disruptions at any moment. The potential development of a strong El Niño pattern in mid-2026 threatens drought conditions, bushfires, and heat waves across key regions. Meanwhile, stronger-than-anticipated summer demand, coupled with persistent cost inflation across the mining, transport, and shipping sectors, continues to tighten market fundamentals. These dynamics are likely to sustain prices well above recent historical averages, even without further escalation. This encourages a cautious and defensive posture among both buyers and sellers. For context, the pre-conflict marginal cost of thermal coal in 2026 is estimated at US$112 per short ton.
Longer-term, this conflict highlights the widening gap between energy transition ambitions and the practical requirement for reliable, dispatchable power during periods of heightened uncertainty. Policymakers are reassessing coal generation. Some suggest a ‘cold reserve’ approach rather than full phase-out. South Korea is already planning to convert some of its coal plants to backup capacity rather than retire them entirely.
Nevertheless, this trend will not revive stalled coal mining investment overnight. During the 2022 crisis, record high prices did not translate to corresponding transaction activity. But what it should do is force a more honest conversation about baseload reliability, fuel diversity, and the true cost of energy transitions that prioritise aspiration over pragmatism.
Coal’s role may be evolving, but in times of energy supply crisis, nothing matches its ability to deliver dispatchable, secure power, especially in Asia. As markets normalise, the energy security premium will persist long after prices retreat from crisis peaks.
