Iran’s effective closure of the Strait of Hormuz is accelerating a significant and potentially durable return to coal across global energy markets, with countries from Japan and South Korea to Germany and the Philippines rapidly reversing phase-out commitments and lifting generation caps to compensate for disrupted LNG supplies.

Crucially, as the Institute for Energy Economics and Financial Analysis has noted, no coal passes through the Strait of Hormuz – meaning the commodity sits in a unique position as the most accessible alternative to Middle East gas for energy-hungry importers across Asia and beyond.

The demand surge has already ended the price stability seen at the start of the year. According to Arbre Capital Group, Newcastle coal – the Asian benchmark – has jumped roughly 13% since the escalation, with spot prices now hovering around $134 per tonne. Indonesia, a key swing supplier, is prioritising domestic needs, tightening the seaborne market further. Japan and South Korea, which typically lean on LNG for peak demand, are ramping coal-fired generation to maximum capacity, while China and India are leaning harder on domestic coal reserves to insulate their grids.

Broker Braemar has been tracking the shift closely since the war’s opening days. “Almost from the moment LNG production in the Middle East Gulf was first impacted by war, high-cv thermal coal has been recognised as the best alternative for LNG importers, particularly for those in Asia,” the broker noted in a new research note. The price response has been sharpest in Australian high-calorific-value thermal coal, assessed by McCloskey at $138-140 per tonne – its highest level since 2024 and nearly 20% above pre-war levels. The spread between Australian high-cv coal and Indonesian mid-cv coal widened from $30.5 per tonne on February 27 – the day before war broke out – to $50 per tonne by March 20.

The policy shifts supporting this price move are concrete and accelerating. South Korea has lifted its cap on coal-fired power generation and plans to raise nuclear plant utilisation from the high 60% range to 80%. Japan has lifted caps on thermal generation from less efficient plants. Pakistan, which grew coal imports by 20% in 2025 to 8.3m tonnes, has further scope to increase coal burn. The Philippines has declared a national energy crisis and is pushing for more coal-fired generation, relying on the Middle East Gulf for 98% of its crude oil supply. Thailand will bring back two offline coal plants. Indonesia is reconsidering earlier plans to reduce production from 817m tonnes in 2025 to around 600m tonnes this year.

Europe is moving in the same direction. German chancellor Friedrich Merz has signalled he is “not ready” to risk the country’s industrial core for coal phase-out targets if they become unrealistic, while Italy is legislating to postpone its coal phase-out deadline to 2038. With ARA stockpiles at low levels, US coal exporters stand to benefit.

MB Shipbrokers notes that European thermal coal imports collapsed from 81.7m tonnes in 2022 to 37.4m tonnes in 2025, but with gas inventories at only 28.7% of capacity and price volatility spiking, a meaningful near-term rebound is plausible – one that would support capesize and panamax demand in the Atlantic on Colombian and US East Coast origins.

Breakwave Advisors noted recently the coal price rally arrives on top of Indonesia’s production management policy, compounding supply-side pressure at precisely the wrong moment for importers.

Beyond the immediate crisis, Braemar concluded that the combination of time needed to restore Gulf oil and gas production and lasting uncertainty over supply reliability “hints at longer-term potential for coal to remain in the energy mix across a wide variety of Asian countries, plus some in Europe” – a structural shift that dry bulk shipping stands to benefit from well beyond the current disruption.