Global coal demand is projected to reach a record 8.94 billion tonnes in 2026, growing by 1.2 per cent as geopolitical disruptions in the Strait of Ormuz drive up natural gas prices and force a widespread shift back to coal-fired power generation, according to a mid-year market update released by the International Energy Agency.
The Strait of Ormuz Disruption and Natural Gas Prices
Geopolitical tensions in the Middle East have disrupted shipments of liquefied natural gas through the Strait of Ormuz. Although almost no coal shipments physically transit the strait, the collapse in LNG flows has sent natural gas prices climbing. In response, utilities operating dual-fuel plants across Europe, Japan, South Korea, and China are burning more coal to generate electricity, reversing the International Energy Agency’s earlier projections for a modest decline in consumption.
The impact of the energy crisis extends beyond electricity generation. Higher petroleum prices have led China to utilize more coal for chemical manufacturing. Meanwhile, intense El Niño weather patterns threaten to increase cooling demands while simultaneously restricting hydropower availability across key Asian markets. In India and Vietnam, those weather conditions are expected to drive up electricity consumption for cooling, reinforcing reliance on coal-fired power.
Production Constraints and Regional Growth in India
Even as demand climbs to record levels, global coal production is expected to contract by 0.7 per cent in 2026 following a historic peak in 2025. The contraction is led primarily by China, the world’s largest producer, where stringent safety inspections following a severe mining accident in May have constrained output. This tightening domestic supply in China has narrowed the gap between production and consumption, working to draw down the substantial inventories accumulated over recent years.
India presents a sharply contrasting near-term trajectory. After a temporary dip in 2025, Indian coal consumption is projected to expand by 4.2 per cent to reach 1,353 million tonnes in 2026. That growth is underpinned by rising general electricity demand, robust industrial activity, and specific increases in cement, pig iron, and direct reduction iron production. Domestic production in India is expected to hit 1,095 million tonnes as authorities shore up local supply to curb import dependence, though elevated pithead inventories have tempered short-term production momentum.
Global Coal Price Recovery and Market Balances
International coal prices have staged a notable recovery from their late-2025 troughs, though they remain well below the extraordinary peaks witnessed during the 2022 energy crisis. Newcastle thermal coal climbed to USD 136 per tonne by late August, while Australian hard coking coal reached USD 245 per tonne in July, hovering roughly 30 per cent above 2025 levels. These pricing shifts reflect an international marketplace grappling with unexpected consumption surges and tighter regional availability.
Looking ahead to 2027, the International Energy Agency notes that global coal demand could contract by 0.4 per cent to 8.91 billion tonnes, provided that LNG flows through the Strait of Ormuz normalize and gas prices moderate. Much depends on if maritime traffic through the Strait of Ormuz recovers, the agency noted in its market evaluation.
Electric Vehicle Sales Accelerate Amid Fuel Volatility
The same fuel price instability in the Middle East has provided an unexpected catalyst for electric vehicle adoption worldwide.
Energy consultancy Wood Mackenzie adjusted its base-case projections, forecasting that electric vehicles will capture 25 per cent of the global passenger fleet by 2040, up from 4 per cent today. Under a more aggressive scenario dubbed electric shock,
adoption could surge 50 per cent beyond that base case if governments implement supportive policies while consumer demand and battery technology advance simultaneously.
David Brown, Director of Energy Transition Research at Wood Mackenzie, stated that if these forces converge all at once, the effect on EV adoption could be dramatic.
