Looking back at history: How do geopolitical conflicts support coal prices!
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The US-Iran conflict has triggered a blockade of the Strait of Hormuz, causing the global energy market to once again face supply shocks. Coal, as a strategic substitute for oil and gas, is being repriced by the market.
Founder Securities pointed out in a special coal industry report released on March 9 that, looking back at historical events over the past decades—such as the Iran-Iraq War, the Arab Spring in 2011, two rounds of sanctions on Iran, and the Russia-Ukraine conflict in 2022—the conclusions are not uniform. In some periods, coal prices soared along with oil and gas; in other periods, coal prices actually declined. What determines whether and how much coal prices rise is often the starting level of coal prices and whether there is a power generation gap caused by natural gas shortages.
Looking further, Founder Securities notes that the transmission of oil and gas prices to coal mainly occurs through two channels: coal-based chemicals and power generation. Currently, the ratio of Australian coal price to Brent crude oil price is about 1.66, close to the 56th percentile in history. During times of geopolitical conflict, this coal-oil ratio often trends upward. Coal’s supply-demand rigidity is stronger than oil’s, and its price elasticity cannot be ignored.
At the start of the conflict, European coal prices did not rise significantly, but as the situation persists, expectations of oil and gas shortages are gradually transmitting to the coal market. Founder Securities believes that if the Strait of Hormuz blockade is prolonged or becomes normalized, the central level of coal prices will move up as a whole, and coal’s position as an "energy ballast" is expected to be further strengthened.
Historical Review: Geopolitical Conflicts Frequently Push Up Coal Prices
Reviewing the past several decades, there is a clear historical pattern between geopolitical conflicts in the Middle East and Europe and energy price fluctuations.
The Iran-Iraq War (1980–1988) is the earliest typical case. The war in 1980, combined with the second oil crisis, saw Iran and Iraq attack each other’s oil facilities and oil tankers, seriously worsening shipping security in the Strait of Hormuz. International crude prices surged from $13/bbl in 1978 to around $40/bbl in 1980, an increase of over 200%. European natural gas prices rose from $2.3/Mbtu to $4.2/Mbtu. Driven by soaring oil and gas prices, energy substitution demand shifted to coal. The Australian Newcastle thermal coal FOB price increased from $28/ton in early 1978 to $45/ton at the end of 1980, up 61%.
During the Arab Spring in 2011, civil wars erupted in key oil-producing countries like Libya and Syria, causing oil and gas supply stoppages. According to BP data, Libya’s crude oil output plunged from 1.74 million bbl/d in 2010 to 512,000 bbl/d in 2011. The average annual price of Brent crude in London broke through $111/bbl, up 38% year-on-year. Meanwhile, floods in Australia tightened the coal supply, and the price of European ARA port thermal coal temporarily exceeded $131/ton, with an annual average of $121/ton, up 32% year-on-year.
When the US reimposed sanctions on Iran in 2018, energy prices also rose in tandem: Brent increased 31% year-on-year, natural gas 34.4%, and Newcastle coal 21.3%. It is worth noting that when the Iran nuclear crisis escalated in 2012, since coal prices were already high, the average Newcastle thermal coal price actually fell 16.7% year-on-year, showing that the starting point of coal prices is critical for the uptrend’s potential.
The 2022 Russia-Ukraine conflict caused the most violent energy shock so far. Russia had been Europe’s largest energy supplier, accounting for 52% of EU coal imports and 44% of natural gas imports in 2021. After the conflict began, Europe banned Russian coal and sought to replace Russian gas, while the Nord Stream 2 pipeline explosion further worsened gas shortages. Europe shifted massively to coal power, and the global scramble for coal once pushed Newcastle thermal coal prices to a record $453/ton, up 123% year-on-year in 2022.
Transmission Mechanism: How Oil and Gas Price Increases Push Up Coal
Founder Securities points out that the transmission of oil and gas prices to coal mainly relies on two channels: coal chemicals substituting petrochemicals, and coal power replacing gas power.
For the coal chemical pathway, olefins can be produced either by petrochemical processes or by coal chemical routes. Take China’s coal chemical industry as an example: assuming 5 tons of coal to produce 1 ton of olefin, when Brent crude is $60/bbl, the corresponding olefin manufacturing cost is about 6,800–6,900 yuan/ton, close to coal at 778 yuan/ton (5,500 kcal). When crude reaches $85/bbl, the corresponding coal price is about 1,285 yuan/ton for 5,500 kcal coal. Currently crude nearly hits $90/bbl while coal prices remain low. If high oil prices persist, coal chemical demand may rise, and coal prices still have room to increase.
Looking at the historical coal-oil ratio, except for 2011–2012 (which saw a decline only due to a high coal price base), most geopolitical conflicts that drove up energy prices saw the coal-oil ratio increase. Founder Securities attributes this mainly to two reasons: First, most countries have relatively complete commercial and strategic oil reserves, which can be released to stabilize oil prices, while coal storage systems are less developed; Second, coal’s core demand is for power generation, whose marginal supply and demand are more rigid, so coal prices are often more elastic than oil’s.
For the coal power substitution pathway, in the current US-Iran conflict, QatarEnergy announced on March 2 that due to drone attacks on two of its energy facilities, it would suspend LNG and related product production, causing European gas prices to surge. Qatar accounts for about 20% of the world’s LNG exports. If LNG ships are continuously unable to transit the Strait of Hormuz, a global LNG shortage could happen again. Past experience from the 2022 Russia-Ukraine war shows that once gas supply tightens and pushes gas-fired power costs high, coal power substitution demand will quickly be released, and coal prices may rise sharply together with gas prices.
The Key Variable: Not in Iranian Coal, but in LNG and the Chemical Chain
The report’s assessment of this round of conflict ruled out “coal supply shocks” from the start: Iran’s coal output is low and does not directly affect global coal supply, so coal prices were muted in the early stage, and European coal price gains were also “not obvious.”
The real variable is the spillover from the blockade of the Strait: Hormuz handles about 30% of global seaborne crude oil trade and 20% of LNG trade. Qatar accounts for about 20% of global LNG exports. If LNG shipping is blocked, the report expects a global LNG shortage. It also notes that on March 2, 2026, QatarEnergy suspended LNG and related product production after drone attacks, pushing up European gas prices – and events like this, once combined with a prolonged blockade, could trigger the power generation substitution chain.
On the chemicals side, the report adds Iran’s weight in energy and chemicals: crude oil average daily output is 5.06 million barrels (5.2% of global), 262.9 billion cubic meters of natural gas output in 2024 (6.4% of global); but due to LNG facility limits, gas exports are less than 5% of total output. Iran’s methanol capacity is 17.39 million tons, accounting for 59.78% of Middle East total. All this points to one thing: Volatility in oil, gas, and chemical prices will push “substitution effects” towards coal chemicals and coal power.
The report’s dividing line is blockade duration:
If the conflict eases and the blockade is short: Oil and gas risk premiums rise faster, coal will see substitution demand, but its sustainability will be weak, and coal’s price gain will be limited.If the blockade is long or even regular: Oil and gas supplies stay tight, driving up gas-fired power costs and lifting coal power demand; petrochemical coal will benefit from high oil, and together with energy trade restructuring and higher shipping costs, coal’s price center could shift upward, and its “energy ballast” role will be highlighted.
Additionally, Founder Securities says that, on one hand, companies with greater coal price elasticity are likely to benefit first from increased substitution demand; on the other hand, with high oil and gas prices, coal chemicals companies’ profits are expected to rise.
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