A close-up of a pile of coal. The Iran War is pushing Asian economies back toward coal, revealing how energy security still depends on fuels that can withstand geopolitical disruption. (Shutterstock/Bayuesa Maulana)

The Impacts of the Iran War on Coal

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The Iran War is pushing Asian economies back toward coal, revealing how energy security still depends on fuels that can withstand geopolitical disruption.

The Iran War has forced a global energy market reckoning. While most media attention has focused on the ensuing oil crisis, the closure of the Strait of Hormuz also trapped 20 percent of the world’s liquefied natural gas (LNG) supply. As Asian spot LNG prices surged to three-year highs above $25 per million British thermal units (MMBtu), power system operations immediately became a top priority for countries in the region.

The impacts are being felt in very different ways between the US and Asian economies. That pain has been largely absent in the United States, with natural gas prices remaining low and relatively stable due to the country’s massive natural gas production. Gas is also a more regionalized market than oil.  

Especially since the Russian invasion of Ukraine, LNG has been viewed as a key tool of energy security. But when Persian Gulf gas cargoes are delayed, rerouted, or priced out by skyrocketing maritime insurance premiums, Asian power systems do not transition gracefully. They reach for whatever keeps the lights on. In almost every case, that first fuel is coal.

While benchmark Newcastle coal prices spiked over 20 percent at the start of the Iran war, LNG price spikes were even higher, and many Asian governments increased coal use and relaxed operating limits on various power plants. Overall, Asian utilities are unlikely to build a new generation of coal infrastructure, but there is a real debate on the near-term timing and viability of plans by several Asian governments to phase out coal as part of their national climate commitments. At a minimum, coal represents emergency redundancy. It can be physically stored, is dispatchable, and seamlessly connected to power systems built for crisis improvisation. 

The Iran War is a reminder that energy security depends on what physically functions when ports close, fuel contracts strand, electricity grids face catastrophic failure, and economic activity grinds to a halt. Coal competes favorably with LNG for this role in the current price/geopolitical........

© The National Interest