Iran War Reshapes "Energy Landscape": "Oil & Gas" Major Clients Shift to "Coal, New Energy"

The Persian Gulf conflict is reshaping the global energy landscape. As natural gas supplies face severe disruption, major economies in Asia and Europe are turning back to coal while simultaneously accelerating their deployment of renewable energy. A profound shift in energy strategy is quietly unfolding.

Samantha Dart, Goldman Sachs’ global co-head of commodity research, warned: "We are now facing a second, massive energy supply shock. If you are in Asia and go through this again, you might change your long-term strategy—rely more on coal, rely on coal for longer, develop renewables faster, and reduce reliance on natural gas." This assessment is being borne out by market actions.

From Japan's announcement to expand the use of inefficient coal power plants, to India's directive for coal-fired power plants to postpone maintenance and operate at full capacity, to several European countries reassessing their coal power phase-out timelines, the narrative of natural gas as a "transition fuel" is rapidly disintegrating. Meanwhile, capital markets have voted with their feet—leading Chinese battery and new energy companies have significantly outperformed international oil giants.

"Transition Fuel" Narrative for Natural Gas Crumbles, Coal Demand Returns with Vigor

The natural gas supply shock triggered by the Iran war marks the second large-scale energy crisis within less than four years, following the Russia-Ukraine conflict. Strikes by the United States and Israel against Iran, followed by retaliatory attacks on Qatar's Ras Laffan plant, could lead to years of supply disruption. Europe's benchmark natural gas price is currently around 54 euros per megawatt-hour, exceeding the 50-euro threshold that analysts believe will trigger large-scale coal-to-power substitution.

According to Bloomberg, power analysts at the London Stock Exchange Group estimate that if European natural gas benchmark prices remain around 50 euros/MWh, European coal power generation could increase by approximately 20% this summer compared to the same period last year. The Netherlands, Poland, and the Czech Republic are all facing pressure to increase coal usage, while Germany is considering restarting mothballed coal-fired power plants to lower electricity prices. According to BloombergNEF data, European coal power installed capacity has fallen 45% since 2015, but existing capacity is still sufficient to act as a buffer during crises.

Tony Knutson, global thermal coal market director at consultancy Wood Mackenzie, stated that this shock affects more countries than the Russia-Ukraine war, calling it "a bigger disruption." Nations facing insufficient natural gas supplies have no choice but to pull the coal lever. Fatih Birol, Executive Director of the International Energy Agency (IEA), also noted that high energy prices will prompt governments, industries, and households to seek alternatives, adding that upward pressure on coal usage is "not surprising."

Asia Takes the Brunt as India, Japan, and Bangladesh Accelerate Shift to Coal

Asia is at the epicenter of this shockwave. Japan, South Korea, and Taiwan are major global importers of liquefied natural gas (LNG) while maintaining large-scale coal-fired units, providing the capability and motivation for a quick switch. Japan has announced it will allow more coal-fired plants to participate in capacity auctions and expand the use of inefficient coal power; South Korea also indicated it is considering easing restrictions on high-pollution power generation. The benchmark for Asian thermal coal—Newcastle coal futures—has risen by about a third this year, reaching its highest level since the start of 2024.

India's situation is particularly illustrative. Authorities have directed coal-fired power plants to postpone voluntary maintenance shutdowns and instructed Tata Power's 4 GW plant in Gujarat—which had been offline for months—to operate at full capacity until the monsoon season begins in June. Coal India Ltd.'s stock price reached its highest point of 2024 earlier this month. Anandji Prasad, Technical Director of the company's Western Coalfields division, emphasized that this crisis "has given coal new leverage in India" and highlighted the urgency of replacing petroleum products and natural gas with coal.

Bangladesh faces a more dire situation. According to Bloomberg, the country's new government has been forced to seek a $2 billion loan to import sufficient fuel to last through the summer, while planning to operate its coal-fired power plants at maximum load in the near future. Shafiqul Alam, Lead Analyst for Bangladesh at the Institute for Energy Economics and Financial Analysis (IEEFA), pointed out that as LNG prices rise and power shortages intensify, coal will assume a greater role in baseload supply.

Capital Markets Bet on Accelerated Energy Transition; New Energy Stocks Outperform Oil Giants

Parallel to the short-term rebound in coal demand is a clear bet by capital markets on an accelerated long-term energy transition.

Since the outbreak of the Iran war, shares of Chinese battery and electric vehicle leaders CATL and BYD have both risen by more than 15% cumulatively, significantly outperforming ExxonMobil and Chevron. Investors generally believe that this shock will accelerate the replacement of fossil fuels by batteries and energy storage systems from both cost and supply security perspectives.

In the European market, Chinese automobile brands are regaining momentum thanks to soaring oil prices. Brands like BYD and Leapmotor saw their sales rebound in Europe in February, as the Middle East conflict drove up fuel costs, further enhancing the attractiveness of electric vehicles.

Goldman Sachs' assessment is echoed by market movements: while coal is an emergency option in the short term, this crisis is prompting countries to re-examine their energy structures and place renewable energy development on a more urgent agenda.

Doug Arent, Senior Researcher at the WRI Polsky Center for Global Energy Transformation, stated that coal demand in 2026 "certainly won't decline as predicted pre-war," but he stressed that the immediate priority is "maintaining electricity supply and production efficiency." The IEA's previous forecast for a 1.4% decline in global coal demand by 2027 is now facing severe challenges.