Looking back at history, how geopolitical conflicts have supported coal prices!

The Iran-U.S. conflict has triggered a blockade of the Strait of Hormuz, causing the global energy markets to face another supply shock. The strategic value of coal as an alternative to oil and gas is being re-priced by the market.

In a special report on the coal industry released by Founder Securities on March 9, it reviews historical events over the past decades: 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 “neat”—at some stages, coal prices soared along with oil and gas; at others, coal prices declined. Whether prices rise and how fast often depends on the starting point of coal prices and whether a gap in power generation caused by natural gas shortages has appeared.

Furthermore, Founder Securities points out that the transmission of oil and gas prices to coal mainly occurs through two channels: coal chemical industry substitution and power generation substitution.

Currently, the ratio of Australian coal prices to Brent crude oil prices is about 1.66, which is around the 56th percentile historically. During geopolitical conflicts, the coal-to-oil ratio tends to rise. Coal supply and demand are more rigid than oil, and price elasticity should not be underestimated.

At the start of conflicts, European coal prices have not risen significantly, but as the situation persists, expectations of tight oil and gas supplies are gradually transmitting to the coal market. Founder Securities believes that if the blockade of the Strait of Hormuz prolongs or becomes normalized, the price center of coal will shift upward, further consolidating its role as an energy ballast.

Historical review: Geopolitical conflicts repeatedly push up coal prices

Looking back over the past decades, there is a clear historical pattern linking Middle Eastern and European geopolitical conflicts with energy price fluctuations.

The Iran-Iraq War (1980–1988) is the earliest typical case. The outbreak of war in 1980, coupled with the second oil crisis, saw Iran and Iraq attacking each other’s oil facilities and transit tankers, significantly worsening shipping safety through the Strait of Hormuz. International oil prices surged from $13 per barrel in 1978 to about $40 in 1980, an increase of over 200%. European natural gas prices rose from $2.3 per MMBtu to $4.2 per MMBtu. Driven by soaring oil and gas prices, energy substitution demand shifted toward coal, with Newcastle thermal coal prices rising from $28 per ton in early 1978 to $45 per ton by the end of 1980, a 61% increase.

During the Arab Spring in 2011, core oil-producing countries like Libya and Syria experienced civil wars, halting oil and gas supplies. According to BP data, Libya’s crude oil production plummeted from 1.74 million barrels per day in 2010 to 512,000 barrels per day in 2011. The London Brent crude price exceeded $111 per barrel for the year, up 38% year-on-year. Meanwhile, Australia faced floods that tightened coal supply, with the ARA port thermal coal price briefly surpassing $131 per ton, and the annual average reaching $121 per ton, up 32% year-on-year.

In 2018, the US reimposed sanctions on Iran, which also drove energy prices higher. That year, Brent crude rose 31% year-on-year, natural gas prices increased by 34.4%, and Newcastle coal prices rose 21.3%. Notably, during the 2012 Iran nuclear crisis escalation, coal prices actually declined by 16.7% year-on-year due to high base levels, indicating that the starting point of coal prices significantly influences the potential for price increases.

The Russia-Ukraine conflict in 2022 represents the most intense energy shock to date. Russia was previously Europe’s largest energy supplier, with 52% of EU coal imports and 44% of natural gas imports coming from Russia in 2021. After the conflict erupted, Europe banned Russian coal and sought alternative gas sources. The explosion of the Nord Stream 2 pipeline further intensified gas shortages, prompting Europe to massively switch to coal-fired power. The global coal rush pushed Newcastle thermal coal prices to a peak of $453 per ton, up 123% year-on-year in 2022.

Transmission mechanisms: How rising oil and gas prices push up coal

Founder Securities notes that the transmission of oil and gas prices to coal mainly occurs through two pathways: coal chemical industry substitution for petrochemical products and power generation substitution from gas to coal.

Coal chemical industry pathway: Olefins can be produced via petrochemical processes or coal chemical routes. Taking China’s coal chemical industry as an example, assuming 5 tons of coal produce 1 ton of olefins, when Brent crude is at $60 per barrel, the cost of olefins is about 6,800–6,900 RMB per ton, close to the coal cost of 5,500 K (778 RMB/ton). When oil prices rise to $85 per barrel, the corresponding coal price is about 1,285 RMB per ton. Currently, crude oil approaches $90 per barrel, while coal prices remain low. If oil prices stay high long-term, demand for coal chemical products may increase, leaving room for coal prices to rise further.

Looking at the historical trend of the oil-to-coal ratio, except during 2011–2012 when high coal price bases caused a decline, most geopolitical conflicts that led to energy price increases saw the oil-to-coal ratio rise. Founder Securities believes this mainly stems from two reasons: first, most countries have established relatively complete crude oil strategic and commercial reserves, which can be released to stabilize oil prices, whereas coal reserves are less developed; second, coal’s primary demand is for power generation, which has more rigid marginal supply and demand, making coal price elasticity generally stronger than that of oil.

Power generation substitution pathway: During this conflict, Qatar Energy announced on March 2 that, due to drone attacks on two of its facilities, it would suspend LNG and related product production, causing a sharp rise in European natural gas prices. Qatar accounts for about 20% of global LNG exports. If LNG ships cannot navigate the Strait of Hormuz continuously, a global LNG shortage could recur. The 2022 Russia-Ukraine conflict shows that once natural gas supply tightens and gas-fired power costs rise, demand for coal-fired power will quickly increase, potentially causing coal prices to surge in tandem with gas prices.

Variables are not Iran’s coal, but LNG and chemical supply chains

The report’s initial assessment excludes “coal supply shocks” from the current conflict: Iran produces relatively little coal and has no direct impact on global coal supply, so coal prices initially remain stable, and European coal prices are not significantly affected.

The real variable lies in the spillover from the Strait blockade: the Strait of Hormuz handles about 30% of global crude oil shipping and 20% of LNG trade. Qatar accounts for roughly 20% of global LNG exports. If LNG ships cannot pass through, the report believes a global LNG shortage will occur. It also notes that on March 2, 2026, Qatar Energy announced the suspension of LNG and related products due to drone attacks on two facilities, leading to a surge in European natural gas prices—such events, combined with ongoing blockade conditions, could trigger the power generation substitution chain.

On the chemical side, Iran’s energy and chemical capacity are also relevant: daily crude oil production of 5.06 million barrels (about 5.2% of global output), natural gas production of 262.9 billion cubic meters in 2024 (about 6.4%), with LNG exports limited to 5% of total production due to infrastructure constraints. Iran’s methanol capacity is 17.39 million tons, accounting for nearly 60% of Middle Eastern methanol capacity. These details point to a common theme: fluctuations in oil, gas, and chemical prices will push the “substitution effect” toward both coal chemical and coal power sectors.

The report emphasizes that the key dividing line depends on the duration of the blockade:

• If the conflict eases and the blockade is short: oil and gas risk premiums will rise faster, leading to substitution demand for coal, but the sustainability will be limited, and coal price increases will be modest.
• If the blockade persists or becomes normalized: sustained tight oil and gas supplies will push up gas-fired power costs, boosting coal power demand; high oil prices will improve the economics of coal chemical industry; combined with restructuring of energy trade and rising shipping costs, the coal price center could shift upward overall, further emphasizing its role as an “energy ballast.”

Additionally, Founder Securities states that on one hand, companies with high coal price elasticity are expected to benefit first from substitution demand growth; on the other hand, in a high oil and gas price environment, profits of coal chemical companies are likely to improve.

Risk warnings and disclaimers

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