Iran War Boosts Global Coal Profits Despite Energy Transition Pledges

The war launched by the US and Israel against Iran has triggered a global energy crisis, but one energy sector is reaping big profits from the situation: coal.

South African thermal coal producer Thungela Resources said first-half profits doubled as the war forced many countries to purchase the fuel. Although abundant and relatively cheap to mine, coal is considered one of the dirtiest fossil fuels, polluting water sources and releasing large amounts of carbon into the atmosphere, contributing to global warming.

Why is coal being used more?

The US-Israel military campaign against Iran, which began on February 28, has ignited an energy crisis. Shortly after, Iran closed the Strait of Hormuz, which carries about one-fifth of the world's crude oil and liquefied natural gas (LNG) in peacetime. Negotiations to reopen the strait are ongoing.

The closure has reduced oil and gas supplies, causing oil prices to spike and forcing many countries to turn to coal, the most readily available substitute to maintain electricity generation. Although coal prices have also risen, the fuel remains much cheaper than oil and is more accessible.

Asia has been hit hardest because of its heavy reliance on the Gulf for energy needs. According to the US Energy Information Administration, about 82% of oil and gas shipped through the Strait of Hormuz in 2022 went to Asia, with China, India, Japan, and South Korea as the main destinations. Gulf states have also been directly affected by Iranian attacks. Qatar had to declare force majeure on delivery contracts when its Ras Laffan oil facility, the world's largest LNG complex, was damaged, losing 17% of its LNG export capacity. Energy facilities in the UAE, Saudi Arabia, and Oman were also attacked.

Where is coal rising?

According to energy data firm Ember, global coal output will increase by 1.8% by the end of 2026 compared to 2025 in the "worst-case" scenario. Many Asian countries have announced plans to boost coal-fired power generation: Japan has lifted restrictions on old coal plants, South Korea has delayed the closure of coal plants it had promised to shut down by 2040. Bangladesh has increased coal-fired power after experiencing blackouts, closing universities, and rationing fuel. Thailand, the Philippines, and Vietnam have also ramped up coal power output to conserve gas reserves. Pakistan saw a 90% increase in electricity from imported coal in July compared to the same month last year.

China and India, which together consume 70% of the world's coal, remain major producers. India is expected to launch new coal mining projects that will add 2.5 billion tonnes to global supply each year. Germany has also said it will not trade electricity security for previous climate commitments, while Italy has postponed its coal phase-out from the end of 2025 to 2038.

Who is benefiting?

Indonesia is the largest coal exporter, followed by Australia and Russia. Jakarta has reversed plans to cut output to take advantage of higher prices, with coal prices at $131.85 per tonne in July, compared to $102.20 a year earlier.

Thungela Resources (South Africa) reported doubled profits from January to June, thanks to a 38% increase in production at the Ensham mine in Queensland, Australia (reaching 2.2 million tonnes, up from 1.6 million tonnes a year earlier) along with higher demand and prices. The company's earnings per share reached 4.80 rand ($0.30), up from 1.92 rand ($0.12). The company forecasts prices will remain high as European and Asian markets prepare for winter.

Is the clean energy transition on track?

In 2021, more than 40 countries, including Indonesia and Vietnam, pledged to cut coal at COP26, while India and China did not sign. South Korea joined the Powering Past Coal Alliance last year. However, the Middle East crisis has disrupted this plan as many countries lack sufficient renewable energy capacity, according to Nick Hedley, an analyst at Zero Carbon Analytics (South Africa).

"For countries like Bangladesh, ramping up coal capacity is easy when gas supplies are disrupted because they have invested heavily in coal infrastructure over the decades," Hedley said. "Coal is cheaper than imported gas when gas prices rise. However, coal still cannot compete with renewables on cost."

Not all signals are negative. Analysts note that increases in some places are being offset by long-term declines in Europe. China's domestic coal output has fallen this year after a fatal explosion at the Liushenyu mine. Beijing is also investing heavily in renewable energy. The fossil fuel supply chain crisis could make clean alternatives more competitive, prompting many countries to invest in them.

"The lesson here is that Asian countries need to accelerate their shift to clean energy and electrification to protect themselves from future global crises," Hedley concluded.