Asia's Coal Revival Accelerates as Gulf War Chokes LNG Supply Routes

Asia's Coal Revival Accelerates as Gulf War Chokes LNG Supply Routes Asian utilities are burning more coal and rationing LNG purchases as Hormuz disruptions drive spot gas prices above $25/MMBtu and reshape regional fuel choices. Asian LNG spot prices have surged above $25 per MMBtu after damage to Qatar's export infrastructure and the ongoing blockade of the Strait of Hormuz sharply reduced supply. Before the Iran conflict began, analysts had expected LNG supply to grow strongly this year. That forecast is now obsolete.^7,6 The disruption matters far beyond the gas market. Japan imports 87% of its total energy consumption, South Korea 84%, according to the IEA. For economies this exposed, a sustained chokepoint closure is not an inconvenience. It is an existential supply risk.⁴ Asian utilities are responding in the most direct way available to them. Industry officials told Reuters that coal-fired generation is rising across the region as utilities seek to manage costs and lock in supply that does not transit the Strait of Hormuz. In South Asia, Bangladesh has increased coal-fired generation and coal-based electricity imports this month, according to government data.⁵ The pivot to coal undercuts years of decarbonisation commitments. But the maths are straightforward. With LNG cargoes scarce and expensive, coal remains available, deliverable, and priced below gas-fired alternatives in most Asian markets. "The conflict will significantly reduce Asian LNG demand growth in 2026," said Lucas Schmitt, an analyst at Wood Mackenzie.⁵ Some of that demand destruction is already showing up in European pricing. Montel reported that analysts see Europe underestimating the risk of a prolonged Hormuz closure. Asian demand and EU stock replenishment are likely to collide, driving prices higher. Seb Kennedy, an independent energy analyst at Energy Flux, told Montel that recent price moderation was thanks in part to demand destruction in Asian countries, a fragile basis for European complacency.¹ The numbers on Europe's side are sobering. Acer warned that refilling gas storage could cost an extra EUR 15 billion if EU gas prices rise to EUR 50/MWh, driven by intensified LNG competition with Asia and prolonged supply disruptions from the war.¹⁰ On the oil side, the IEA has recommended releasing 400 million barrels from member stockpiles, the largest coordinated release in the agency's history. Fatih Birol signalled willingness to go further. "Four hundred million barrels is only 20% of our resource," he said. "We have still 80% in our pocket." Oil prices have recently eased on hopes of new US-Iran peace talks, but the physical supply gap from the Hormuz closure has not closed.^2,8 Reuters reported that around a fifth of the world's daily oil and LNG supply normally passes through the strait. Saudi Arabia, Iraq, and Kuwait have all seen exports disrupted. The scale of the chokepoint's importance is difficult to overstate, and the conflict shows no sign of a resolution that would reopen shipping lanes.⁸ Singapore's foreign minister, Vivian Balakrishnan, called the situation "an Asian crisis." The Economist reported that prices, debt, and scarcity are striking at the world's manufacturing base. For countries that run on imported hydrocarbons, every week the strait stays closed compounds the damage.⁹ The disruption is also accelerating a structural shift in vehicle markets. Economic Insider reported a surge in EV demand across Asia's oil-dependent economies as consumers respond to higher fuel prices by switching away from internal combustion engines. The shift was already underway before the conflict. The price shock has compressed what might have been a decade of transition into months.³ Montel's Priyanka Shinde reported that the Iran war is rippling through European power markets as well, driving volatility in gas-fired generation, testing interconnector flows, and pushing wholesale prices higher for consumers and the energy transition alike.¹¹ The contrarian case rests on demand destruction doing enough work to cap prices. If Asian buyers continue pulling back from the LNG spot market, European storage refill could proceed at something close to manageable cost. But that bet requires Asian economies to absorb sustained economic pain without policy intervention, and it assumes the Hormuz blockade does not tighten further. The next signal to watch is whether Asian LNG demand continues to contract in June cargo nominations, or whether governments step in with subsidies that reignite spot buying and force another leg higher in TTF and JKM.