IEA says coal demand to hit record as Gulf crisis drives up gas prices

European and British wholesale natural gas prices held near multi-year highs on Thursday, consolidating sharp gains as the ongoing military conflict in the Persian Gulf continued to threaten global energy supply lines ahead of winter. The same day, the International Energy Agency released a report showing the crisis is reversing the expected decline in coal use worldwide.

Strait of Hormuz Disruptions Keep Prices Elevated

The benchmark Dutch front-month contract rose 0.5% to trade at 79.64 euros per megawatt-hour, near its highest level since 2023, while the British NBP wholesale gas contract gained 0.6% to 198.00 pence per therm, approaching the psychologically important 200-pence threshold. The price strength reflects sustained disruption to liquefied natural gas shipments through the Strait of Hormuz, a chokepoint handling roughly 20% of global LNG traffic, chiefly from Qatar.investing

Tensions escalated further after Iranian-backed Houthi strikes on Saudi cities drew Riyadh deeper into the conflict, following direct U.S. strikes on Iranian oil tankers and a retaliatory Iranian missile attack on a U.S. base in Jordan. Iran has tightened restrictions on shipping through the Strait since the war began and warned that energy infrastructure across the Gulf remains vulnerable, according to Reuters.reuters+1

European underground gas storage sat at approximately 62% of capacity as of early September, trailing the five-year seasonal average by roughly 17 percentage points, according to Gas Infrastructure Europe data. The shortfall has forced European utilities to compete aggressively against Asian buyers for uncommitted Atlantic basin LNG cargoes.global-energy-flow+1

Coal Demand Surges as Gas Prices Bite

The IEA's Coal Mid-Year Update 2026, published Thursday, forecast global coal demand would rise 1.2% this year to a record 8.94 billion tonnes — reversing the agency's prior expectation of a slight decline. The revision reflects how soaring gas prices are pushing utilities in Europe, Japan, South Korea, and China toward coal-fired generation where spare capacity exists.iea+2

"Although virtually no coal shipments pass through the Strait of Hormuz, the disruption has nonetheless affected coal markets by pushing up natural gas prices due to the plunge in LNG shipments through the Strait," the IEA said. Bloomberg reported that demand could rise even further in 2027 if LNG flows remain uncertain.bloomberg+1

ECB Rate Decision Looms

The geopolitical energy shock forms the backdrop for the European Central Bank's monetary policy announcement later Thursday. A Reuters poll of 65 economists unanimously predicted a 25-basis-point rate increase, which would lift the deposit facility rate to 2.50% as policymakers seek to contain energy-driven inflation from feeding into broader price pressures.reuters+1