When Will the Energy Shock Hit the Markets?
China’s coal system is the missing piece
Dear Merchants,
When Will the Energy Shock Hit the Markets?
That depends on where you are sitting.
The answer is not the same for Tokyo as it is for Frankfurt, and it is not the same for Frankfurt as it is for Houston.
An energy shock out of the Gulf does not arrive everywhere at once. It moves slowly at the speed of tankers and it hits Asia 1st.
Think of it in concentric rings.
At the centre is the Strait of Hormuz 2 carrying … roughly 20 million barrels of oil a day and about 20% of all liquefied natural gas shipped globally.
In a normal month, this lane functions like a circulatory system invisible when it works, catastrophic when it does not. The moment it seizes, the clock starts, and the clock ticks differently for each ring around it.
The innermost ring is South Asia and Southeast Asia.
Sailing times from the Gulf to Karachi, Mumbai or Singapore run between 5 and 10 days. When the last pre crisis tankers have discharged, these markets feel the physical bite almost immediately.
Pakistan and Bangladesh heavily reliant on Qatari LNG with almost no storage face forced demand destruction within days of tanker flows drying up.
They cannot wait this out. They simply use less.
The next ring is North-East Asia: Japan, South Korea, China. Voyage times from the Gulf to Yokohama or Busan are 15-20 days, so these economies get an extra week or 2 of grace from the last cargoes already loaded. But grace is all it is. Japan draws 72% of its crude through Hormuz. South Korea draws 65%. China and India, each around 50%.
These are not marginal exposures they are the structural design of entire refinery systems, industrial complexes and power networks built around the assumption that Gulf barrels keep flowing.
The outermost ring is Europe, and beyond it the Americas. From the Gulf to Rotterdam is roughly 25 days. Europe sources only about 15% of its crude through Hormuz, and the United States just 2%.
These markets feel the disruption primarily through price, a global oil and LNG shock that reprices every barrel everywhere , rather than through physical scarcity. They have time to respond.
Asia does not.
What makes this particular shock unusual is that we can already watch it unfolding in real time.
Tracking of tanker movements shows that LNG transits through Hormuz have effectively stopped since late February 2026. Roughly 20% of global LNG supply has been removed from the market in a matter of weeks. European benchmark prices have surged more than 50% from their pre crisis levels; Asian spot prices have followed.
The innermost ring is already burning through its buffer. The outermost ring is repricing. The rings in between are calculating how long their stockpiles last and what it costs to replace Gulf barrels with Atlantic Basin, Russian or West African alternatives that were never designed to serve as their primary supply.
The War Has Gone After the Pipes and Plants, Not Just the Ships
The current conflict is not limited to interdicting maritime traffic. It has broadened into a systematic campaign against the fixed infrastructure that produces and processes Gulf energy.
Israeli strikes on Iran have targeted the South Pars gas field a core source of Iran’s domestic gas supply and petrochemical industry . In retaliation, Iranian forces have launched missile and drone attacks on energy sites across the Gulf Cooperation Council: Saudi Arabia’s eastern oil infrastructure, export terminals in the UAE, and Qatar’s Ras Laffan LNG complex, which under normal conditions supplies close to 1/5 of global LNG exports.
The implication is clear even if shipping lanes partially reopened tomorrow, sustained damage or the operating risk at fields and processing plants would cap how much oil and gas the region can actually export, and at what cost.
Physical access to the strait is now only one of 2 constraints, the other is whether the infrastructure behind it still works(as we discussed in the previous articles).
Energy Mixes of the Big Economies
Oil is the dominant fuel in 6 of the world’s 10 largest economies: the United States, Germany, Japan, the United Kingdom, Italy and India.
In these countries, oil serves not just transport but also large chunks of industrial and heating demand, meaning a prolonged Gulf disruption cuts quickly into the broader economy.
China and India look different.
Coal supplies around 58% of China’s total primary energy and roughly 59% of India’s far above the global average, and well above any OECD economy.
France is the outlier in the other direction nuclear power covers over 46% of its energy, giving it a degree of insulation from fossil fuel shocks that its peers simply do not have.
In electricity, coal generated around 59% of China’s power, even as the country added wind and solar capacity at a world beating pace. The 2 things are not contradictory. China is building enormous amounts of clean energy and still running enormous amounts of coal, because electricity demand is growing fast enough that both can expand at once.
The coal fleet is not being replaced it is being supplemented.
Record Coal in an Age of Net-Zero Pledges
Global coal consumption hit an estimated 8.77 billion tonnes a new record with coal fired power generation climbing to around 10,700 terawatt-hours.
Coal remained the world’s single largest source of electricity, even as renewables set records for new capacity.
Hydrocarbons as a whole oil, gas and coal supplied roughly 87% of global primary energy, with coal alone accounting for about 28%.
This sits awkwardly alongside the proliferation of net-zero targets the EU, Japan, South Korea, Canada and the UK all aim for net zero by 2050; Germany by 2045; China and India have announced neutrality targets for 2060 and 2070 respectively.
Europe is genuinely moving away from coal. European coal consumption fell another 7% in 2024, and for the 1st time coal’s share of European energy dropped below nuclear’s.
Ireland shutting its last coal plant in June 2025 made it the eighth country since the Paris Agreement to eliminate coal power.
Yet even Europe reverted when Russian gas disappeared after the Ukraine invasion extending and restarting coal units rather than accepting blackouts. When molecules are scarce, security of supply consistently beats climate timelines. Asia is living that lesson now, at far greater scale.
China’s Coal System
China’s coal infrastructure is not a hangover from an earlier industrial era.
It is being actively expanded.
The IEA estimates China had about 1,170 gigawatts of installed coal capacity in 2023 generating nearly 5,900 terawatt-hours.
In 2024 alone, another 30.5 GW was commissioned, 94.5 GW started construction, and 66.7 GW was newly permitted.
New coal construction in China reached its highest level in a decade.
At the same time, China was responsible for 37% of all global wind and solar generation in 2023 and more than half of new wind and solar additions. It is the world’s largest renewable energy builder.
It is also the world’s largest coal consumer, burning an estimated 4.9 billion tonnes in 2024 more than half of everything the world uses.
China is both the world’s largest coal producer and its largest importer. Domestic raw coal output reached about 4.71 billion tonnes in 2023 and hit new records in 2024. Imports surged to a record 543 million tonnes in 2024 up from 474 million the year before as cheaper seaborne coal became attractive against marginal domestic supply.
Indonesia was the dominant supplier at 44%, followed by Russia at 17.5%, then Australia and Mongolia at roughly 15% each.
The restoration of Australian coal trade after the 2020–2022 political ban is notable. China imported 52.5 million tonnes of Australian coal in 2023, a dramatic rebound from near zero during the freeze.
Despite this import surge, China’s coal supply remains overwhelmingly domestic. Imports account for roughly 10% of total consumption.
Compare that to oil, where over 80% of demand is imported and more than half of those imports come from Hormuz exposed Gulf producers.
The structural difference is enormous.
Coal as Industrial Strategy, Not Just Fuel
China’s relationship with coal goes beyond burning it for power.
The country has built a rapidly expanding coal to chemicals industry that converts domestic coal into synthetic fuels, olefins, fertilisers and a wide range of chemical feedstocks.
Coal constitutes about 94% of China’s proven fossil fuel resource base oil and gas together account for less than 7% which pushes planners toward coal conversion as a way to reduce dependence on imported hydrocarbons.
Beijing has designated coal derived chemicals as part of the country’s ‘new productive forces’ the same policy category as solar panels and electric vehicles.
4 major clusters Ordos in Inner Mongolia, Yulin in Shaanxi, Ningdong in Ningxia, and the Junggar Basin in Xinjiang host large integrated complexes producing methanol, olefins, synthetic fuels and advanced materials from coal.
Existing coal to chemicals capacity can consume about one billion tonnes of coal per year at full utilisation; actual use in 2024 was around 340 million tonnes, leaving substantial room to ramp without building new plants.
Under a Hormuz shock, these facilities become strategically relevant they can replace some oil derived fuels and petrochemical feedstocks at the margin, cushioning shortages of imported crude and naphtha.
Chinese official discourse explicitly describes coal as the ‘ballast stone’ of national energy security something cheap, storable and domestically abundant that stabilises the system while renewables and nuclear scale up. Policy documents focused on decarbonisation carve out ‘raw material’ coal used in chemicals from some constraints.
Coal mining capital expenditure reportedly rose about 65% between 2017 and 2023, to roughly $100 billion. That is not the investment profile of a fuel being phased out.
Coal does not transit Hormuz.
It moves by rail, barge and coastal shipping, across dozens of routes.
That is the whole point.
The Coal Superpowers
China and India together account for over 70% of global coal consumption.
In 2024, China burned roughly 4.9 billion tonnes and India more than 1.3 billion, meaning these 2 countries alone consumed about 6.2 billion of the global total of 8.77 billion tonnes.
Coal fired power provided more than 70% of India’s electricity, and roughly 75% of its installed generation capacity is coal.
China’s coal share of electricity generation has fallen from around 70% a decade ago to about 58% in 2024, but the absolute volumes keep rising because total power demand keeps growing.
Both countries are still approving and building new coal units.
There is a certain irony here. A portion of this coal burn is helping drive global decarbonisation… China’s energy intensive production of solar modules, batteries and electric vehicles running on coal-heavy grids is what allows OECD markets to install the clean hardware they need to meet their own net zero targets.
The emissions embodied in the clean energy transition are, to a significant degree, Chinese coal emissions.
The Disruption Logic
For crude oil and LNG, the question of how long Asia can last is measured in weeks and months.
China, Japan, South Korea and India can draw on strategic petroleum reserves and commercial stocks, but with half or more of their seaborne crude tied to Hormuz, the buffer runs out fast if alternative suppliers cannot fill the gap.
China would face higher import bills, refinery run cuts and likely rationing of some refined products especially in coastal provinces and sectors that cannot easily substitute coal.
In LNG, the situation is tighter still.
Nearly 20% of global LNG exports transit Hormuz, with about 90% of Qatari cargoes going to Asian buyers.
The de facto halt in tanker transits has already tightened markets.
Spot prices have surged in both Asia and Europe. Pakistan and Bangladesh with minimal storage and heavy reliance on Qatari LNG face immediate and severe demand destruction.
Coal behaves fundamentally differently under this kind of shock. It does not move through a single chokepoint.
It travels by rail, barge and coastal shipping, across routes that are geographically diversified. Global reserves cover well over a century of current consumption.
China’s domestic production alone combined with mandated stockpiles and strategic reserves gives Beijing far greater control over coal availability than it has over imported oil or LNG.
Under Hormuz stress, the rational short term response for Chinese planners is therefore to lean harder on coal maximise utilisation of the existing fleet, accelerate commissioning of plants already under construction, maintain high mining output, and channel more feedstock into coal to liquids and coal to chemicals facilities that can displace some oil derived products.
For electricity and core industrial output, China can last not weeks but years. The cost will be higher emissions and local environmental stress. From the standpoint of keeping factories running and avoiding blackouts, those are acceptable trade offs.
What This Means for Global Energy and Climate Politics
The Hormuz crisis exposes a fault line between Western decarbonisation plans and Asian energy security realities.
OECD governments are publishing detailed net zero strategies and cutting emissions from their own operations, while implicitly assuming that global oil and gas markets will remain liquid and that Asian demand will gradually decline.
That assumption is looking shakier by the week.
China and India are expanding the coal systems that underpin their role as the world’s manufacturing hubs including manufacturing the cleanenergy hardware the West needs to meet its own climate targets.
A prolonged Gulf disruption is likely to accelerate this trend, not reverse it, by reinforcing the message that domestically controlled coal is the only fuel sufficiently abundant, transport agnostic and politically manageable to serve as a true backstop.
For investors and policymakers, the uncomfortable conclusion is that the age of coal is not ending on schedule.
As long as Asia’s giants respond to hydrocarbon chokepoint shocks by leaning into coal and as long as global oil and gas demand remains high the planet will be balancing ambitious climate timelines on top of an energy system whose real centre of gravity is still a Chinese coal pile.
💰If the central question is who monetises a world where Asia falls back on coal while Gulf oil and LNG are constrained, the answer points to a small set of names:
