Economy
Asia turns to coal as Iran war squeezes global oil, LNG supplies
Squeezed by disruptions in oil and gas markets, many Asian countries are now turning to coal to meet their energy demands despite concerns about pollution and emissions.
The continent is exposed because it relies on imported fuel, much of it passing through the Strait of Hormuz – a chokepoint for about a fifth of global oil and natural gas trade.
Liquified natural gas (LNG) is a natural gas cooled to liquid form for easy storage and transport. It has been promoted as a bridge fuel in the shift from oil and coal to cleaner energy sources. The U.S. has sought to expand exports of LNG across Asia. It burns cleaner than coal, but still emits climate change -causing gases, especially methane.
However, the war in the Middle East, which began after the U.S. and Israel launched strikes on Iran late last month, has countries shifting back to coal to cover LNG shortfalls.
India is burning more coal to meet higher summer demand. South Korea has lifted caps on electricity from coal. Indonesia is prioritizing using its domestic supply. Thailand, the Philippines and Vietnam are boosting coal-fired power.
Burning more coal risks worsening smog in major cities, slowing the transition to renewable energy and increasing the region’s planet-warming emissions.
Coal is a short-term fix, experts say, while renewables are the long-term solution. Continued reliance on coal exposes Asia to future shocks, said Julia Skorupska of the global coalition Powering Past Coal Alliance.
“This kind of crisis is a real sort of warning,” she said.
Default backup
Coal is integral to Asia’s emergency energy plans. Its wide availability in Asia makes it the default backup when renewables or gas fall short, said Sandeep Pai, an energy expert at Duke University.
China, the top coal consumer and producer, has built record coal power generating capacity since 2021 to improve its energy security. Its national policy calls for continued use of coal, even as its vast clean energy capacity offers some relief.
India, the second-largest coal consumer and producer, is bracing for a scorching summer and will rely more on coal to meet peak demand of 270 gigawatts (GW) – nearly twice the electricity Spain can produce. It has enough coal for about three months, with some stockpiles earmarked for small businesses.
Two Indian liquefied petroleum gas (LPG) shipments totaling more than 92,700 tons recently made it through the Strait of Hormuz. Such imports will likely be directed to industries such as fertilizer production rather than power generation, Pai said.
Vulnerability
Coal advocates such as Michelle Manook of FutureCoal say the shortfall would be worse without coal and future use should be strategic. “The lesson has to be diversity,” she said.
Pauline Heinrichs, who studies climate and energy at King’s College London, points to China’s boosting use of coal to offset hydropower shortfalls due to droughts, worsening emissions that contribute to climate change.
“You learn to respond to shocks generated by certain insecurities by reproducing the insecurity,” she said.
Adding to the vulnerability for import-dependent countries, Indonesia, the world’s largest exporter, is prioritizing domestic use over exports. That could tighten regional supplies and push global prices higher, said Putra Adhiguna of the Energy Shift Institute.
Coal prices are set globally, leaving importers exposed to swings and disruptions. More coal does not guarantee cheap or reliable power, said Russell Marsh of E3G.
Vietnam is already facing that volatility. It increased imports after weather-related shortages, but supplies from Indonesia are now uncertain, so it’s considering importing coal from the U.S. and Laos, according to energy market tracker Argus Media.
The main price for coal used in Asia, called Newcastle coal from Australia, has risen 13% since the war began.
Higher prices will also hurt Southeast Asia, the world’s third-largest coal-consuming region, including Vietnam, the Philippines and Thailand, which are boosting coal power.
More coal use now will slow and possibly undermine long-term efforts to phase out coal-fired power.
Indonesia was already struggling to meet targets to retire coal plants early, with financing delays even before the Iran war.
Coal power in Indonesia was 48% more expensive in 2024 than in 2020 due to aging plants and higher costs, according to the U.S.-based Institute for Energy Economics and Financial Analysis (IEEFA). Subsidies to the national utility rose 24% to $11 billion, about 5% of the national budget.
Jakarta has promoted the use of LNG to ease the shift from coal. But the renewed coal use “sends a signal” that switching to gas “is not as easy as it sounds,” Adhiguna said.
South Korea has pledged to retire most coal plants by 2040 and halve its emissions by 2035. But it is allowing more use of coal when air pollution is low, and LNG is in short supply.
In 2023, South Korea needed a major renewable expansion, about 8 gigawatts of new wind annually, to meet net-zero goals, Agora Energiewende said. Growth has been slow, with renewables supplying just 10% of electricity in 2024, versus a global average of 32%, according to IEEFA.
Over the past 11 years, South Korea has committed $127 billion to fossil fuels. That’s 13 times more than it spent on renewables, with 60% of export finance going to LNG and $120.1 billion spent on fuel imports in 2024 alone, said Joojin Kim of Solutions for Our Climate.
South Korea still plans to phase out the use of coal, but the recent moves could outlast the crisis, Kim said. “The concern is not just the decision itself. It is the precedent it sets.”
For countries with limited coal, like Thailand, the impact on electricity prices would be minimal, as coal accounts for too small a share of capacity, said Jitsai Santaputra of The Lantau Group. Domestic coal makes up less than 10% of the Thai energy mix.
Burning coal produces fine particles that lodge deep in the lungs and bloodstream, raising the risk of heart disease, stroke, lung cancer and chronic respiratory disease, according to the World Health Organization (WHO).
It’s a problem across Asia, especially during seasons when farmers are burning their fields.
All 1.4 billion Indians breathe air with concentrations of these particles the WHO considers unsafe, according to a report by the Energy Policy Institute of Chicago. The government has now paused air-quality rules, allowing restaurants to burn coal to ease a gas shortage.
Vietnam also faces severe air pollution, with PM2.5 far above WHO limits. It is promoting electric bikes and has targets to cut coal use.
Lan Nguyen, a shopowner in Hanoi, said she knows coal is essential for electricity right now, but worries about her asthmatic son’s health. “I worry for my son’s lungs every day,” she said.
Business activity in the eurozone slowed down sharply in March amid the escalation of the war in the Middle East, which drove energy prices higher and disrupted global supply chains, a closely watched survey showed Tuesday.
The HCOB Flash Eurozone purchasing managers’ index (PMI) published by S&P Global, an important gauge of the overall health of the economy, registered a significantly lower figure of 50.5 this month, down from 51.9 in February.
A reading above 50 indicates growth, while a figure below 50 shows contraction.
“The flash Eurozone PMI is ringing stagflation alarm bells as the war in the Middle East drives prices sharply higher while stifling growth,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.
“Firms’ costs are rising at the fastest rate for over three years amid the surge in energy prices and choking of supply chains resulting from the war,” he added.
The European Union has also warned of the risk of stagflation, a troublesome blend of high inflation and anaemic growth.
Energy prices have soared since the United States and Israel’s war against Iran triggered Tehran’s retaliation that disrupted oil deliveries through the Strait of Hormuz.
The key survey also found manufacturers reporting the “most marked lengthening of suppliers’ delivery times in over three-and-a-half years.”
Eurozone inflation reached 1.9% in February, but the European Central Bank (ECB) has warned that the energy shock caused by the Middle East war would sharply push up inflation and hit the single currency area’s growth.
The Frankfurt-based bank’s projections forecast that eurozone inflation would come in at 2.6% over this year, above its 2% target.
The inflation reading for March will be published next Tuesday.
Williamson said he expected growth to slow to a quarterly rate of just below 0.1% in March and warned inflation could accelerate to near 3%.
He added the ECB “will have to tread a cautious path with respect to policy in the face of a clear and rising risk of stagflation in the coming months.”
Türkiye’s manufacturing capacity utilization rate remained stable in March, at 74.0%, while confidence in the real sector declined in the same month, official data showed on Tuesday.
On a seasonally adjusted basis, the capacity utilization rate in the manufacturing industry remained steady at 74.0% compared with the previous month, data from the Central Bank of the Republic of Türkiye (CBRT) revealed.
In contrast, the unadjusted rate declined slightly by 0.2 points, settling at 73.3%, according to the data.
The central bank also separately released the data showing that the seasonally adjusted real sector confidence index fell by 4.1 points to reach 100.0 in March.
The decline was attributed to negative assessments across all sub-indices.
Survey responses indicated weaker expectations for production volume over the next three months, a less favorable view of the general business outlook, reduced order volumes both in the past three months and currently, lower investment spending intentions, diminished export order expectations, higher inventories of finished goods and weaker employment projections.
According to CBRT data, the unadjusted seasonally adjusted real sector confidence index also declined, by 3.1 points compared to the previous month, and was at 101.0 in March.
Turkish authorities pledged to continue taking necessary measures in strong coordination to limit the possible effects of global uncertainties and geopolitical tensions on the country’s economy, while also pursuing the inflation fight, according to a written statement shared by the Economic Coordination Council (EKK) on Tuesday.
The council held the meeting under the chairmanship of Vice President Cevdet Yılmaz and was attended by other top officials, including Treasury and Finance Minister Mehmet Şimşek and the governor of the Turkish central bank, Fatih Karahan.
In the written statement issued after the meeting, it was noted that the global economy “is going through a period of increased uncertainty and geopolitical tension.”
“In this conjuncture, the Turkish economy maintains its resilience to shocks, thanks to its strong macroeconomic fundamentals,” the statement read.
“With the program we are implementing, financial stability has been strengthened, and macroeconomic balances have improved significantly,” it added.
The Turkish government has been pursuing an economic program aimed at lowering inflation while focusing on sustainable growth. Since 2023, the authorities have adopted tighter monetary and fiscal policies, and inflation has regressed notably to around 30%.
The statement further emphasized that the Turkish economy “stands out positively” compared to many countries with its low public debt and budget deficit, strong reserve position, decreasing current account deficit, increasing inflow of external resources, and solid banking sector.
However, Türkiye, which shares a land border with Iran, also warned earlier that a prolonged conflict may weigh on the current account balance and inflation.
The conflict launched by the U.S. and Israel against Iran has resulted in higher oil prices and major disruptions in the Gulf region, which also risks supplies of fertilizers and thus poses a direct threat to global food prices and global inflation as well.
“On the other hand, the possible effects of geopolitical developments in our region and rising oil prices on the current account balance and inflation are being closely monitored,” the EKK statement also said.
Moreover, it also recalled that the so-called “sliding-scale pricing system” has been temporarily implemented to limit the impact of rising oil prices on inflation.
“In addition, through measures taken to ensure the supply of agricultural inputs and strategic stock management, the strong structure of agricultural production is being maintained,” it added.
On the side of energy, the statement noted that investments in domestic and renewable energy, which have been prioritized to reduce external dependence on energy and to permanently lower the current account deficit, “are being accelerated.”
“In this way, it is aimed both to strengthen energy supply security and to increase competitiveness,” it added.
Similarly, citing the rising uncertainties and protectionist trends in global trade, the statement suggested that this necessitates “the reshaping of external trade strategies.”
“In this context, efforts to update the customs union and adapt to green transformation policies with our most important trading partner, the European Union, are continuing.”
‘Necessary measures’
In this context, the statement reported that the Economic Coordination Council meeting evaluated macroeconomic developments, considered the potential effects of the U.S.-Israel-Iran war on the global economy and Türkiye, and discussed recent developments in Türkiye’s trade relations with the EU.
“To limit the possible effects of global uncertainties and geopolitical tensions on our economy, we will continue to take necessary measures in strong coordination,” EKK said.
“We will resolutely pursue our fight against inflation until permanent price stability is achieved. We will continue to take steps to protect our competitiveness and production capacity in the face of changing global trade conditions.”
The European Union and Australia reached a long-awaited free-trade deal on Tuesday, while also agreeing to boost defense cooperation and access to crucial rare-earth minerals in the face of global uncertainty over energy and trade.
The announcement of the deal came after eight years of negotiations, during EU chief Ursula von der Leyen’s visit to Australia, as the 27-nation bloc and the import-reliant nation navigate renewed energy vulnerability sparked by the war in the Middle East.
The agreement aims to remove tariffs and commercial barriers on both sides to boost trade in goods and services.
The conclusion of talks is part of an EU push to diversify trading partners as tensions with China over alleged market distortion persist and relations with the U.S. have become tense under President Donald Trump.
“Today, we are telling an important story to a world that is deeply changing, a world where great powers are using tariffs as leverage and supply chains as vulnerabilities to be exploited,” von der Leyen told journalists in Canberra.
“In our story, open, rules-based trade delivers positive outcomes. Trust matters more than transactions,” she said.
“We are sending a strong signal to the rest of the world that friendship and cooperation are what matters most in times of turbulence.”
Australia’s Prime Minister Anthony Albanese said the agreement would benefit both sides.
“I am proud that we have been able to secure this deal, which will deliver benefits for both Australia and the European Union for generations to come,” he said.
Albanese and von der Leyen also presented a new Australia-EU security and defense partnership.
The Australian government said the “wide-ranging partnership” would boost cooperation across the defense industry, cyber, economic security, counterterrorism and hybrid threats.
Agriculture
One notable part that stands out in the trade deal is agriculture. The deal is expected to open the path to the flow of a variety of goods, but the move threatens to face objections from EU-based producers.
Tariffs will go down to zero from day one for key EU export products such as wine and sparkling wine, some fruit and vegetables, including preparations and fruit juices, chocolate, sugar, confectionery and ice cream and many processed agricultural products, a Reuters report said, citing highlights from the deal.
Tariffs on EU cheese will go down to zero over three years.
The EU will also remove tariffs on most Australian agricultural products, including wine, nuts, fruit and vegetables, honey, olive oil, most dairy products, wheat, barley and seafood.
Australian beef, sheep meat, sugar, rice, wheat gluten, skimmed milk powder and natural butter will get either new or expanded tariff rate quota volumes.
European farmers’ group quickly slammed concessions easing exports of Australian beef, sugar and lamb to the EU in a trade deal struck Tuesday, saying they piled pressure on sectors already hit by previous accords.
“The cumulative impact of successive trade agreements makes these concessions unacceptable,” pan-European agriculture lobby group Copa-Cogeca said in a statement.
One of the sticking points in the negotiations was also the treatment of certain agricultural products whose names are protected in Europe and must meet specific production criteria, such as feta cheese, Gruyère and Parmesan. The use of the name “Prosecco” for Australian-produced wine was also a point of contention for the EU.
However, both sides ultimately showed willingness to compromise.
Approval needed
The deal needs to be approved by EU member states and the European Parliament, as well as by Australia, before it can be signed.
It is yet to be determined when the deal would enter into force, which will also depend on whether it is approved in the EU without delay.
The agreement provides for the abolition of more than 99% of tariffs on EU goods exports to Australia, which would save companies of all sizes around 1 billion euros ($1.15 billion) annually in duties, according to Brussels.
The agreement is also intended to make it easier for EU professionals to work in Australia.
According to the commission, industrial sectors that could particularly benefit from the agreement include mechanical engineering, chemicals, the automotive industry and agriculture.
The EU is also set to gain improved access to Australia’s strategically important raw materials, such as rare earths and lithium.
For Australia, the removal of tariffs on exports such as wine and seafood is significant, while more agricultural products, such as beef, could be exported to the EU in the future.
EU-Mercosur deal
The deal also follows a landmark free trade agreement between the EU and the Mercosur states Argentina, Brazil, Paraguay and Uruguay, which was recently referred to the European Court of Justice for a legal review by EU lawmakers, threatening to derail the deal even after a provisional implementation date has been set for May 1.
The EU-Mercosur deal, which was negotiated for over two decades, is viewed critically by European farmers as they fear increased competition.
Ahead of Tuesday’s announcement, the European Commission tried to dispel EU farmers’ concerns about the possible removal of protective measures by stressing the EU’s big trade surplus in agricultural goods.
According to EU figures, the bloc was Australia’s third-largest trading partner after China and Japan in 2024.
For the EU, however, Australia is a relatively minor partner, ranking 20th in terms of trade volume.
The difference is also due to the market sizes. The EU’s 27 member countries together have a population of over 450 million, while Australia has just under 28 million inhabitants.
Japan’s inflation slowed down in February, government data showed Tuesday, providing some relief, although it could soon pick up again as the Middle East war sparked a sharp rise in oil prices.
Prime Minister Sanae Takaichi – who was appointed leader in October – has promised to fight inflation as a major priority, with public discontent over rising prices a contributor to the downfall of her two predecessors.
Excluding fresh food, “core” consumer prices rose 1.6% year-over-year, the slowest rise since March 2022, down from 2% in January.
It was a bigger drop than expected, partly thanks to government energy subsidies.
Rice prices rose again in February, but at 16.6%, a far lower pace than in previous months.
Overall, consumer price growth, including fresh food, eased to 1.3% in February from 1.5% in January, with market consensus pegged at 1.5%.
However, Japan’s central bank said last week that it expected inflation to increase because of the “recent rise in crude oil prices” caused by the Middle East war.
Stefan Angrick of Moody’s Analytics also warned Tuesday that “the relief likely won’t last.”
“Government support was a key factor in February’s dip,” he wrote in a note.
“But with the conflict in the Middle East scrambling the outlook for commodity prices and growth, a fresh jump in consumer price inflation is a significant risk,” he said.
Worried residents
Some Tokyo residents said they were very worried about rising prices.
“I keep seeing in the news how oil is used in all sorts of things, everywhere,” said 45-year-old Manami Kinoshita.
And “when I look at things like egg prices, for example, I get the feeling that prices are gradually going up across the board,” she said.
“That part really concerns me.”
Japan depends on the Middle East for 95% of its oil imports. The government on Thursday began an emergency subsidy program to drive down the cost of gasoline.
It is hoped the gasoline subsidies will help bring petrol prices to around 170 yen ($1.06) per liter, Chief Cabinet Secretary and top government spokesperson Minoru Kihara has said.
The average gasoline price in Japan was hovering just below 160 yen per liter before the war began, according to the Oil Information Center, a Japanese industry research body.
Government officials expect it could take up to two weeks for the gas prices to come down to the target level.
Takaichi said Tuesday Japan would release another part of its strategic oil reserves from Thursday and would tap into joint stockpiles held by producing nations in the country as soon as this month.
The announcement came after Tokyo last week started releasing 15 days’ worth of private-sector petroleum reserves.
A joint reserve is held in Japan by Saudi Arabia, the United Arab Emirates (UAE) and Kuwait, according to the Petroleum Association of Japan.
The European Union announced on Monday that a free trade agreement (FTA) signed with the South American bloc of nations (Mercosur) will provisionally enter into force on May 1, despite a pending court ruling on its legality.
The mammoth deal to eliminate tariffs on more than 90% of trade between the two blocs has proven divisive in Europe, with France leading opposition over concerns some of its farmers will be worse off because of it.
But, backed by a majority of EU countries, Brussels has ploughed ahead as it pushes to diversify trade in the face of challenges from the United States and China.
“Today is an important step in demonstrating our credibility as a major trading partner,” EU trade chief Maros Sefcovic said.
“The priority now is turning this EU-Mercosur agreement into concrete outcomes, giving EU exporters the platform they need to seize new opportunities for trade, growth and jobs.”
The move comes as Paraguay ratified the deal last week, becoming the last Mercosur member to do so after Argentina, Brazil and Uruguay.
“Provisional application ensures the removal of tariffs on certain products as of day one, creating predictable rules for trade and investment,” the European Commission, in charge of EU trade policy, said Monday.
It added that it had notified Mercosur partners.
“EU businesses, consumers and farmers can thus start reaping the benefits of the deal immediately.”
The EU had already signalled in February that it would provisionally implement the deal, prompting a public split between its two largest member states, France and Germany.
The pact still needs a green light from lawmakers in the European Parliament, which referred it to the EU’s top court within days of being inked in January.
France unsuccessfully attempted to block the deal over worries for its farmers, who fear being undercut by cheaper goods from Brazil and its neighbours.
The accord creates one of the world’s biggest free trade zones. Together, the EU and Mercosur account for 30% of global gross domestic product (GDP) and more than 700 million consumers.
It favors European exports of cars, wine and cheese, while making it easier for South American beef, poultry, sugar, rice, honey and soybeans to enter Europe.
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