Lindsay James
Coal is emerging as one of the clearest winners of the Middle East energy disruption, with demand climbing not just for power generation but increasingly as a feedstock for chemicals and fertilizers, a shift that is reshaping how China and now India think about energy security.
China's Coal Use Shifts Even As Output Dips
Data out of China this year shows coal production slipped during the first four months, while imports and coal fired power generation also declined, continuing a pattern that started in 2025. On the surface that looks like retreat. It is not. Coal consumption in China remains strong, it has just moved beyond electricity and steelmaking into a broader industrial role: turning coal into gas, plastics, fertilizers and petrochemicals.
PetroChina is now developing a project to extract gas from coal rock, targeting output of 30 billion cubic meters by 2035. The extraction method resembles hydraulic fracturing used in shale drilling, and China is currently the only country applying that fracking style technique to what is being called rock gas. Last year alone, China produced 4.2 billion cubic meters of rock gas, a figure that looks like an early stage of a much larger buildout if expansion plans hold.
Coal to Chemicals Gets a War Driven Boost
China's coal to chemicals stocks jumped 30% between late February and mid March as the conflict in the Middle East pushed crude prices higher, with the closure of the Strait of Hormuz making oil markets tighter and pricier. Investors rewarded companies that could make fertilizers and petrochemicals from coal instead of oil. Notably, Chinese coal prices actually fell after the war began, widening the cost advantage of coal derived chemicals over oil based alternatives even further.
That price gap explains a lot. Crude linked benchmarks, visible through funds like USO, have been volatile as Hormuz risk premiums come and go, while coal has stayed comparatively cheap and steady. For an economy trying to insulate itself from oil price swings, that combination is hard to ignore.
India Wants In, But Faces Real Obstacles
India imports more than 80% of the oil it consumes, leaving it exposed during what has been described as the largest energy crisis in history. With large domestic coal reserves, India is now pushing to build its own coal to chemicals industry rather than lean further on imported fuel and imported price risk.
The comparison to China only goes so far, though. Indian coal differs in composition from Chinese coal and is reportedly harder to convert into chemicals. China also has roughly two decades of accumulated experience refining its extraction and conversion technology, a head start India cannot simply buy. India has committed 4 billion dollars to jumpstart the effort, but that may not be enough on its own. Chemical producers built around coal feedstock will likely need continued government support to stay price competitive once natural gas prices eventually normalize from their current war elevated levels, whenever that turns out to be.
The Scale India Is Targeting
The government under Prime Minister Modi is aiming for 75 million tons of coal to be converted into fertilizers, other chemicals and plastics by 2030. The plan includes funding for processing facilities and guarantees around local feedstock supply, all intended to cut India's import bill and lean more heavily on domestic resources.
- China's coal to chemicals sector already consumes about 380 million tons of coal a year, a volume that would rank as the world's third largest coal consumer if it were counted as its own country
- India's 2030 target of 75 million tons is a fraction of that, but represents a meaningful new source of coal demand
- India has earmarked 4 billion dollars in initial investment
- China's rock gas output reached 4.2 billion cubic meters last year, with a 2035 goal of 30 billion cubic meters from PetroChina's project alone
Broader market moves reflect the same tension between energy security and price. Gold, tracked through GLD, and silver, tracked through SLV, have both drawn safe haven interest amid Middle East uncertainty, while equity benchmarks such as SPY, QQQ and DIA have swung with each twist in the Hormuz standoff. Even Treasuries, visible through TLT, have reacted to shifting expectations about inflation tied to energy costs. Coal sits somewhat apart from that volatility, which is precisely its appeal to policymakers in Beijing and now New Delhi.
Can Coal Keep Expanding Without Undermining Climate Goals
Advocates of homegrown energy are not wrong that domestic resources reduce exposure to volatile import markets. But the equipment used to harvest cleaner energy sources is often built with coal powered manufacturing in the first place, a wrinkle that complicates any tidy narrative. What is clear from developments in China and India is that when supply gets tight and prices spike, reliability and cost win out over emissions concerns, at least for now. Whether that trade off holds once Middle East tensions ease and gas prices retreat remains the open question hanging over coal's current resurgence.
