Energy Shortages Push World Back to Coal

Crude oil prices are sliding even as the Middle East energy crisis pushes a growing list of countries back toward coal. The United States Oil Fund (AMEX:USO) traded at 103.98 dollars on July 2, 2026, up 0.69% on the day but still deep in oversold territory with a relative strength index of 30.13, well off its 52 week high of 154.08.

A Month of Disrupted Oil Flows

More than a month has passed since the Strait of Hormuz effectively closed to normal traffic, an outcome of the U.S. Israeli strikes on Iran and the broader regional conflict. Consulting firm Rapidan Energy has described the resulting disruption as the largest in oil market history. Under normal conditions the strait carries roughly 20 percent of global oil supply and a similar share of traded natural gas. Only a trickle of that volume has moved through the waterway in recent weeks, forcing importing nations to draw down stockpiles, ration consumption, or scramble for substitutes.

The USO price action tells its own story. Despite a supply shock of this scale, the fund sits closer to the bottom of its yearly range than the top, and the RSI reading near 30 suggests the market has been sold down hard, possibly pricing in demand destruction, rationing, or expectations that alternative supply routes and stockpile releases will cushion the blow longer than traders initially feared.

Coal Makes an Unwelcome Comeback

Governments that spent the last several years weaning themselves off coal are now reconsidering, because ramping up coal generation is cheap and fast compared with building new gas import capacity or waiting for renewable projects to come online. Global coal consumption has already climbed by about 1.3 billion tons since 2020, reaching 8.8 billion tons, a trend driven largely by China, India, and disruptions tied to the Russian invasion of Ukraine and the sanctions that followed.

Asia is bearing the brunt of the current squeeze given its heavy dependence on Middle Eastern oil and gas. Japan, India, Bangladesh, the Philippines, South Korea, Thailand, and Taiwan have either increased coal use or are actively weighing it. Indonesia, the world's top coal exporter, has started favoring domestic consumption over exports, a shift that could tighten regional coal supplies further and push prices higher across Asia.

South Korea and Europe Face Difficult Trade Offs

South Korea has pledged to retire most of its coal fleet by 2040 and cut emissions in half by 2035, yet its government has been permitting coal burning whenever air quality allows and LNG runs short. Renewables supplied only about 10 percent of the country's electricity in 2024, far below the global average of 32 percent, leaving Seoul with limited options when gas becomes scarce.

Europe's calculus looks somewhat different. Italy recently pushed back the closure of its coal fired plants by 13 years, now targeting 2038 instead of an earlier deadline, a notable reversal of prior climate commitments. Germany is weighing whether to reactivate idled coal capacity as well. Still, most European governments have stopped short of signaling an immediate return to coal, preferring to explore other stopgaps before abandoning emissions targets they have spent years building toward.

What a Coal Rebound Would Mean for Climate Goals

If enough countries end up leaning on coal to bridge the current energy gap, the setback to decarbonization could be substantial. A decade of progress toward cleaner power grids could be partially undone, and the share of renewables in the global energy mix could shrink just as the world had been counting on continued gains. Whether that scenario materializes depends heavily on how long the Strait of Hormuz remains constrained and how quickly oil markets, reflected in benchmarks like USO, find a new equilibrium.