- Coal prices rise with oil due to substitution, affecting India's coal-dependent power sector
- Coal prices lag oil in stabilising, as seen in the Russia-Ukraine war price trends
- India is the world's second-largest coal importer, increasing vulnerability to price hikes
The two-week ceasefire and the opening of the Strait of Hormuz, agreed upon by the United States and Iran, have come as a big relief for India too. The reason is not only the access to petroleum products from the Middle East but also coal prices that have picked up heat from the crude oil market. Coal acts as a substitute for oil, and thus whenever oil prices rally, coal follows the trend. This, eventually, puts pressure on India's heavily coal-dependent power sector.
The Middle East war has caused a significant increase in oil prices. Brent prices rose 30 per cent since the war began and pulled the coal futures up by 18 per cent too.
What does the Russia-Ukraine war say about the oil-coal relation?
Evidence from the Russia-Ukraine war indicates that while coal prices do respond to the oil market, they take significantly longer to stabilise, even as oil prices normalise. Brent futures were at $96.84 a barrel on February 23, 2024, a day before the war had started. It jumped to $127.98 on March 2 and took 105 trading sessions to return to pre-war levels.
On the other hand, coal prices shot from $237.7 a tonne on February 23, 2024, to $440 on March 2, but even after 215 trading sessions or a full year, coal futures were above $400.
Who pays when coal prices rise in the international market?
The global rise in prices makes imports expensive and hurts those who import more. India is the world's second-largest coal importer, after China. The International Energy Agency estimates for the year 2026 show that of the 1,382 million tonnes to be imported worldwide, China may import 425 MT while India imports 205 MT. Japan and South Korea follow the list of the world's top coal importers.
How coal-dependent is India?
The race for green energy has picked up in India. The installed capacity of green energy has risen to more than 50 per cent of the country's overall capacity. However, given the low efficiency, the generation is much lower.
Coal-dominated thermal energy still contributes to 74 per cent of India's power generation, based on February 2026 data provided by the Central Electricity Authority. If the war resumes, it will significantly impact India's energy availability. Oil and coal have the potential to induce significant inflation in the Indian economy.
