Coats opted against a third term. (Screengrab via U.S. Senate)

Updated at 12:35 p.m.

Sen. Dan Coats (R-Ind.) said Tuesday he will not run for reelection in 2016, a move that could potentially trigger a competitive open-seat race that could become a factor in the battle for the Senate majority.

Many political observers expected Coats to seriously consider retiring, so his decision did not come as a complete surprise. In a statement, Coats said he made a difficult but necessary choice.

“Today I am announcing that I will not seek reelection to the United States Senate," said Coats. "This was not an easy decision. While I believe I am well-positioned to run a successful campaign for another six-year term, I have concluded that the time has come to pass this demanding job to the next generation of leaders."

Coats was elected to a second stint in the Senate in 2010. He had previously served from 1989 until 1999. In between, he was ambassador to Germany.

Democrats need to gain four seats to win back the majority in 2016, five if the next president is a Republican. Indiana was not seen at the outset of this election cycle as a top target for Democrats. But it could look like a more appealing place to devote resources now that it is an open race.

"I think the Democratic Senatorial [Campaign] Committee has to take a look and see who their potential soldiers are," said Brian Howey, editor of Howey Politics Indiana. He noted that Hilary Clinton, the presumptive Democratic forerunner for president spent, a lot of time in Indiana during her 2008 campaign and could be a factor in the Senate race if she were to make a serious play for the Hoosier State.

"Could they pull off an Obama and make Indiana competitive?" asked Howey, pointing to President Obama's victory in the Hoosier State in 2008. Mitt Romney won Indiana in 2012.

Republicans expressed confidence they would hold the seat.

“Senate Republicans have been blessed to work with such a great colleague over the years and we will miss him dearly," said National Republican Senatorial Committee Chairman Roger Wicker (Miss.) in a statement. "We have a strong Republican bench in Indiana and I am confident we will have another capable Republican joining us in the Senate in 2016 to continue Dan’s great work.”

Potential Democratic candidates include former senator Evan Bayh, former congressman Baron Hill, Hammond Mayor Thomas McDermott, Superintendent of Public Instruction Glenda Ritz, state Rep. Christina Hale and former state House speaker John Gregg, the 2012 gubernatorial nominee, according to close watchers.

"Indiana's Senate race is now one of the most competitive Senate races in the country, and Democrats are ready to put together a strong campaign just like we did in 2012," said Democratic Senatorial Campaign Committee Chairman Jon Tester (Mont.) in a statement. "We're confident that we will find a great candidate who will put Indiana first and win this seat in 2016."

Between the two of them, Coats and Bayh have held the Senate seat since 1989. Bayh has a massive campaign war chest from his Senate campaign days that is stocked with nearly $10 million in it.

Republicans may look to the U.S. House delegation for a replacement. Possibilities there include Rep. Marlin Stutzman, Luke Messer, Susan Brooks, Larry Bucshon, Todd Rokita and Todd Young.

Coats was the 23rd most conservative member of the Senate, according to National Journal's 2013 vote ratings. Upon rejoining the chamber  in 2010, Coats focused heavily on fiscal issues. He has also regularly weighed in on foreign policy matters. Coats was ambassador to Germany from 2001 to 2005.

Coats served in the House from 1981-1989. He is the first Republican senator to announce his retirement this year. Two Democrats -- Barbara Boxer of California and Barbara Mikulski of Maryland -- have said they are retiring.