Turn to the US for Oil Imports to Ensure Japan's Energy Security

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Israel and Iran have agreed to a ceasefire. At one point, there was acute concern that Iran might block the Strait of Hormuz, the world's main oil transport artery, and thereby cause energy prices to soar. However, markets soon calmed down.

Nevertheless, flashpoints for a new Middle East crisis remain. Japan imports over 95% of its crude oil from the Middle East. Moreover, 80% of tankers bound for Japan pass through the Strait of Hormuz. The recent confrontation between Iran and Israel has once again highlighted the vulnerability of Japan's energy procurement paradigm.

Excessive reliance on the Middle East is also an energy security concern. Clearly, Japan needs to diversify its crude oil suppliers and reduce geopolitical risks.

The 1970s Oil Shock

Japan began diversifying its sources of crude oil after experiencing the two oil shocks of the 1970s. As a result, Japan's dependence on the Middle East for its oil supplies, which was in the upper 70% range before the oil shocks, temporarily dropped to the 60% range.

However, procurement from some oil-producing countries subsequently dropped significantly. For example, there was a decline in production in Indonesia, which had been a major supplier. Instead, as consumption increased with economic development, the country became a net importer of crude oil.

The ban on Russian oil imports due to sanctions imposed following Moscow's invasion of Ukraine also led to increased reliance on the Middle East.

Amidst these circumstances, Japan is eyeing the United States as a possible source of petroleum. America has become the world's largest crude oil producer, thanks to the shale revolution. Furthermore, the Donald Trump administration is also promoting increased production of fossil fuels.

Win-win with American Energy Imports

Increasing crude oil imports from the United States, Japan's ally, would definitely contribute to strengthening the nation's energy security. It would also benefit the US, which is pursuing high tariff policies in an attempt to reduce its trade deficit.

*A North American LNG terminal in Kitimat, British Columbia, western Canada (Photo courtesy of Mitsubishi Corporation)*

Currently, due to several reasons related to procurement costs, imports of American crude oil account for only about 2% of Japan's oil needs. These include the fact that Japan's refineries are equipped to process Mideast crude, and transport times from the US are longer. That means the government should also consider providing subsidies to cover the increase in procurement costs.

In response to the 1973 oil shock, Japan enacted the Oil Stockpiling Act in 1975. That law requires oil stockpiling in case of emergencies such as an overseas emergency that severs the supply line for oil imports.

Disruption of the supply of crude oil from the Middle East would have an immeasurable impact on the Japanese economy and people's lives. We must prepare for such a Middle East emergency not only by stockpiling oil but also by diversifying our crude oil procurement sources.