Japan’s Vulnerability to Energy Shocks: 95% of Oil from Middle East

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Japan’s Vulnerability to Energy Shocks: 95% of Oil from Middle East

Japan’s vulnerability to energy shocks is a cause for concern as it relies heavily on oil imports from the Middle East. Currently, 95 percent of Japan’s oil comes from the Middle East, surpassing the levels seen during the 1973 oil crisis.

With ongoing conflicts in the region and global energy market volatility, this dependence on Middle Eastern oil poses significant risks.

Experts suggest that Japan should prioritize diversifying its energy sources, including renewable energy and nuclear power, in order to secure its own electricity sources and reduce its vulnerability to energy shocks.

This article explores Japan’s historical reliance on Middle Eastern oil, the lessons learned from the oil crisis, and the recent factors that have led to a resurgence in Japan’s dependence on the region for its oil supply.

Japan’s Vulnerability to Energy Shocks

Japan’s dependence on oil from the Middle East has reached a critical level, leaving the country vulnerable to energy shocks. Currently, almost 95% of Japan’s oil imports come from the Middle East, surpassing the figure of 77.5% during the 1973 oil crisis. This reliance on a single region for such a significant portion of its oil supply poses serious risks to Japan’s energy security.

The 1973 Oil Crisis

The 1973 oil crisis was a significant event that highlighted Japan’s dependency on Middle East oil. It was triggered by the Yom Kippur War, which started in October 1973 when Syria and Egypt attacked Israel. In response, Middle East oil producers, including Saudi Arabia, raised oil prices by 70% and curtailed supply to put pressure on the United States and its allies.

During this crisis, the role of cheap oil in Japan’s postwar growth became apparent. Japan’s rapid economic development was made possible, in part, by its access to affordable oil imports from the Middle East. The significance of this reliance on Middle East oil was emphasized when U.S. Secretary of State Henry Kissinger visited Japan in November 1973 and urged Prime Minister Kakuei Tanaka not to take a pro-Arab stance. Tanaka expressed Japan’s dependence on the Middle East for oil and the potential consequences of turning its back on Arab producers.

The oil crisis had severe consequences for Japan’s economy. Crude oil prices quadrupled within three months following the decisions made by the Organization of the Petroleum Exporting Countries (OPEC), causing commodity prices in Japan to skyrocket. Even items unrelated to the energy sector were affected, leading to the contraction of Japan’s economy in fiscal 1974, the first decline since the end of World War II.

Diversification of Oil Suppliers

As a response to the 1973 oil crisis, Japan made efforts to diversify its oil suppliers and reduce its dependency on the Middle East. The country recognized the need to break away from its reliance on a single region for oil imports. One of Japan’s strategies was to increase its reserves of liquefied natural gas (LNG), which is more widely distributed globally than oil. Over the past half-century, LNG’s share in Japan’s total energy supply has risen to more than 20%, from less than 2%. This shift has contributed to reducing Japan’s vulnerability to energy shocks.

Furthermore, Japan has also explored alternative energy sources such as nuclear power and renewable energy. However, the Fukushima disaster in 2011 led to a more cautious approach towards nuclear energy. Despite setbacks, Japan has made progress in increasing the output from renewable energy, with a particular emphasis on solar power. Nevertheless, the mountainous terrain of Japan has posed challenges to the further expansion of solar power, making it necessary for the country to continue diversifying its energy mix.

Recent Return to Middle East Oil

In recent years, Japan’s reliance on Middle East oil has increased once again. Several factors have contributed to this resurgence in reliance, including a shift in priorities among oil producers like Indonesia towards domestic consumption over export sales as their economies grow. Additionally, Japan decided to halt imports from Russia following the invasion of Ukraine, further reinforcing its dependence on the Middle East.

Efforts to Diversify Fuels

Recognizing the risks associated with over-reliance on Middle East oil, Japan has made significant efforts to diversify the types of fuels it uses. The share of oil in Japan’s energy supply has decreased from 75.5% in fiscal 1973 to 36% in fiscal 2021. However, the Middle East still accounts for more than 90% of the oil Japan imports. These efforts to reduce oil dependency have been crucial in minimizing vulnerability to energy shocks.

Escalating Violence in the Middle East

The escalating violence in the Middle East has amplified concerns about Japan’s energy security. Global oil markets have been shaken by the conflicts in the region. Geopolitical events and clashes have immediate and long-term implications for oil imports, making Japan’s energy security even more precarious.

The recent spike in crude oil prices following the Israel-Hamas conflict highlights the potential impact that Middle East conflicts can have on global oil markets.

In conclusion, Japan’s dependence on Middle East oil leaves the country vulnerable to energy shocks. The lessons learned from the 1973 oil crisis have emphasized the importance of diversifying energy sources and reducing reliance on a single region.

Japan’s efforts to diversify fuels through the increase in LNG reserves, the shift towards renewable energy, and the cautious approach to nuclear power have been steps in the right direction. However, recent geopolitical events and the resurgence of Middle East oil imports highlight the ongoing challenges Japan faces in securing its energy future.

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