News On Japan

Middle East tensions are a crude awakening for Japan’s energy security strategy

Nov 19 (East Asia Forum) - Geopolitical risks in the Middle East have rapidly escalated since the October 2023 attack on Israel by Hamas. In addition to Israel’s bombardment of Gaza, a regional war has grown likelier due to Iran–Israel tensions. This poses serious concerns for Japan’s energy security, which depends on Middle Eastern oil supply.

But Japan will likely continue to rely on the region’s oil and natural gas to meet its energy needs. Japan’s dependence on Middle Eastern crude oil exceeded 95 per cent in 2023, partly due to a reduction in Russian crude oil imports following Russia’s invasion of Ukraine in 2022.

Japan’s pledge to achieve carbon neutrality by 2050 may reduce its reliance on Middle Eastern oil and gas in the long term. But the slow reactivation of nuclear power plants that were shut down after the March 2011 triple disaster and a deceleration in renewable energy growth highlight significant challenges. Japan’s mountainous terrain and limited flat land restrict solar panel installation. Wind power costs are likely to remain high as Japan increasingly depends on offshore wind resources. Fragmented grid networks also hinder the smooth flow of renewable electricity from one island to another.

Japan adopted a feed-in-tariff system in 2012 to provide a guaranteed fixed payment of 40–42 yen (27–28 US cents) per kilowatt-hour for solar power generation and 22–55 yen (15–37 US cents) per kilowatt-hour for wind power generation. Though the policy contributed to increased domestic renewable electricity generation, the government’s support did not overcome the country’s deficit of renewable energy resources. Even with fully decarbonised power generation, non-electricity energy demand — which is over 70 per cent of Japan’s total energy demand — is expected to rely on fossil fuels in the longer term.

So diversifying Japan’s supply sources might reduce its exposure to geopolitical risk. But since the 1970s oil crisis, Japan’s heavy investment in overseas oil fields has not significantly reduced its dependence on Middle Eastern oil.

Many Japanese refineries are configured to process cheaper Middle Eastern crude oil, which has comparatively higher sulphur content and a higher value of specific gravity — its density relative to water. Middle Eastern crude oil is produced in large quantities and can be transported in bulk, giving it a significant cost advantage. Government intervention to diversify supply sources would not align well with the industry’s market-driven nature. Adding diversification costs to domestic prices would also be politically difficult.

Japan’s options in this deteriorating security environment are limited. Japan has constitutional constraints on its ability to play an active role in peacekeeping efforts in the Middle East, but Japan’s Self-Defense Forces have gradually expanded their activities in the region prior over the last two decades. These included monitoring ceasefires in the Golan Heights and Sinai Peninsula regions and anti-piracy operations off the coast of Somalia.

Though overseas military activities are often not directly linked to energy security discussions, increased involvement in operations covering naval shipping from the Middle East would help to alleviate supply concerns. But because of Japan’s inherently limited overseas military activities and domestic caution, Japan is unlikely to deepen its security-based involvement in the Middle East in the near future.

Strengthening diplomacy may be key, as Japan’s outsider status in Middle Eastern politics gives it a unique credibility. Former prime minister Shinzo Abe unexpectedly attempted to mediate deteriorating US–Iran relations in 2019. Though he did not achieve any notable outcomes, his efforts highlighted the appetite for Middle Eastern diplomatic engagement in the ruling Liberal Democratic Party.

Japan’s uniqueness lies in its positive relationships not only with the United States but also with nations like Iran and Israel, which could position it to facilitate a new Middle Eastern peace initiative. The necessity of regional peace for Japan’s energy security and sustained economic growth warrants bold political decision-making.

Reducing Japanese energy dependence on the Middle East in the short term would be difficult. Japan should instead focus on enhancing its ability to mitigate potential emergencies — for example, by preparing to release its emergency oil reserves, which can cover domestic demand for nearly six months. While Japan has previously released privately owned stockpiles, it has limited experience with releasing its larger government-owned stockpile. The decline in the volume of private stockpiles has increased the importance of readiness to release the government stockpile.

Japan’s reliance on Middle Eastern liquefied natural gas and liquefied petroleum gas is minor — 9 per cent and 5 per cent, respectively. But developing global trading networks and facilitating supply flexibilities in long-term contracts will help ensure alternative supplies in emergencies. Since energy supply disruptions affect other importing countries, promoting international cooperation under the International Energy Agency’s framework and urging other Asian countries to participate in emergency cooperation is crucial.

The importance of the Middle East for Japan’s energy supply will remain unchanged for the foreseeable future. Reducing dependence on Middle Eastern oil and natural gas supply by substituting it with clean energy is unrealistic in the short term. Japan must assess its options realistically, pursue advanced diplomatic mediation and improve its emergency response capabilities.

Yoshikazu Kobayashi is Senior Research Director at the Institute of Energy Economics, Japan.

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