Soaring electricity prices and surging import expenditures: Japan’s energy dilemma and reflections amid the U.S.-Israel-Iran conflict

【Answer 1】 1. Energy security policies helped Japan cope relatively well with the Iran crisis. Although Japan remains highly dependent on energy imports from the Middle East, the impact of the Iran crisis has thus far been effectively contained. Decades of energy security measures implemented since the first oil crisis in 1973 have played a vital role. At the time of the attacks, Japan held 254 days’ worth of petroleum reserves—providing critical time to diversify liquefied natural gas (LNG) and liquefied petroleum gas (LPG) imports away from the Middle East and thereby mitigating the shock of a potential closure of the Strait of Hormuz. Meanwhile, sustained domestic refining capacity ensured ample supplies of gasoline, diesel, and other petroleum products. 2. Several security vulnerabilities have nonetheless emerged and must be addressed. Although progress has been made in energy security policy, numerous risks remain. Prime Minister Sanae Takaichi has instructed the Japanese government to formulate a comprehensive policy package by the end of August to enhance the resilience of Japan’s energy system against these vulnerabilities. While the specific contents of this package remain unclear, I would like to share with you the measures expected to be included. I will also highlight certain unresolved issues—potentially omitted from the package—that still require urgent attention. 3. Naphtha has been the greatest source of concern—and decisive action is indeed needed. Prior to the Iran crisis, naphtha—serving as a bridge between crude oil and petrochemical products—was known only to a narrow segment of industry professionals and remained largely unknown to the general public. Today, however, naphtha has entered everyday vocabulary. Concerns over its supply stability have already disrupted supply chains for numerous manufactured goods. In the early phase of the crisis, 40% of Japan’s naphtha consumption was directly imported from the Middle East, yet no national reserve system existed for it. Japan’s leading bathroom-system supplier temporarily suspended order acceptance due to shortages of naphtha-derived chemicals—delaying construction timelines for many homes. Multiple manufacturers and contractors complained about shortages of thinners, essential for applying paints and coatings across diverse products and construction projects. The most conspicuous change was the shift of packaging for Japan’s bestselling potato chips—from colorful designs to black-and-white—officially attributed to concerns over paint supply shortages. Through intensive efforts by the Japanese government and industry to secure naphtha imports and downstream chemical products, such disruptions were alleviated. Yet awareness of naphtha’s vulnerability has become so acute that naphtha-related measures are inevitably destined to form part of the new policy package. A national naphtha reserve system existed until 1993; under pressure from the chemical industry—which viewed it as a burden on international competitiveness—it was abolished, and naphtha was formally excluded from Japan’s energy security framework. It must now be reintegrated into that framework, and a naphtha reserve system is highly likely to be reinstated. 4. Diversification of crude oil imports is necessary—but requires concrete policy interventions. Japan’s dependence on Middle Eastern crude oil stands at a staggering 94%, an absolutely unsustainable level. Though this figure had slightly improved in recent years, Russia’s invasion of Ukraine caused Japan’s reliance on Middle Eastern crude to rise further. Following the outbreak of the Iran crisis, both the Japanese government and industry intensified efforts to procure crude oil from non-Middle Eastern sources, notably the United States. Although some procurement success has been achieved, clear constraints persist: Japan’s refineries have been optimized specifically for processing Middle Eastern crude. While they can blend non-Middle Eastern crude with Middle Eastern crude, there remains a strict upper limit on how much non-Middle Eastern crude can be accommodated.

Over 70% of Japan’s naphtha relies on the Middle East; closure of the Strait of Hormuz triggers a 'naphtha shortage'—what flaws exist in Japan’s energy strategy?

【Answer 2】 The recent disruption at the Strait of Hormuz—triggering a severe naphtha shortage—has starkly exposed systemic weaknesses accumulated over decades within Japan’s integrated energy and petrochemical strategy. Against the backdrop of current supply-chain realities, these core problems can be categorized into six interrelated dimensions: (1) overconcentration of supply sources, (2) overreliance on a single maritime chokepoint, (3) rigidification of refining and petrochemical infrastructure, (4) deficiencies in reserve systems, (5) diplomatic constraints undermining energy security, and (6) missteps in energy transition planning. I. Extreme concentration of supply sources—deliberate abandonment of diversification 1. Full-chain dependency on a single Middle Eastern production zone Over 75% of Japan’s naphtha supply—both direct and indirect—depends on the Middle East: 40% is imported directly as refined naphtha, while another 40% originates from domestic refineries whose crude oil feedstock is over 90% sourced from the Middle East. Japan’s overall crude oil import dependency stands at 99.7%, with Middle Eastern crude accounting for up to 94.2%—concentrated overwhelmingly in Saudi Arabia, the UAE, Kuwait, and Qatar. In the 1970s–80s, following the oil crises, Japan attempted to reduce its Middle Eastern dependency, lowering the Middle Eastern share of crude imports to 67.9%. However, during the 1990s, attracted by low-cost Middle Eastern crude, Japanese companies prioritized cost-cutting and abandoned diversification strategies altogether. 2. Voluntary loss of Russian alternative supply The Sakhalin project’s Russian crude oil and condensate once offered a strategic hedge against Middle Eastern supply risks. Yet Japan—strictly aligning itself with U.S. sanctions—voluntarily scaled back Russian oil imports, effectively eliminating its most important northern backup supply and forcing a complete reversion to total dependence on the Persian Gulf. II. Overreliance on a single maritime chokepoint—the Strait of Hormuz—placing industrial lifelines at risk The vast majority of Japan’s Middle Eastern crude oil and finished naphtha shipments must transit the Strait of Hormuz, with no mature alternative main shipping route available: - Should the Strait become impassable, rerouting via the Cape of Good Hope would double voyage duration and drastically increase freight costs. Moreover, naphtha production capacity in the Americas and Southeast Asia is limited and incapable of filling Japan’s massive short-term demand gap. - Japan lacks overseas dedicated oil depots or mid-route transshipment hubs. Crude oil stranded abroad cannot be rapidly reallocated. Although Japan officially holds over 250 days’ worth of national crude oil reserves, actual readily deployable stocks dwindle to roughly 45 days once maritime routes are severed. III. Refining and petrochemical facilities locked into inflexible technologies—eroding industrial resilience This represents the most structurally entrenched and difficult-to-remedy hard constraint: 1. All major Japanese refineries were originally engineered specifically for high-sulfur, heavy Middle Eastern crude—including specialized process units, reaction towers, and piping systems. Rapid switching to light, low-sulfur crudes from West Africa or the Americas risks equipment failure and unpredictable yield imbalances. 2. Fully 85% of Japan’s ethylene cracking units rely exclusively on naphtha as feedstock; alternative routes—such as ethane, LPG, or coal-to-olefins—are extremely rare. During crude oil shortages, refineries prioritize gasoline and diesel production to meet essential civilian demand—deliberately curtailing naphtha output and thereby exacerbating the petrochemical feedstock shortage.

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