Japan weighs release of national oil reserves

The Japanese government is understood to be considering tapping its national oil reserves to prepare for potential prolonged supply disruptions as the US-Israeli conflict with Iran drags on, according to a source familiar with the matter cited by Kyodo News.

The release could be carried out unilaterally rather than as part of a coordinated international effort the reports add in what would be the first such move since the establishment of Japan’s oil stockpiling system over 45 years ago in 1978. Subsequent discussions with other countries could follow if they then express interest in joining the measure.

Releases of strategic reserves are almost always coordinated through the International Energy Agency (IEA) as was as seen following Russia’s full-scale invasion of Ukraine in early 2022.

The main reason behind the possibility – that shipping through the Strait of Hormuz has been disrupted following US and Israeli strikes on Iran from February 28 – heightened concerns for Japan, which relies on the Middle East for more than 90% of its total crude imports.

The government-held reserves, while substantial compared to other Asian nations, are intended to offset shortfalls faced by wholesalers and trading companies, though they are expected to have only a limited effect on curbing price rises for gasoline and other petroleum products.

As of the end of December, Japan’s oil stockpiles was recorded as 254 days of domestic consumption, with 146 days’ worth being government-owned with the remaining 101 days held by the private sector in Japan.

The remainder is stored jointly with other oil-producing countries. Tokyo is also understood to be considering using private-sector reserves - depending on the situation.

Any oil released under this move would most likely be sold to domestic wholesalers to help ensure supply stability, with authorities then exploring fast-track delivery options. Releases typically take around a month, including the auction process.

Japan has used its oil reserves to address supply concerns on previous occasions - following natural disasters and overseas political crises, such as when the First Gulf War broke out in the early 1990s, and then when the earthquake and tsunami in northeastern Japan hit in March 2011. The 2011 release, which also followed a nuclear accident at Fukushima, also drew on private-sector stockpiles and was not internationally coordinated.