• SHARE

The government’s decision on Wednesday to partially release state-owned oil reserves in order to ease gas prices marks an extraordinary moment for resource-poor Japan, where oil supply issues have been at the forefront of some of the nation's defining moments over the past century.

Prime Minister Fumio Kishida told reporters Wednesday morning the government has decided to sell part of its stockpile in accordance with legislation that mandates a certain amount of petroleum be kept in reserve. Kishida’s announcement is part of a joint effort by the United States, the United Kingdom, China, India and South Korea to curtail gas prices, which have continued to soar as major nations revive economic activities disrupted by the pandemic.

“We have been working together with the U.S. for the stability of the international oil market,” Kishida said. “I believe that the stability of crude oil prices is a very important issue in achieving an economic recovery from the coronavirus pandemic.”

Moving forward, Kishida said the government will continue to work with oil-producing countries to increase production, take measures to address concerns from various industries that are heavily affected by high gas prices, such as agriculture and fisheries, and implement mitigation measures to counterbalance rapid price increases of oil and gas.

The decision to tap oil reserves, a measure Japan considers to be a last resort, was made to work in coordination with the U.S. and other countries and to move ahead with a plan to reduce the ratio of heavy oil in crude oil reserves early to stabilize prices, said Chief Cabinet Secretary Hirokazu Matsuno on Wednesday after Kishida's announcement. Trade minister Koichi Hagiuda estimated hundred of thousands of kiloliters of oil would be released but did not elaborate on the exact figure or say when it would be made available.

Storage tanks for crude oil and petroleum products at Idemitsu Kosan Co.'s Chiba Refinery in Ichihara, Chiba Prefecture. | KYODO
Storage tanks for crude oil and petroleum products at Idemitsu Kosan Co.’s Chiba Refinery in Ichihara, Chiba Prefecture. | KYODO

The nation’s Petroleum Stockpiling Law, enacted after the 1973 oil crisis, mandates that both the government and petroleum companies reserve crude oil and kerosene in case of emergency shortfalls. Following the 2011 Great East Japan Earthquake, gasoline, fuel oil and light oil were added to the mix. The government is required to hold 90 days’ worth of daily imports in reserve.

Matsuno revealed on Monday that between the government, the private sector and agreements with oil-producing countries, Japan sets aside a total of 242 days' worth of oil in reserve for domestic consumption.

This is the first time that the government has released its own oil stockpiles and it is the first time that Japan has tapped oil reserves in response to rising prices. The petroleum law does not mention that price concerns are a condition for releasing the oil and, notably, stockpiles were not discharged in 2008 when the price of crude oil rose steeply.

In the past, the country had tapped private firms' stockpiles to ensure stable supplies on five occasions, including after the 2011 earthquake and amid political turmoil in Libya in the same year. Following the massive 2011 earthquake, operations of some refineries in the Tohoku and Kanto regions ground to a halt and a stable flow of supplies was disrupted.

When asked Wednesday why the government decided to release its state-owned oil as opposed to stocks held by petroleum companies, Kishida said the government should do what it can first and foremost.

Prime Minister Fumio Kishida speaks to the media as he annouces that the government will release some of its oil reserves in concert with the United States, in Tokyo on Wednesday. | KYODO
Prime Minister Fumio Kishida speaks to the media as he annouces that the government will release some of its oil reserves in concert with the United States, in Tokyo on Wednesday. | KYODO

Energy experts remain skeptical over the impact on prices at the pump, since the total amount of crude oil planned for release appears to be too little to inundate the market and lower prices. Oil-producing countries are also reportedly hinting at retaliatory actions that would further curb the intended effect.

In a further bid to tamp down rising gas prices, the Kishida administration included a new subsidy program for oil wholesalers in a massive economic stimulus package that was recently approved by the Cabinet. Japan has also been pressuring oil-producing countries to increase production.

Unlike the U.S. and many other major economies, Japan is almost entirely dependent on other countries for oil supplies: The world's third-largest economy imports 99.7% of its petroleum from abroad. Crude oil makes up roughly 40% of the nation’s primary energy supply, and with the use of nuclear energy remaining low even 10 years after the Fukushima No.1 nuclear plant disaster, energy supply is under heavy strain as winter approaches.

As a result, oil supply is hardly a new concern for Japan.

In the realm of geopolitics, freedom of navigation — including to ensure oil vessels’ safe passage to Japan — is one of the key pillars of the government's "Free and Open Indo-Pacific Strategy." Vessels transporting oil from the Middle East and Southeast Asia pass through the South China Sea, where China’s military expansion is raising tensions and any possible conflict could disrupt the flow of oil into Japan.

Those fears hearken back to World War II, when the U.S. froze Japanese assets and placed an embargo on oil exports to Japan following Tokyo's invasion of Indochina in 1941, ultimately leading to Japan's surprise attack on Pearl Harbor.

Energy experts remain skeptical whether the government's release of some of its oil stockpile will lower prices at the pump.  | BLOOMBERG
Energy experts remain skeptical whether the government’s release of some of its oil stockpile will lower prices at the pump. | BLOOMBERG

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.

SUBSCRIBE NOW

PHOTO GALLERY (CLICK TO ENLARGE)