Japan to Unilaterally Release Oil From Reserves, PM Says

(Bloomberg) — Japan will release oil from its strategic reserves on its own, according to Prime Minister Sanae Takaichi, as the nation grapples with the fallout of the war in the Middle East.

The release would begin as soon as March 16, Takaichi said Wednesday via a broadcast on NHK. The equivalent of 15 days of Japan’s oil consumption will be released from private sector stocks, and one-month worth from national reserves, she said.

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The move comes as the International Energy Agency is proposing a release of emergency oil reserves that would be the largest in its history, with a decision possible later on Wednesday. Governments are seeking to contain a surge in energy prices driven by the Middle East war, which has choked the vital Strait of Hormuz through which about a fifth of the world’s oil passes.

Resource-scant Japan is vulnerable to disruptions to energy flows, as the war in the Middle East upends global oil and gas markets. While the nation boasts strategic oil stockpiles equivalent to 254 days of total consumption, prolonged hostilities in the Middle East and a shipping standstill in the Strait of Hormuz could start eroding those reserves. That could also derail Takaichi’s plans to tackle inflation.

Oil producers from the Middle East also hold stockpiles in the Middle East, which Japan has the right to access during emergencies.

This signals that Takaichi is moving fast to keep the Middle East crisis from worsening inflation at home. A spike in oil prices has boosted the risk that Japan’s economy could fall into stagflation, raising the pressure on the Prime Minister to contain the damage with more spending and complicating the Bank of Japan’s efforts to normalize its policy settings with gradual interest rate hikes.

“Given that the outlook for the Middle East situation remains uncertain, we will continue to flexibly consider the form of support moving forward,” Takaichi said. The government will implement measures to keep gasoline prices at around 170 yen per liter, by using existing funds that were set up in the past to keep the fuel price from rising, she said. The nationwide average is currently at 161.8 yen per liter.

Japan in the past has conducted releases from oil reserves held by the private sector. It first released fuel from stockpile held within the national reserves in 2022, when Russia’s invasion of Ukraine rocked commodity markets.