Japan taps oil reserves as Iran war spreads. Could it give China leverage? | South China Morning Post

Japan’s unilateral decision to release oil from its emergency stockpiles highlights its vulnerability to prolonged supply disruptions and may leave it more exposed to economic pressure from China amid tense bilateral relations, according to analysts.

Tokyo announced earlier this week that it planned to release a total of 80 million barrels starting March 16, marking the first time it would independently tap its national reserves. The decision came ahead of a coordinated response by the International Energy Agency (IEA), made up of major oil-consuming nations, which agreed on Wednesday to release a record 400 million barrels.

Analysts said one reason Tokyo had taken the initiative was that it could not afford to wait for a coordinated IEA response without risking a sharp rise in domestic fuel prices, which would hurt demand and corporate profits.

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“Oil released through an IEA-coordinated action may not immediately or perfectly benefit the Japanese market. Factors such as the timing of the release and the structure of the reserves could mean it cannot meet Japan’s needs in the short term,” said Xu Weijun, associate research professor at the Institute of Public Policy at the South China University of Technology.

Xu Tianchen, senior China economist at the Economist Intelligence Unit, said Tokyo’s urgency reflected the fact that it “is the most heavily reliant on oil shipped via the Strait of Hormuz”.

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“Most other nations are more diversified in supply”, he added, noting that higher oil prices would hurt domestic demand and that additional energy subsidies could shake investor confidence in Japan’s fiscal sustainability and the yen.

Tokyo’s decision came as the conflict in the Middle East drags on, with the effective closure of the Strait of Hormuz entering its second week. The trade corridor serves as a critical chokepoint for Japan, which imports more than 90 per cent of its oil from the region, according to Japan’s Ministry of Economy, Trade and Industry.