BY YURIY HUMBER
The U.S. war on Iran and escalation across the Persian Gulf over the past week has provided a real-time stress test for Japan’s energy security architecture. So far, the system has held up well. The country’s crude oil reserves – the world’s fourth-largest – combined with a diversified LNG portfolio and subdued seasonal power demand have shielded the economy from supply disruptions.
The longer-term picture, however, looks complicated. The distinction between a short-lived shock and a conflict that drags on for months or years could prove decisive. The war in Ukraine offers a sobering precedent: what began as a three-day ‘special operation’ evolved into a four-year war of attrition that reshaped global energy markets. A similar dynamic in the Gulf would test Japan’s resilience far more severely.
For now, the risk of physical shortages remains limited. But the economy is still exposed to higher import prices, shipping disruptions and financial market spillovers. Rising fuel costs could feed into electricity tariffs, manufacturing costs and inflation. A prolonged crisis could weaken the yen further, reinforcing the price impact of imported energy.
Electricity markets illustrate this dichotomy well. Prices for immediate delivery of power have barely moved since the initial strikes. By contrast, forward contracts – used by utilities and traders to hedge future electricity sales – have surged. In some cases, prices for delivery later in the year have jumped by over 80%. The risk of tighter LNG supply is being priced into contracts starting as early as April.
PM Takaichi’s government still retains several levers to manage electricity prices in the short to medium term. Utilities can increase coal use, restart idled oil-fired plants or draw on emergency fuel reserves, though the trade-offs would be higher costs and emissions. A much worsening situation could even provide political momentum for faster nuclear restarts.
Still, if the conflict drags on – as leading global oil benchmarks suggest – the fiscal resources required to cushion households and industry from higher energy prices could limit the government’s ability to fund longer-term infrastructure and energy-transition investments. And a war-induced downturn in the global economy would dampen demand for Japanese machinery and other exports.