Japan Releases Record Oil Reserves, Is It Effective? Institutions Warn of "Death Spiral"

“Starting from late this month, Japan’s crude oil imports are expected to decrease significantly.” Facing the ongoing volatility of international oil prices, Japanese Prime Minister Sanae Takaichi made this assessment.

According to Xinhua News Agency, the Japanese government plans to release oil reserves starting on the 16th to ease the rising oil prices caused by tense Middle East tensions. The total release will be about 80 million barrels, equivalent to Japan’s 45 days of oil supply, the largest release since Japan established its national oil reserve system in 1978.

Data from Japan’s Ministry of Economy, Trade and Industry shows that by the end of 2025, Japan’s oil reserves will be about 470 million barrels, enough for 254 days of consumption. Of these, the national reserves account for about 146 days, private reserves held by refiners and trading companies account for 101 days, and joint reserves held by oil-producing countries within Japan amount to 7 days.

On the 11th, Japan’s Ministry of Economy, Trade and Industry announced that as of the 9th, the average retail price of regular gasoline nationwide was 161.80 yen per liter, up 3.30 yen from the previous week. The Japan Petroleum Information Center stated that due to Middle East tensions, the price increases are expected to further transmit to retail prices this week, making a significant price jump difficult to avoid.

“Japan has not learned from the first oil crisis”

According to the Japanese government’s timetable, private reserves equivalent to 15 days of consumption will be released first. During this period, the government will proceed with procedures to release the 30-day national reserves stored at 10 bases in Iwate, Fukui, Fukuoka, and other locations. The official Japanese oil reserves are expected to be released between late March and early April.

On the 12th, Japan’s Minister of Economy, Trade and Industry Akira Amari told the House of Representatives Budget Committee that the price of national reserves would be transferred based on the official selling price announced by oil-producing countries one month prior to the release decision. Japan decided to release reserves on March 11, and the WTI crude oil closing price on February 11 was around $64 per barrel.

This move by the Japanese government set several “records.” In terms of timing, Japan’s decision came 24 hours earlier than the International Energy Agency (IEA) convened a coordination meeting. During the 2022 Russia-Ukraine conflict and even earlier during the Gulf War in the 1990s, Japan followed international coordination to release oil reserves.

On the 15th, the IEA disclosed details of its oil reserve release plan, stating it would begin supplying over 400 million barrels from its emergency reserves to stabilize international oil prices. The IEA said member countries in Asia and Oceania would immediately provide reserve energy, while European and American reserves would start releasing by the end of March.

Chen Yan, Executive Director of the China-Japan-Korea Research Institute, told First Financial that the current Tokyo government has not learned from Japan’s experience during the 1973 first oil crisis, when Japan was heavily dependent on Arab countries for energy but took opposite actions diplomatically and politically. “This is clearly a huge contradiction.” Chen Yan pointed out that despite the many years since the first oil crisis, Japan still has not resolved this issue.

The 1973 oil crisis was a painful lesson for Japan’s economy. In 1975, Japan enacted the Petroleum Reserve Law, requiring companies to hold 90 days of reserves. After 1978, the Japanese government took charge of building the national reserves.

Chen Yan said that Japan’s early release of reserves compared to other countries was aimed at quickly curbing rising oil prices. “Currently, in many parts of Japan, oil prices can rise from 170 yen per liter to 200 yen in a single day, with rapid changes. Oil is not only vital for industry but also for agriculture, food transportation, storage, and even for remote residents who rely heavily on cars.” He analyzed, “The first oil crisis caused huge turmoil in Japanese society. Many Japanese are very opposed to high oil prices. The current energy price hikes could significantly erode Japan’s economic growth this year, which is exactly what the Japanese government wants to avoid.”

“Death spiral”

After releasing oil reserves, can Japan effectively curb the rising trend of domestic energy prices?

Mizuho Bank’s latest forecast suggests that if oil prices stay between $90 and $100 per barrel, Japan’s trade deficit could increase by nearly 10 trillion yen annually, leading to yen depreciation and higher import costs. If oil prices continue to rise, a typical “death spiral” could form. Nomura Research Institute economist Doi Nobuhide made a more pessimistic estimate: in the worst case, if oil prices hit $130, Japan’s real GDP could be dragged down by 0.65 percentage points within a year, with a 1.14% increase in prices.

Chen Yan believes that, at present, it’s unlikely that the Japanese government can significantly suppress oil prices through reserve releases. “Based on the current attitudes of the US, Israel, and Iran, the turmoil in the Middle East is unlikely to end quickly. If it persists for a long time, it’s hard to say whether Japan’s current 254 days of oil reserves can last until the end.”

More challenging is Japan’s supply of refined oil products. Even with sufficient crude oil reserves, problems in refining could still lead to shortages of gasoline, diesel, and other refined products. Prime Minister Sanae Takaichi has clearly stated that the government will take measures to ease price fluctuations and aims to keep gasoline prices around 170 yen per liter.

Regarding Japan’s irreplaceable liquefied natural gas (LNG) for power generation, Qatar, which accounts for 20% of global LNG exports, has temporarily halted LNG production, impacting Japanese power companies.

Japan is the world’s second-largest LNG importer. Compared to oil, Japan’s LNG procurement is more diversified, with sources including the Middle East, Australia, Malaysia, and the US. As of the week of March 1, Japan’s LNG inventories exceeded 4 million tons. The Ministry of Economy, Trade and Industry said no emergency supply requests have been received yet, but relevant companies have been asked to ramp up gas imports.

Chen Yan believes that the current Middle East situation further highlights Japan’s weaknesses in renewable energy. “Japan has never been enthusiastic about renewable energy and even opposes it, such as solar and wind power. The root cause is Japan’s inability to solve the market scale issues in applying renewable energy, which in some ways amplifies the current energy crisis.”