By Javier Blas
Among the world's most fuel-intensive countries, Japan is the one facing the greatest energy insecurity. Its rates of dependence on imports are frightening: it imports from abroad 99.9% of the oil it needs, 99.7% of coal and 97.8% of natural gas. Thus, Tokyo takes action after every major energy crisis to reconsider its sources of supply, which makes it a barometer of global trends. What is the direction in which it is "pointing" this time? Run away from the Middle East.
Where Japan goes, other Asian countries will follow. Indeed, South Korea, another major energy importer, has already announced plans to reduce its dependence on the Middle East. India has not been so open, but it was trying to diversify its sources even before the war in Iran.
In addition to creating a major problem for Middle Eastern suppliers, this change goes against geographical, economic and historical logic. The Middle East and the Far East are relatively close, so it makes sense, commercially – especially when transportation costs are high, as is the case today – for oil to flow from one region to another. And this has been the case for decades.
Despite the strong sense of energy vulnerability that prevailed after the oil crisis of 1973-74, and again in 1979, Japan trusted the Middle East, buying more than 90% of its crude oil from the region. In the wisdom of hindsight, this policy was – to borrow a phrase from Nobuo Tanaka, a former high-ranking official and energy policy expert in Japan who later headed the International Energy Agency – a "mistake".
The official message is, of course, more diplomatic. However, if one looks behind the words, it is evident that Japanese officials are trying to correct what they consider a policy failure. The key is to "diversify supply sources and transportation routes," according to a government document. The goal, although unquantified, is clear: to "free the country from a structural vulnerability, where repeated instability and constraints in energy supply act as a brake on Japan's economic growth."
Of course, the documents also refer to supporting the construction of new pipelines that would bypass the Strait of Hormuz, which would allow it to continue buying crude, for example, from the United Arab Emirates and Saudi Arabia, without having to worry so much about instability in Iran. However, Japan still shows that it is heading towards a significant change in supply.
The Japanese government is discussing the plan, and an official announcement may follow before the end of the year, which will include import targets and government funds to finance it. Seoul, meanwhile, has already set a quota and pledged to reduce oil imports from any region to 50% of the total. Currently, the Middle East accounts for just over 75% of South Korea's oil imports.
Japan may not have finalized the numbers, but it is not waiting for the end of the war to make changes. In July, according to the most recent monthly data available, the U.S. was the country's main oil supplier, accounting for 37% of total oil imports. It is worth repeating, as it reflects the power of the American shale oil revolution, combined with the recent turbulence in the global oil market: Washington is currently Tokyo's largest oil supplier. Mexico and Latin America covered an additional 3%.
Converting these individual statistics into stable streams won't be easy. However, if history can serve as a guide, Japan has proven that it can adjust its oil consumption when it perceives that its national security is at stake. In the late 1970s, the country consumed over 5.5 million barrels per day, generating more than 60% of its electricity from burning crude and fuel oil. Betting heavily on coal, nuclear power and LNG, it has almost entirely excluded oil from its energy sector. By 2025, Japanese oil consumption had fallen to its lowest level in 55 years, below 3 million barrels per day.
Reducing dependence on the Middle East would be easier if overall Japanese oil demand declined further. The fewer barrels it needs to buy, the easier it becomes to shift markets. If the slogan in the 1970s and 1980s was "take oil out of power generation," the next goal should be more radical: get oil out of transport.
Japan was the one that gave the world the first mass-produced hybrid car, Toyota's Prius. Hybrids have made tremendous progress since then, helping to reduce gasoline consumption by about 50% over the past two decades. However, Japan, the world's fourth-largest car market by sales volumes, is lagging behind in the adoption of purely electric vehicles. Having been the first to develop hybrids, its automakers did not promote full electrification with the same intensity as the Chinese ones.
The result is that today only about 2% of new car sales in Japan are purely electric, much lower than the average of 28% in Europe, behind the US and Canada. The International Energy Agency estimates that the high proportion of the population living in apartments with limited access to private parking, combined with the limited network of charging stations, is limiting sales of electric cars in Japan. This makes electric cars an important lever for reducing oil imports, which would facilitate diversification. Therefore, in parallel with its plans to finance pipelines that will bypass the Strait of Hormuz, Japan should make greater efforts to boost sales of electric cars, focusing on expanding charging infrastructure.
It should also try to reduce the use of oil in heating. Its province relies on oil stoves, a peculiarity among industrialized countries. If Tokyo manages to squeeze demand for gasoline and kerosene, what will be left is diesel and other petrochemical raw materials. (As the world's fourth-largest producer of chemicals, it imports huge quantities of refined petroleum products used in plastics and other materials.)
The math of the oil market, however, is a zero-sum game. If Japan succeeds, it will have to very vigorously claim a place in markets that others consider their own, such as West Africa and America, the traditional "hunting grounds" of European refiners. And producers in the Middle East will have to find new customers. The problem is: who would want to strengthen their dependence on Middle Eastern oil? No one comes to mind. This is not Tokyo's problem. But it's yet another way Japan could change the oil map for good.
Adaptation – Editing: Lydia Roubopoulou
BloombergOpinion
