Japan Releases Largest Oil Reserves as Supply Disrupted by Iran War

The Kikuma National Oil Stockpile Base in Ehime Prefecture, western Japan. (Kyodo)

Japan has begun releasing large-scale state oil reserves to withstand the shock of energy supply due to the US-Israeli war with Iran. The move, which began on Thursday, March 26, is the largest oil stock release ever made by the Japanese government.

Kyodo News quoted Thursday, March 26, reported that the government released oil equivalent to 30 days of domestic needs or about 8.5 million kiloliters until the end of April. This step follows the release of private sector reserves equivalent to 15 days of needs that began last week.

The impact is already felt. More than 90 percent of Japan's crude oil imports still depend on supplies from the Middle East. At the same time, Tehran effectively blocked the Strait of Hormuz after the United States and Israel attacked Iran on February 28. The route is one of the world's energy supply arteries.

To mitigate the disruption, Tokyo decided to release about 80 million barrels of oil, equivalent to 45 days of domestic consumption. This amount is 1.8 times larger than the release of reserves after the 2011 earthquake and tsunami that hit northeastern Japan.

The release of the national reserve begins at the Kikuma base in Ehime Prefecture, western Japan, then flows through a pipeline to a facility owned by Taiyo Oil Co. Oil will also be released from eight other bases by the end of this month, including in Shirashima, Kitakyushu, Fukuoka Prefecture. The bases in Nagasaki and Kagoshima are scheduled to follow in early April.

The oil released, mostly crude oil to be processed into gasoline and diesel, will be sold for about 540 billion yen, or $3.4 billion, to four wholesale companies, including Taiyo Oil and Eneos Corp.

Japan will also for the first time use oil stored jointly by three Middle Eastern producers in a storage tank in Japan. The amount to be released is equivalent to five days' worth.

Until the end of 2025, Japan's oil reserves reach around 470 million barrels, equivalent to 254 days of domestic consumption. Of that amount, 146 days are held by the government, 101 days by the private sector, and the rest is a joint stock of producing countries.

The impact is already felt in the market. Kyodo News reported that the average retail gasoline price in Japan rose to a record 190.80 yen per liter in mid-March. The government also re-disbursed subsidies to hold prices. On the other hand, tankers arriving in Japan through the Strait of Hormuz are getting fewer. The chemical industry is also starting to have trouble getting naphtha, a crude oil derivative for making ethylene, plastics, and synthetic fibers.