Skepticism on Energy Supply Remains

The United States and Iran reached a deal on two-month ceasefire on April 7th. The greatest concern for Japan is whether the deal will work for normalizing energy supply in Japan, because agreement of the two parties does not guarantee opening the Strait of Hormuz. Despite Prime Minister Sanae Takaichi’s diplomatic efforts to secure energy resources, the business sector in Japan has yet been relieved.

On the ceasefire agreement, the U.S. and Iran announced different conditions. U.S. President Donald Trump supposed to have demanded dismantlement of existing nuclear capability in Iran and opening of the Strait of Hormuz. Contradicting Trump’s argument, Iran requested maintenance of its control on the Strait of Hormuz, no further military attack on Iran, approval of uranium enrichment and retreat of U.S. Forces from the Middle East. After all, the deal is far from an agreement.

 

Takaichi had a telephone talk with Iranian President Masoud Pezeshkian and insisted him that the Strait of Hormuz was an important point for logistics of the world and internationally common infrastructure. It was the first conversation of those two leaders since the beginning of Iran war. However, it is still unclear that Iran would guarantee safety of Japanese ships passing through the strait.

 

Japan started releasing its oil reserve on March 16th and its reserve has decreased from for 254 days to 230 days. There are 42 ships remaining in Persian Gulf, waiting for their exit. Most oil for Japan is coming from Saudi Arabia. Japanese government seeks alternative routes through the Red Sea or turning the Cape of Good Hope. But those options may have greater cost and time or risk of being attacked some other Islamic militias. The import through alternative routes is expected to start in May.

 

Shortage of oil import and price hike of oil can have significant impacts on production of chemical goods, such as plastic bag, clothes, car parts or medical equipment. Some chemical manufacturers reduced production of ethylene which would be made from naphtha. Those manufacturers decided to raise the price of their products, accelerating overall price inflation in Japan.

 

Takaichi administration restarted subsidy for gasoline, which had once been finished in December 2025. Although that was brought by abolishment of temporary gasoline tax cut, the price hike with Iran war offset the benefit of the tax cut. The fiscal resource of the subsidy would be consumed within some months. There is no specific strategy in the government, if the shortage of oil import continues through the summer or later.

 

When the U.S. attacked Iran in late February, Japan accused Iran of its nuclear development, instead of violation of international laws by the U.S. It is historically true that Japan has maintained a moderate relationship with Iran, accepting a number of workers in Japan or investing on industrial project in Iran.

 

However, Japan’s explicitly close relationship with the U.S. could have alienated itself from Iran, accepting no favor in economy. Meanwhile, facing Trump’s frustration about doing nothing in the Strait of Hormuz, Japan looks like isolated between the U.S. and Iran.

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