The largest ever! Japan to release oil reserves starting Thursday, first rerouted tanker about to arrive
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As the Iran war continues to impact shipping through the Strait of Hormuz, Japanese Prime Minister Sanae Takaichi announced the launch of the largest ever strategic oil reserve release in Japan's history, and ordered a comprehensive review of supply chains for oil-related products to stabilize domestic energy supply and prices.
On March 24, according to The Guardian, Takaichi announced that Japan will begin using its national strategic reserves this Thursday (March 26), with the release reaching about 80 million barrels, equivalent to 45 days of domestic demand, which is 1.8 times the amount released after the 2011 Fukushima nuclear disaster.
According to reports, the unprecedented scale and urgency of this reserve release reflect Japan's high alertness toward energy security.
Rising oil prices have already increased inflationary pressure, making the path toward normalization of the Bank of Japan’s gradual rate hikes more uncertain. At the same time, the continued weakness of the yen is further increasing import costs. Officials at the Ministry of Finance have begun inquiring into speculative moves in the crude oil futures market, raising expectations of market intervention.
Meanwhile, according to Bloomberg, Trade Minister Ryosei Akazawa stated on Tuesday (March 24) that the first Japanese oil tanker using an alternative route is expected to arrive in Japan on March 28.
Reserve Release Scale Sets Historic Record
According to reports, this release totals about 80 million barrels, equivalent to 45 days of domestic consumption.
Takaichi’s government had already approved a 15-day release of private enterprise reserves last week. According to Bloomberg, the private reserve release started on March 16, and the national reserve release will officially begin on March 26.
For reference, by the end of last year Japan held about 470 million barrels of oil reserves, equal to 254 days of domestic consumption. This release is 1.8 times the size of the release following the 2011 Great East Japan Earthquake and tsunami that crippled the Fukushima Daiichi Nuclear Power Plant and caused the temporary suspension of all Japanese nuclear power units. This sets the single largest release of reserves in Japan’s history.
Japan is an economy extremely lacking in resources, with over 90% of its crude oil dependent on imports from the Middle East, most of which is transported through the Strait of Hormuz. Since the outbreak of the Iran war on February 28, this key waterway has been virtually paralyzed, putting enormous pressure on Japan’s energy supply chain.
Comprehensive Supply Chain Review, First Alternative-Route Tanker to Arrive This Week
According to reports, on Tuesday morning Takaichi convened relevant cabinet ministers for a meeting, attended by Foreign Minister Toshimitsu Motegi and Defense Minister Shinjiro Koizumi.
At the meeting, Takaichi assigned the task of a comprehensive review of oil-related products’ supply chains to Ryosei Akazawa.
Akazawa’s review covers not only energy-related petroleum products but also non-energy petroleum derivatives such as naphtha—a key raw material for plastic production, whose supply stability is essential for the normal operation of Japan’s manufacturing industry.
In terms of shipping, Akazawa stated on Tuesday that the first Japanese oil tanker using an alternative route is expected to arrive in Japan on March 28.
According to Bloomberg’s compilation of tanker tracking data, the supertanker "Omega Trader" managed by Mitsui OSK Lines Ltd has passed through the Strait of Hormuz, though the company denies that the ship has completed the aforementioned voyage.
Double Pressure From Inflation and Exchange Rates, Central Bank Policy Normalization Obstructed
According to reports, oil price increases after the outbreak of war are expected to intensify inflationary pressure in Japan, making the Bank of Japan's efforts to normalize policy by gradually raising rates even more complicated.
According to a Wallstreetcn article, Japan’s core inflation indicator fell back to 1.6% in February, dropping below the central bank’s 2% target for the first time in nearly four years, but economists expect price increases to accelerate again starting in March.
At the same time, continued depreciation of the yen will further push up Japan’s oil import costs.
According to reports, Ministry of Finance officials have issued warnings regarding suspected speculative behavior in the crude oil futures market that may be affecting the exchange rate. Authorities have reportedly begun inquiries with market participants about possible intervention in the crude oil futures market.
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