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

How does the death spiral warning from AI specifically impact Japan’s economy?

“Starting from the end of 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 tensions in the Middle East. The total release will be about 80 million barrels, equivalent to Japan’s 45 days of oil supply, marking 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, 146 days are national reserves, 101 days are private reserves held by refiners and trading companies, and 7 days are joint reserves held by oil-producing countries within Japan.

According to data released by Japan’s Ministry of Economy, Trade and Industry on the 11th, 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 the Middle East situation, the price increases are expected to further transmit to retail prices this week, making a significant price surge difficult to avoid.

“Japan Failed to Learn from the First Oil Crisis”

According to the timetable announced by the Japanese government, 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 release of Japan’s oil reserves is expected to occur from late March to early April.

On the 12th, Japan’s Minister of Economy, Trade and Industry, Akira Zaike, told the House Budget Committee that the price of national reserves would be transferred based on the official selling price announced by oil-producing countries one month before 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 multiple “records.” In terms of timing, Japan’s decision to release reserves was 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 will begin supplying over 400 million barrels of emergency reserves to stabilize international oil prices. The IEA said member countries in Asia and Oceania will immediately provide reserve energy, while oil reserves in Europe and the Americas will start releasing by the end of March.

Chen Yan, Executive Director of the China Japan Research Institute of Enterprises, told First Financial that the current Sanae Takaichi government has not learned the lessons from Japan’s first oil crisis in 1973, 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 many years after 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 Oil Stockpiling Law, requiring companies to hold 90 days of reserves, and after 1978, the 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 within a day, with rapid changes. Oil is essential not only 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 people are very opposed to high oil prices. The current rise in energy prices 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 annual trade deficit could increase by nearly 10 trillion yen, leading to yen depreciation, which would raise import costs. If oil prices continue to rise, a “death spiral” could form. Nomura Research Institute economist Tobei Kine estimates more pessimistically that 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, the Japanese government’s ability to suppress oil prices through reserve releases is limited. “Because, based on the current attitudes of the US, Israel, and Iran, the turmoil in the Middle East is unlikely to end soon. 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 explicitly 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, sourcing from the Middle East, Australia, Malaysia, the US, and others. As of the week of March 1, Japan’s LNG inventory 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 replenishment.”

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 renewable energy applications, which in some ways amplifies the current energy crisis.”