Japan to start release of state oil reserve Thurs. to ease Iran impact

On Tuesday, the industry ministry announced that the government plans to sell a total of about 8.5 million kiloliters of oil from 11 storage bases across the country, following the private sector's release of 15 days' worth of oil stockpiles last week.

According to the ministry, Middle Eastern countries such as the United Arab Emirates will discharge five days' worth of oil reserves in Japan by next Tuesday to provide to Japanese oil wholesalers.

The government will continue to "make all necessary diplomatic efforts in close coordination with related countries" and try to "minimize the impact on economic activities," Prime Minister Sanae Takaichi said in the first meeting of Cabinet members in charge of measures to address the Middle East crisis.

Japan sources nearly all crude oil from overseas and relies on the Middle East for over 90 percent of its crude oil imports.

Iran has effectively blocked the Strait of Hormuz, a vital waterway for the world's energy supply, following the attacks by the United States and Israel on Iran on Feb. 28. The conflict sparked a surge in oil prices, while keeping the yen weaker against the U.S. dollar, which is seen as a safe-haven currency.

The weakening yen threatens to increase inflation in Japan by raising the costs of imported energy and goods. The government has held hearings with financial institutions regarding the recent volatility in crude oil futures and foreign exchange markets, a source close to the matter said Tuesday.

With the regular gasoline price having hit an all-time high of 190.80 yen per liter last week in Japan, the government aims to lower the national average retail price to around 170 yen.

Japanese Finance Minister Satsuki Katayama told a press conference that market participants believe speculative trading causes volatility in the oil and currency markets.

"We will take all possible measures on all fronts" to address such speculative moves, Katayama said.

The chemical sector has already faced "disruptions" in procuring naphtha, a liquid derived from crude oil and used to produce ethylene, a raw material for plastics and synthetic fibers, Koshiro Kudo, chairman of the Japan Petrochemical Industry Association, said.

Companies are looking for alternative energy sources in the United States, Central and South America, and other parts of Asia. However, "the prices are extremely high," said Kudo, who is also the president of Asahi Kasei Corp., at a press conference.

During their summit in Washington last Thursday, Takaichi and U.S. President Donald Trump affirmed the importance of ensuring stable energy supplies by securing safe navigation in the Strait of Hormuz.

Trump expressed eagerness to resolve the conflict through dialogue on Monday, saying there are "major points of agreement" in negotiations between the United States and Iran, after earlier threatening a U.S. attack on Iranian power plants if it did not open the strait in 48 hours. Tehran, however, has denied participating in any talks.

The Japanese government said that Takaichi will meet with International Energy Agency chief Fatih Birol in Tokyo on Wednesday. They are expected to discuss how Tokyo, an IEA member, and the Paris-based body can cooperate to ensure a stable supply of crude oil.

On Tuesday, Takaichi held separate phone talks with Malaysian Prime Minister Anwar Ibrahim and Marshall Islands President Hilda Heine and agreed to collaborate toward an early de-escalation of the Middle East situation, according to the Foreign Ministry.

Earlier, it was reported Japan Prime Minister Sanae Takaichi weighs a stopgap measure if the budget fails to pass by March.