How Japan is dealing with the Hormuz energy shock
The Iran conflict has laid bare Japan’s reliance on Middle Eastern oil, pushing Tokyo toward U.S.-aligned diversification.
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- The conflict has caused higher prices, not major supply shortages
- Reserves and subsidies have cushioned Japan’s energy price shock
- Japan now imports U.S. oil, LNG and coal, reducing Middle East reliance
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Japan’s heavy reliance on Middle Eastern oil has long worried government and industry leaders. Like many capitals, Tokyo is now grappling with energy supply disruptions caused by Operation Epic Fury. The United States’ conflict with Iran has placed Japan’s leaders in a politically uncomfortable position by laying bare the country’s overwhelming dependence on the Middle East for energy supplies.
Despite these disruptions, Japan so far has faced higher energy prices rather than a severe supply shortage. It has continued to import oil and gas at normal volumes, though at a higher cost. Large oil reserves and subsidies have limited how far prices have risen. Even so, in a country where price increases are rare, a modest rise can still be politically sensitive.
The conflict has prompted Tokyo to rethink its energy policies to better withstand future energy shocks. Japan cannot quickly reduce its reliance on the Middle East. It will continue to seek alternative supplies from reliable partners, including increasing imports from the U.S., and will work to broaden that mix further. However, the conflict has not driven it back into Russian energy investments. In recent years, Japan’s energy policies have aligned more closely with U.S. and European standards (including sanctions) and are unlikely to deviate from this now.
Energy projects take years to come online, and no one knows where the next regional conflict will erupt. Japan’s security relationships have become a leading indicator of the country’s energy policy. This most recent disruption has once again put it on a path toward diversification without compromising its national interests.
Japan’s energy mix
As an island nation, Japan relies on imports to meet most of its energy needs. Renewables and nuclear power account for less than a quarter of the country’s total energy demand. The rest is split among imports of oil at 35 percent, liquefied natural gas (LNG) at 21 percent and coal at 24 percent.
Several decades ago, Japan was much more reliant on oil as its primary energy source. The oil crises of the 1970s prompted the country to seek alternative energy sources to reduce its reliance on oil from the Middle East. Between 1973 and 1985, Japan lowered the share of oil in its energy mix from 93 percent to 72 percent. But even as the country increased its use of coal, LNG and nuclear, crude oil remained necessary for its byproducts and for transportation.
Japan’s efforts to diversify its energy sources away from Middle Eastern oil have faced challenges due to both local and global events over the years. The meltdown of the Fukushima Daiichi nuclear reactor in 2011 led Japan to abandon nuclear energy for an extended period. Russia’s annexation of Crimea in 2014 and its full-scale invasion of Ukraine in 2022 have hindered Japan’s previous plans to invest in Russian energy. As a result, 94 percent of Japan’s oil imports came from the Middle East last year, and much of that oil still had to pass through the Strait of Hormuz.
The Hormuz shock
Since the conflict between the U.S. and Iran began in February 2026, Japan has secured oil supplies that do not require transit through the Strait of Hormuz. This includes Saudi crude exported through the Yanbu terminal on the Red Sea, crude from the United Arab Emirates loaded at Fujairah and U.S. oil from Alaska. Japan has also been importing LNG from Australia and Papua New Guinea. However, because these purchases were made at the last minute, most of the cargoes were bought under relatively expensive short-term emergency contracts, which raised costs.
The government of Prime Minister Sanae Takaichi implemented subsidies and a drawdown of Japan’s strategic oil reserves to mitigate the impact of these price changes. In March 2026, gasoline prices jumped more than 20 percent from about 157 yen ($0.99) per liter to a record 190.80 yen ($1.20) per liter, before the subsidy program brought the national average back toward 170 yen ($1.08) per liter. In May alone, the Japanese government spent 290 billion yen ($1.8 billion) on fuel subsidies.
The challenges of diversification
Japan’s ability to find new short-term energy sources has been impressive. Securing a wider long-term supply mix will be much harder. There are myriad challenges in finding new long-term energy contracts, which are essential to keeping energy prices affordable. The location, availability, shipping time, crude grade and product degradation all factor into energy investments and cost.
Shipping times from the Middle East to Japan can differ by weeks compared to shipments from the U.S. Most of Japan’s refineries, built in the 1960s and 1970s, were designed to process medium-to-light sour crude oil from the Middle East. Reconfiguring them for other grades would take large investments that are hard to justify while the population shrinks and energy demand falls.
The products Japan’s refineries produce from Middle Eastern oil degrade much faster than stockpiled crude. Downstream companies that use refined products demand top quality. Hence, increasing oil reserves or extending mandatory stockpiling days may not solve supply issues in the long term.
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From Russia to U.S. suppliers
There may be concerns that the U.S.-Iran conflict will encourage Japan’s leaders to make the uncomfortable choice of turning again to Russia for energy, including through Japanese companies’ earlier stakes in the Sakhalin projects. However, Russia has never been a significant supplier of oil to Japan and likely never will be. It supplied 8 percent of Japan’s oil imports in 2014, a share that has since declined to nearly zero following sanctions in 2022.
Although Japan has fully phased out its oil imports from Russia, it still receives a small amount as a byproduct of LNG extraction. It continues to import 9 percent of its LNG from Russia, mainly because there have not been substantial international sanctions on Russian LNG and its byproducts. Uneven U.S. enforcement of Russian sanctions has also sent Tokyo mixed messages about where international efforts are headed. Therefore, Japanese companies are unlikely to make significant changes to their supply chains without coordination with the U.S. and Europe.
As a result, the U.S. is becoming an important energy source for Japan. Fifteen years ago, the U.S. supplied Japan with nearly no energy – just 2 percent of its coal. Last year, Japan imported 7 percent of its LNG, 4 percent of its oil and 4 percent of its coal from the U.S. America has not fully replaced Russia as Japan’s energy supplier. Tokyo is also looking to Australia, other Asia-Pacific producers and South America to meet its energy needs. But the U.S. is making gains in the country’s energy mix, reducing the relative share of imports from the Middle East and Russia.
The next disruption
Japan relies heavily on maritime traffic through other potential chokepoints, such as the Strait of Malacca, the South China Sea or the Taiwan Strait. Even for energy sourced outside the Strait of Hormuz, about 40 percent of Japan-bound tanker traffic still passes through the Strait of Malacca. If any of these maritime channels are disrupted, Japan would face not only short-term price crises but also longer-term supply chain concerns. This is another reason Japan is increasingly looking to the Pacific and to North and South America for its next energy investments.
Scenarios
Most likely: Diversification expands but Middle East dependence remains
Japan will likely draw from a wider range of crude oil import sources. It is already looking to Azerbaijan, Brunei, Ecuador, Malaysia and Mexico for additional imports since the U.S.-Iran conflict began. Argentina, Brazil, Canada, Guyana and Venezuela are other potential suppliers, provided refinery upgrades can be made. While no single country may be able to supply Japan with large amounts of energy, it is likely to import enough from each to offset the decline in crude oil shipments through the Strait of Hormuz.
Quite likely: Japan deepens energy dependence on the U.S.
Japan’s energy imports from the U.S. are growing, not just for oil but also for LNG and coal. Japan is aligning its energy security interests with its national security interests. Recent efforts by Japan to tighten ties with the U.S. and its NATO allies are also drawing attention to investment opportunities in these areas. Japanese firms are investing in U.S. domestic energy infrastructure as Washington expands its role as a global energy supplier. Japan is well positioned to benefit from American energy.
Less likely: Japan maintains Russian LNG imports in the long term
Russia ceased to be a major source of Japan’s oil imports after 2014, and the U.S. and others are becoming new suppliers to meet that demand. However, there has been no significant shift in Japan’s LNG imports from Russia. For LNG, Japan’s response will be based on coordinated action by U.S. and European partners, which still exempt LNG from sanctions. Once these are in effect, Japan will likely move to diversify more of its LNG – but not before then, as LNG shipments from the Middle East remain tumultuous.
Japan’s energy policy is guided by a drive to broaden sources to ensure affordable and reliable energy supplies. Tokyo is increasingly dependent on the U.S. for its energy as it has shifted away from Russia and, to some extent, the Middle East. However, Japan has not significantly reduced its reliance on the Middle East, especially for oil. Local subsidies, spot-market oil purchases, and a drawdown of oil reserves have helped Japan weather some of the disruptions caused by the U.S.-Iran conflict. Securing long-term contracts in the next year will be more challenging and just as costly, depending on the duration of this conflict, as domestic refineries may require new investments.
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