Japan Commits $19.4 Billion to Fighting Its Energy Crisis

Japan will spend an additional $19.4 billion to cushion the inflation blow to Japanese households resulting from the oil and gas export flow disruption in the Middle East.

The package, approved by Prime Minister Sanae Takaichi this week, includes a $16-billion reserve fund specifically created for controlling energy commodity prices through additional subsidies, Bloomberg reported. The publication added that the fund will first be used to cap the price of gasoline at the pump.

Reuters reported that the money for the additional budget would come exclusively from deficit-financing bonds, as the Takaichi government aims to avoid the country’s overall bond burden in favor of higher tax revenues and non-tax revenues.

Japan has been among the countries most vulnerable to the fallout from the Middle Eastern war because of its significant dependence on imports for its energy, and the sheer degree of the war-related disruption. A lot of these imports come from the Persian Gulf, and replacing them fully has been a challenge despite the readiness of the U.S. to become a replacement source.

As a result, Japan’s imports of crude oil slumped by 66% in April from a year earlier and will likely fall in May as well. Japan’s imports from Saudi Arabia crashed by nearly 58%, and supply from the United Arab Emirates to Japan plunged by 69.4%, Japanese government data showed last month. Of the total severely reduced crude supply, the Middle East continued to account for more than 90% of Japanese crude imports, at 93.7% in April.

Since the war in the Middle East began, Japan has scrambled to secure crude oil supply from alternative sources and released stocks from reserves, which are among the largest in the world. Still, the reserve releases have not been enough to put a lid on commodity price inflation, prompting the additional spending package.

By Irina Slav for Oilprice.com

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