The Japanese government may start reducing its financial support for retail gasoline prices from December as payments become difficult to sustain, Reuters has reported, citing unnamed sources from the ruling party in the country.
Introduced in March, soon after the war in the Middle East began, subsidies for gasoline are costing Tokyo several billion dollars every month, the report said, as the government aimed to keep the average national price at $1.09 per liter. According to plans currently being discussed by the government and the ruling party, the scale-back of the subsidies could push the national average for gasoline to the equivalent of $1.11 per liter in December and $1.15 per liter in January.
Yet the government is also considering a tax cut for food and beverages, to go into effect from April next year, which would cushion the blow from higher gasoline prices, the sources also told Reuters. “Once the consumption tax cut begins, households will feel less financial pressure. We would like to reduce gasoline subsidies as much as possible by then,” one of the unnamed officials explained.
The gasoline subsidies, meanwhile, are draining an additional budget approved in May, equal to around $19 billion, to protect the nation from the effects of soaring international energy commodity prices. However, as the war between the U.S., Israel, and Iran continues, the subsidy cushion is beginning to wear thin, prompting a rethink.
Japan has been among the countries most vulnerable to the fallout from the Middle Eastern war because of its lack of domestic energy resources, the resulting 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.
By Irina Slav for Oilprice.com
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