The Japanese government on Tuesday approved three bills to boost diversification of oil supplies and energy security, including grants to compensate Japan’s oil importers for the high shipping costs to procure supply from alternative sources.
The bills will now be introduced for debate at the Japanese Parliament.
The legislation is aimed at improving “supply security by diversifying sources of crude oil and other fossil fuels and reducing related risks,” Japan’s Industry Minister Ryosei Akazawa told a press conference on Tuesday, as carried by Reuters.
Last week, Akazawa said at a press conference that “these bills are intended to promote the diversification of crude oil procurement through measures such as support for additional costs, including increased transportation expenses arising from changes in crude oil transportation routes, ensuring that necessary insurance mechanisms are in place for the stable transport of crude oil and other petroleum-related resources, and support for the development of alternative transportation routes, including pipelines.”
Japan’s oil import bill has soared to record highs following the closure of the Strait of Hormuz – the G7 economy’s key import source before the war – the spike in crude oil prices, and skyrocketing freight and insurance costs.
Since the war in the Middle East began, Japan has scrambled to secure crude oil supply from alternative sources as its dependence on crude from the Middle East passing through the Strait of Hormuz was more than 90% of all crude imports. Of the Middle Eastern supplies, about 70% typically arrived in Japan on tankers traveling through the Strait of Hormuz.
The G-7 economy has also moved to release crude from its strategic reserves as part of an IEA-coordinated global effort to release 400 million barrels of crude and oil products.
Japan is now buying cargoes from as far as Canada, Azerbaijan, and Africa to offset the supply that continues to be trapped in the Persian Gulf.
However, the economic cost of sourcing crude oil supply from faraway places to offset the major loss of deliveries from the Strait of Hormuz is high, with soaring oil import bills weighing on industrial and economic activity.
By Tsvetana Paraskova for Oilprice.com
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