Japan’s government on Friday decided to tap $7 billion from its contingency reserves to keep subsidies for gasoline and other fuels, even as it plans to gradually scale back the support from December.
The Japanese government decided today to allocate about $7 billion (1.1 trillion Japanese yen) from the reserve funds to continue capping retail gasoline prices amid soaring oil and fuel import costs, Japanese media reported.
Introduced in March, soon after the war in the Middle East began, the subsidy program has kept the average national gasoline price at 170 yen per liter, or $1.08 per liter, equivalent to about $4.10 per gallon.
However, the subsidies for gasoline, diesel, and jet fuel are costing Tokyo several billion dollars every month, increasingly weighing on Japan’s public finances.
So on Thursday, Japanese Prime Minister Sanae Takaichi said the government would begin scaling back the subsidies by raising the cap on the retail gasoline price by 5 yen, or $0.032, per liter every month. Takaichi, however, wouldn’t say when the government would fully phase out the subsidy program.
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.
Before the war, Japan’s 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.
Japan’s oil import bill has soared to record highs following the closure of the Strait of Hormuz, the spike in crude oil prices, and skyrocketing freight and insurance costs.
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.
By Tsvetana Paraskova for Oilprice.com
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