Japan is preparing to subsidise the additional cost of importing oil from suppliers outside the Strait of Hormuz, in a significant government intervention aimed at reducing the country’s dependence on the increasingly dangerous waterway.
The Japanese cabinet approved three bills yesterday designed to diversify energy imports, support tanker insurance and finance alternative oil transport infrastructure.
The proposed legislation would establish a grant scheme compensating refiners, trading houses and petrochemical companies for part of the additional cost of sourcing crude and petroleum products from alternative suppliers.
Japan sourced 94% of its crude oil imports from the Middle East last year
Japan sourced 94% of its crude oil imports from the Middle East last year, with government figures putting its dependence on the Strait of Hormuz at 93%, although the latter measure is based on countries of origin rather than actual tanker movements.
Diversifying towards suppliers such as the US would substantially increase tonne-miles and shipping costs. Diversifying towards American crude would substantially increase tonne-miles. Tanker voyages from the US Gulf Coast to Japan via the Cape of Good Hope can take 45 to 60 days, or 35 days via the Panama Canal, compared with roughly 20 to 30 days from the Middle East.
The funding scheme would be administered by state-backed Japan Organization for Metals and Energy Security (JOGMEC), using contributions collected from oil importers.
A second bill addresses another increasingly serious obstacle to energy shipments: marine insurance. Tokyo wants to partially cover hull and cargo insurance claims when international reinsurers are unable to provide protection because of geopolitical risks. Separate changes to shipping insurance legislation would extend existing government-backed protection and indemnity arrangements beyond crude oil to petroleum products and LNG.
The third bill would give JOGMEC additional powers to invest in and guarantee financing for overseas pipelines providing alternative export routes.
Industry minister Ryosei Akazawa said the legislation was intended to fundamentally strengthen Japan’s energy supply security.
The government hopes to secure parliamentary approval during the current extraordinary Diet session.
Two more commercial vessels, a tanker and a containership, were reported struck by unidentified projectiles in the Strait of Hormuz on Tuesday, with attacks along the waterway at their highest levels since the conflict began on February 28.
The latest reports coincide with a change in Iranian tactics. Two senior Iranian officials told Reuters that Tehran intends to expand attacks into the Gulf of Oman and beyond, partly to keep oil prices elevated ahead of November’s US midterm elections.
A US military official said Iranian forces are using spotters aboard small boats to identify targets following the destruction of radar capabilities.
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Sam Chambers
Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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