The impacts of the Iranian crisis on Japan’s energy strategy
Tatsuya Terazawa is the chairman and CEO of the Institute of Energy Economics, Japan. This essay is part of the 2026 Global Energy Agenda.
The crisis triggered by the USｰIsraeli attack on Iran on February 28 has impacted the world in a serious manner. Japan is certainly not insulated from the crisis, especially in terms of the rising cost of energy. But despite its heavy dependence on imported energy, Japan has managed the crisis relatively well compared with most of its Asian neighbors.
Five factors have helped Japan manage the crisis so far. The first is the high level of crude oil reserves. Japan had 254 days’ worth of reserves at the time of the attack. This level is much higher than those of other Asian countries, with the possible exception of China.
The second factor is the diversification of liquefied natural gas (LNG) sources and the high ratio of long-term contracts for LNG. Japan’s dependence on LNG passing through the Strait of Hormuz at the time of the attack was just 6 percent. Japan was procuring 80 percent of its LNG through long-term contracts, ensuring stability of supply and avoiding the price hike in the LNG spot market.
The third factor is the diversification of liquefied petroleum gas (LPG) sources. Japan’s dependence on Middle East LPG was just 3 percent. In addition, Japan had ninety days’ worth of reserves for LPG.
The fourth factor is the maintenance of domestic refining capacity. Japan has kept sufficient refining capacity to meet the domestic demand for gasoline, diesel fuel, jet fuel, and most other oil products.
The fifth factor is the diversification of Japan’s power sources. In addition to promoting renewable energies, especially solar photovoltaics (PV), Japan has kept its more efficient coal-fired power plants and its fleet of nuclear power plants despite strong headwinds after the 2011 Fukushima nuclear accident. Japan has the means to deal with a modest loss of LNG supply by utilizing other power sources.
Japan’s energy security policies deserve credit for the country’s relative success in managing the crisis. They could also be a model for other Asian countries determined to enhance their energy security.
But Japan’s energy policies have not been perfect. Several weaknesses have been exposed through the crisis, and Japan needs to address them. Japan’s dependence on the Middle East for 94 percent of its crude oil was certainly too high, and Japan must diversify its sources. While blending crude oil from non-Middle East sources is possible to some extent, further use of such crude oil requires modification of refining facilities in Japan. Policy support should be considered to enable the investment and make Japan’s refining capacity more flexible.
The reserve level of LNG was just three weeks. While it is difficult to store LNG for long, three weeks of reserves is too low. Policies to raise the reserve level of LNG must be considered. During a crisis, the absence of insurance coverage can also impede shipping. Today the coverage of insurance is ultimately determined by the reinsurers in London. Japan must consider having its own means to provide reinsurance if it is not available from London.
While Japan had sufficient refining capacity for most oil products, it was dependent on the Middle East for 40 percent of its naphtha. As naphtha is a key feedstock for various chemical industries, concerns are rising about the possible shortage of a broad range of essential chemical products. Japan must incorporate naphtha as an integral part of its energy security strategy and should consider establishing a reserve system for naphtha and diversifying its sources.
These actions could help enhance security of fossil fuel supplies. While these are necessary steps, Japan should also expand its non-fossil fuel energies and deal with the energy demand side as well.
Japan must also pursue promotion of renewable energies. As competition with other land uses and opposition from local communities are impeding the acceleration of mega-solar projects, Japan will need to strengthen its policies to promote rooftop solar PV. Offshore wind power is also an important option. To expand offshore wind power, Japan will need to develop comprehensive policies to lower its cost, which is substantially higher in Japan than on the global market.
The restart of closed nuclear power plants must be pushed further. While fifteen units have come back online, eighteen units are still offline. Japan must also explore construction of new nuclear power plants.
Energy efficiency must be further enhanced. Considering the rising demand for power from artificial intelligence (AI), the energy efficiency of AI must be promoted while the technology itself should be used to enhance the energy efficiency of various activities.
These strategies are well aligned with the Seventh Strategic Energy Plan finalized by the Japanese government in February 2025. Japan needs to fully implement its Strategic Energy Plan in parallel with strengthening the security of its fossil fuel supplies.
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Image: Aizu Electric Power's Oguni solar power station is pictured in Kitakata, Fukushima Prefecture, Japan, March 7, 2021. REUTERS/Yuka Obayashi/File Photo