[Japan’s Voices No. 21] What Japan Must Do in Energy Policy After the Iran War: The “Asia Shock” Triggered by the Iran War

“Asia Shock” caused by the Iran War

The ongoing Iran War has been said to have caused the most severe disruption to global oil supply in modern history. Since the end of World War II, the world economy has expanded rapidly on the premise of abundant crude oil consumption, yet it has also experienced significant supply reductions due to wars, political turmoil, and natural disasters such as hurricanes and wildfires. According to the International Energy Agency (IEA), the largest decline prior to this year occurred in 2019, when attacks on Saudi Arabian oil facilities reduced supply by 5.7 mb/d. This was followed by a 5.6 mb/d decline during the Second Oil Crisis of 1978–79, and reductions of 4.3 mb/d during both the First Oil Crisis of 1973–74 and Iraq’s 1990–91 invasion of Kuwait. In contrast, the closure of the Strait of Hormuz this year resulted in an estimated 15 mb/d supply loss; the magnitude of the disruption is clearly on a completely different scale.

The impact, moreover, has not been evenly distributed across the globe. Asian economies are far more dependent on Middle Eastern crude than other regions: Southeast Asia relies on the Middle East for roughly 60% of its imports, China slightly less than 60%, and India just under 50%. Japan stands out dramatically, with 95% dependence. Meanwhile, the United States relies on the Middle East for only about 7% of its crude imports, and Europe for slightly more than 15%.

The energy crisis triggered by the Iran War—an event that has come to be known as the “Asia Shock”—provides a critical opportunity to reassess Japan’s energy policy.

Assessment of Japan’s emergency response

The quantity of strategic crude oil reserves differs across nations. Japan maintains the world’s third-largest strategic petroleum reserve, following China and the United States. When crude prices surged immediately after the crisis broke out—Brent (a major global benchmark crude oil produced in the North Sea) reached USD 118.35 per barrel at the end of March and West Texas Intermediate (WTI, the benchmark crude price for the US market) hit USD 112.95 in early April—the Japanese government released reserves in March and May 2026 to stabilize supply. Notably, the March release was decided slightly ahead of the IEA’s coordinated action, demonstrating commendable speed and helping to minimize domestic disruption. In fact, most domestic confusion stemmed not from crude procurement itself but from shortages in petroleum products such as naphtha.

The Japanese government responded to this crisis by securing supply through two releases of strategic petroleum reserves while simultaneously suppressing prices for gasoline, kerosene, and other fuels through subsidies. Although the provision of subsidies raised concerns that it might offset the demand‑reduction effects of higher prices, the government prioritized avoiding a sudden brake on economic activity and implemented them as a measure to mitigate abrupt shocks. 

Simultaneously, Japan accelerated its diversification of alternative procurement sources, turning mainly to the United States but also to Latin America and the Asia-Pacific region. As a result, Japan’s crude import volumes in July nearly matched those of the previous year. Concerns remain about the country’s heavy reliance on US supply and its vulnerability to market price fluctuations due to the principal means of procurement being spot-market purchases. Nevertheless, considering Japan’s historically high dependence on Middle Eastern and Hormuz-routed crude, its responses to the energy crisis triggered by the Iran War can be considered highly effective so far.

The challenge now is the transition from emergency measures to a long-term strategy, one centered on structural change through energy efficiency, demand-side electrification, and decarbonization of power sources via renewables and nuclear energy. Since Japan’s crisis response went relatively well, Japanese consumers may not fully perceive the severity of the crisis. As seen in the rapid advancement of energy conservation after the two oil shocks of the 1970s, meaningful change cannot succeed without a sense of urgency or the pain felt by the people. Energy costs are regressive, disproportionately affecting low-income households and small businesses, making subsidy withdrawal politically difficult. Yet six months have already passed since the outbreak of the Iran War. Rather than allowing subsidies to weaken incentives for demand‑side conservation or fuel switching, Japan must now shift toward fundamental measures such as supporting energy efficiency, electrification, and the deployment of decarbonized power sources.

Policy measures Japan must pursue

How should Japan chart the course of its future energy policy? Its energy strategy should focus on three key initiatives.

The first is reassessing the value of coal-fired power and supporting supply chain continuity. Since the Paris Agreement and the rise of net-zero alliances among financial institutions and investment entities, coal—due to its high CO₂ emissions—has been viewed primarily through the lens of rapid phaseout. However, coal still offers advantages for energy security: diverse production regions and greater storability compared with liquefied natural gas. It should be noted that Japan possesses advanced high-efficiency coal power technologies, and Southeast Asian nations confronting rapid electricity demand growth have strong interest in Japan’s expertise on optimal management of operations and maintenance. Many of these countries are undergoing a period of rapid expansion in power demand but face long delays in procuring gas turbines, as large purchases by European buyers since the start of the Ukraine crisis have led to wait times of seven to eight years.

Still, the “green storm” of recent years has made both power producers and equipment manufacturers hesitant to engage with coal technologies. Japan must urgently reassess coal’s strategic value and support supply chain continuity, while simultaneously facilitating the development and deployment of CO₂ mitigation technologies such as CCS. 

The second is expanding the use of nuclear power. Following the Fukushima Daiichi Nuclear Power Plant accident, the Japanese government adopted a policy of minimizing nuclear dependence. In light of the progress made in Green Transformation (GX), however, the government has shifted to a stance that treats both renewables and nuclear as essential decarbonized power sources for accommodating future increases in electricity demand driven by generative AI use.

Unlike renewables, which have long benefited from policy support, nuclear power faces numerous challenges. Japan must streamline safety regulations, accelerate the restart of reactors awaiting review, and reconsider whether plants previously slated for decommissioning may still have viable roles. Even with accelerated timelines, new construction requires at least 20 years.

The third is accelerating the fundamental task of advancing demand-side electrification in parallel with power-sector decarbonization. This dual approach has long been a core principle of climate policy, but it is equally crucial for ensuring energy security through fossil-fuel reduction. Electrification of industrial processes and transportation can catalyze structural transformation by such means as reforming manufacturing processes and integrating mobility with utilities. I hope to see bold changes take shape.

Strengthening regional resilience

Finally, as geopolitical instability increases, enhancing resilience to energy crises is a critical challenge not only for Japan but for all Asian nations. Yet preparedness imposes peacetime costs and may hinder competitiveness. To maximize resilience while minimizing cost, regional cooperation is essential. It is my urgent hope that cooperative relations within the Asian region will advance, building upon the POWERR Asia initiative proposed by the Takaichi administration.

Dr. Sumiko Takeuchi is a member of the Board of Directors and a Senior Fellow at the Initernational Environment and Economy Institute (IEEI). She is also Special Appointed Professor at Tohoku University.

The views expressed in this article are the author's and do not reflect those of JIIA CGO.