Japan Buys Russian Oil. Necessity Or Simply Business?

Japan buys Russian oil and is about to receive its first shipment of Russian crude oil in more than six months. Japan has deviated from its Western friends by choosing to buy Russian oil above $60 per barrel. Experts claim that this action reflects Japan’s worries about threats to its energy security. Japanese government advises energy importers to stockpile gasoline to prevent further shortages.

Oil And Gas Imports Despite Sanctions

Note that Japan has not imposed severe restrictions on oil and natural gas (NATURALGAS). However, along with other Western states, it condemned Russia for its actions in Ukraine. The government has prioritized the stable functioning of Japanese oil production and imports. Russia’s Sakhalin-2 export program is a key source of liquefied natural gas for the country.

Moscow has prohibited the export of Russian crude oil and processed goods to foreign purchasers who adhere to a price ceiling, and this delivery occurs in the midst of that prohibition. Japan said in March that exports under the Sakhalin-2 program would not be subject to a price restriction. Despite this, as refineries look to diversify their supply, Japan has significantly decreased its oil imports from Russia, particularly from the Sakhalin-1 oil and gas initiative.

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Major Reasons Why Japan Buys Russian Oil

On December 19, 2023, Sakhalin Energy said that Taiyo Oil Co. of Japan had acquired the most recent shipment from Russia. He also announced the intention to divide the cargo between two discharge ports at Kikuma and Namikata.

First of all, Japan buys Russian oil to satisfy its energy demands and support its advanced economy, notwithstanding the prime minister’s visit to Ukraine. Japanese oil shipments from Russia have reportedly restarted after a nine-month hiatus. The Russian company Gazprom and Japanese businesses jointly control Taiyo Oil, which accepted the deliveries. This showed a willingness to keep the energy collaboration going.

Due to its lack of indigenous fossil fuel resources, Japan significantly depends on imports to meet its energy demands, making access to Russian gas extremely crucial. Russian LNG shipments to Japan increased by more than 4% in 2022, and 9.5% of Japan’s total LNG imports last year came from Russia, most of which came from the Sakhalin-2 project, which also produces petroleum and LNG.

Making A Difference In Oil Prices

Energy supplies in the Japanese nation are at risk, particularly if there is a conflict in the South China Sea or the Middle East, through which much of Japan’s energy is transported.

While some members of Japan’s ruling elite, such as former prime minister Yoshiro Mori, have argued that a Russian victory in the war in Ukraine is “unthinkable” and could result in worse things, others have attempted to settle territorial disputes with Russia. It is important to note that Japan is the only member of the Group of Seven that has not given Ukraine any deadly weaponry.

In conclusion, Japan’s energy demands will fuel its relations with Russia despite political difficulties. Energy security is a crucial concern for the nation’s government and ruling class due to the country’s reliance on imports.

A Stagnant But Advanced Economy

Japan’s trade imbalance surged to a record-breaking 21.73 trillion yen ($160 billion) in fiscal 2022, which ended in March, severely harming the country’s economy. The major causes of this enormous gap are rising energy prices and a lower yen (USDJPY), which have caused imports to expand far faster than exports. This news is concerning since Japan has continued to experience negative growth for a second consecutive year, and both of these statistics are the highest since records have been available since 1979.

Liquefied natural gas, coal, and crude oil were a few of the important products that helped drive the increase in imports. Strong international demand helped maintain exports of automobiles, iron and steel, and other goods. The COVID-19 pandemic’s negative effects started to fade, supporting exports. In fiscal 2022, the dollar’s average price rose substantially from 111.91 to 135.05 dollars, and the fast devaluation of the yen the previous year made matters worse for resource-scarce Japan by driving up import prices.

Japan Buys Russian Oil: Overage Gone Wrong

Despite having a 6.65 trillion dollar trade surplus with the United States, Japan had a record 6.81 trillion dollar deficit with China. Concerns have been raised that the U.S. Federal Reserve’s aggressive interest rate increases may hamper economic development and cut back on exports from Japan to rein in soaring inflation.

Although the “zero-COVID” policy’s end was seen as a plus for Japan’s exports, worries about China’s sluggish growth persist. The 11th year in a row that Japan has had a trade deficit with the EU was 1.77 trillion yen. In contrast, according to the ministry’s figures, the country had a $454.24 billion trade surplus with the rest of Asia, including China.

This data concerns Japan since, according to economists, their trade imbalance will continue for the time being despite falling exports. Even when zero-COVID limitations were abolished, Takeshi Minami, head economist of the Norinchukin Research Institute, claimed that “Chinese consumption lacks strength.”:

“The effects of the fully-fledged monetary tightening that has been taking place in the West since last summer will play out in their economies, causing Japan’s exports to turn down going forward.”

Japan Buys Russian Oil: Inflation Problems

Due to the jump in commodity prices brought on by the Russia-Ukraine war and the historically declining yen, which in October broke through the 150-to-the-dollar threshold for the first time since 1990, the cost of a variety of goods has grown dramatically during the past few months.

In January of last year, core consumer prices, excluding volatile fresh food, rose by just 0.2%; by November, however, they had climbed by a nearly 41-year-high 3.7%.

What Direction Are Oil Prices Taking?

On April 2, the OPEC+ alliance of OPEC and non-OPEC oil producers quickly decided to cut output to preserve a higher price floor closer to $85 per barrel. This action shocked the oil markets.

The news that a small group of OPEC+ members, under the leadership of Saudi Arabia, had decided to cut output by 1.16 million barrels per day starting in May surprised the oil and financial markets. Even more surprising was that many buyers had expected a much smaller drop.

The total amount of further voluntary cuts now stands at 1.66 mb/d after Russia announced it would maintain its previously projected 500,000 b/d cut until December 2023.

On June 4 in Vienna, the following OPEC+ ministerial meeting will be held. What if recent events show that a much tighter balance of supply and demand is developing? Then we will most likely see a reversal of this voluntary reduction in production.