Japan should keep focus on cheap Mideast oil, local refiner says

Japan should continue to rely on the Middle East for the bulk of its crude as that’s cost-effective, processor Taiyo Oil said, pushing back against a government drive to diversify triggered by the U.S.-Iran war.

National strategy should focus on buying crude as economically as possible during peace time, while maintaining flexibility to secure alternatives when a crisis hits, Taiyo CEO Takahiro Yamamoto said.

“I have some concerns regarding the excessive push to diversify crude procurement, which imposes significant cost on society in normal times,” Yamamoto said in an interview in Tokyo on Friday. “It’s better to rely on the Middle East for more than 90% of Japan’s needs,” he added.

Japan is highly reliant on imported energy, and the conflict in the Middle East severely disrupted flows from traditional suppliers in the region because of threats to shipping in the Strait of Hormuz and damage to infrastructure. As the conflict grinds on, Prime Minister Sanae Takaichi’s administration has sought to broaden supply sources and strengthen alternative import routes to bolster energy security, although that entails higher costs.

“The ideal state for energy is not a system that fails because of dependency in times of a crisis, but one where we remain secure despite that dependency,” Yamamoto said. During the war, the industry showed Japan can withstand disruptions without permanently moving away from the Middle East given refiners managed to replace lost barrels within about three months, he said.

At about 40%, Taiyo’s pre-war exposure to the Middle East for crude supplies was markedly lower than its bigger domestic rivals. The company — which runs a refinery with 138,000-barrel-a-day capacity in the southwestern island of Shikoku — has since cut that to about 15%, boosting inflows from the U.S. and Argentina. It should return to 40% when conditions normalize, Yamamoto said.