Saudi Arabia, UAE back Japan's Asia oil reserve plan

Saudi Arabia and the United Arab Emirates have decided to back Japan's plan to create an Asia-wide oil reserve, following the turmoil in oil supplies caused by recent conflicts. Officials from both Middle Eastern nations joined a special meeting of the Asia Zero Emission Community on Thursday. The meeting, held in Manila, saw ministers from AZEC's 11 partner nations – including Japan, Indonesia, and Australia – discuss strategies for joint oil purchases and the establishment of strategic reserves.

The initiative was introduced by Japan to encourage regional cooperation on energy security and transition. Japanese State Minister of Economy, Trade and Industry, Takagi Kei, stated that the Middle Eastern countries are keen to cooperate in boosting oil stockpiling capacity in Asia. The countries have agreed to expand on the Asia Zero Emission Community’s ministerial work program to enhance their ability to respond to supply disruptions.

In April, Japan pledged $10 billion in financial aid to Southeast Asian nations grappling with high crude prices and supply interruptions stemming from the Middle East conflict. Prime Minister Sanae Takaichi's initiative encompasses support for oil procurement, storage, and emergency reserves, aiming to fortify the region's resilience against future shocks.

The Asia region suffered significant disruptions following the US-Iran war that began in late February. This conflict exposed a longstanding vulnerability for Southeast Asia, which heavily relies on imported oil. Prior to the conflict, over half of the region's crude imports were sourced from Persian Gulf producers, with Japan relying on the region for almost all of its oil, most of which passed through the Strait of Hormuz.

The closure of this critical choke point led to soaring oil prices, severe shortages, and forced some refiners to reduce processing and governments to ration fuel supplies. Policymakers have since been re-evaluating their energy-security strategies.

Despite these challenges, oil reserves in most Association of Southeast Asian Nations (ASEAN) countries remain relatively limited, and the high crude prices have made it costly to rebuild stockpiles. The proposed framework could enable purchasing countries to negotiate bilateral supply arrangements with Middle Eastern producers. This could benefit the Persian Gulf suppliers as well, by positioning more of their crude oil closer to Asian consumers.