Japan’s Trade Deficit Doubles as Hormuz Crisis Hikes Energy Import Costs

Japan's trade deficit ballooned to $17.8 billion, or 2.82 trillion Japanese yen, for the April to September period, nearly double the deficit from the previous year, according to government figures released on Wednesday. The Middle East crisis, which disrupted energy imports into the resource-poor G7 economy, led to a sharp increase in costs for Japan's energy imports.

During the six-month period following the start of the Iran war and the subsequent choke on oil and LNG supply at the Strait of Hormuz, Japan's exports grew by 18.4%, while imports rose by 20.4%. Despite a 21.2% drop in the volume of petroleum imports, their value surged by 26.3%. Similarly, despite a 26.8% decline in the volume of LNG imports, their value rose by 13.5%.

The spike in oil and LNG prices, coupled with soaring freight and insurance costs, have pushed Japan's oil import bill to record highs. Japan, one of the world's largest LNG importers, has been shifting towards coal-fired generation as LNG prices remain elevated. In response to the Middle East war, Japan has been seeking alternative crude oil sources as its crude imports from the Middle East constituted more than 90% of all crude imports.

To ensure energy security, the G-7 economy has been releasing crude from its strategic reserves as part of an IEA-coordinated global effort to release 400 million barrels of crude and oil products. Additionally, the Japanese government has approved three bills to diversify oil supplies and enhance energy security, including grants to offset the high shipping costs for oil imports from outside the Middle East.