Key Takeaways:
Japan's biggest refiner has locked in alternative crude supplies through September after the Iran war severed access to the Strait of Hormuz, exposing the nation's 94% dependence on Middle Eastern oil.
Eneos Holdings has secured sufficient alternative crude supplies through September after the Iran war disrupted Middle Eastern shipments, though the conflict cut refinery utilization to 81% from a planned 86% in the first quarter.
"We have a good outlook for supplies through September. The situation has become much more stable," Soichiro Tanaka, chief financial officer at Eneos, said in an interview Thursday.
The refiner replaced lost volumes mainly with U.S. crude and secured Middle Eastern supplies via routes bypassing the Strait of Hormuz, while also buying smaller volumes from Azerbaijan, Tanaka said. Japan sourced 94% of its crude imports from the Middle East in 2025, leaving it heavily exposed to the conflict that began in late February. The waterway handled about a fifth of global oil trade before the disruption.
"From the perspectives of risk hedging and national energy security, there is no doubt that reducing dependence on the Middle East over the medium to long term would be preferable," Tanaka said, though he stressed the need to balance energy security with economic viability. Eneos aims to raise refinery utilization to 90% of capacity by fiscal year 2027, a target that prolonged instability in the Middle East could complicate.
The disruption has weighed on refinery operations beyond the first quarter. Eneos' utilization in April to June also came in below the company's original plan, Tanaka said, without providing details. Despite lower runs, the earnings impact has been limited as stronger overseas petroleum product prices partly offset the losses.
"Overall, the impact has been slightly negative, but it has not been a major hit to earnings," he said.
Japan has maintained stable oil supplies thanks to long-standing relationships with producing countries, government support and substantial strategic petroleum reserves held by both the public and private sectors, Tanaka said. The country's reserves have helped prevent acute shortages during the crisis.
Diversification Push Gains Urgency
The disruption is likely to lead to discussions on diversifying crude procurement in cooperation with the Japanese government, Tanaka said. "We will explore how we can diversify our supply sources over the medium to long term while working with the government to ensure it is economically viable."
The push for diversification comes as global oil supply is set to fall short of total demand this year, with inventories being drained at an unprecedented pace, the International Energy Agency said in May. Brent crude traded at $105.63 a barrel in mid-May, while U.S. West Texas Intermediate stood at $101.03, as the market priced in sustained supply risks from the Middle East.
The last time Japan faced a comparable supply shock was during the 1973 oil crisis, when Arab producers imposed an embargo that sent crude prices quadrupling and forced Tokyo to pursue energy diversification aggressively — a shift that ultimately led to heavy investment in nuclear power and LNG infrastructure. The current crisis could trigger a similar structural pivot, this time toward U.S. crude and non-Middle Eastern suppliers, though Tanaka cautioned that any shift must be economically viable.
This article is for informational purposes only and does not constitute investment advice.
