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Commodities

Tanker attack rings alarm bells for oil-reliant Japan

'Iran did it' Trump says, pointing to a video of a boat at the blast site

TOKYO -- The Persian Gulf, a sea as large as the U.K., connects to the more open waters of the Arabian Sea via the Strait of Hormuz, which is just 33 km wide at its narrowest point. Roughly 17 million barrels of crude -- enough to meet nearly 20% of global demand -- pass through the strait on tankers each day.

Thursday's attack near the strait on tankers operated by Japanese shipper Kokuka Sangyo and Taiwanese oil company CPC has raised the specter of this crucial sea lane being closed off.

"Iran did do it," U.S. President Donald Trump told Fox News on Friday. "And you know they did it because you saw the boat," he said, referring to a video released by the U.S. military which it said showed Iran's Revolutionary Guards removing an unexploded mine from the side of a Japanese-owned oil tanker.

Iran denies any involvement.

The incident during Japanese Prime Minister Shinzo Abe's visit to Iran has exacerbated tensions that are already running high in a region of vital importance to the global economy, and especially to a Japan more dependent than ever on Middle Eastern oil.

A still image taken from a U.S. military handout video purports to show Iran's Revolutionary Guard removing an unexploded limpet mine from the side of the Kokuka Courageous Tanker on June 13.   © Reuters

Gary Sick, a senior research fellow at Columbia University's Middle East Institute, shares these suspicions. "Iran feels that it has been sort of abandoned by the Europeans and others, and so it judges that it needs to increase the pressure so that other people seem that they have something to lose by this," the thinking goes, he said.

"But Iran tends to be pretty clever, and pretty well organized, and having this happening just at the time that the Japanese prime minister was there" is "very strange," he said.

Sick raised the possibility of another force being behind the attack, noting that "there are a number of people who would like to embarrass Iran while the Japanese prime minister was there." Those in the U.S., Israel and elsewhere who are against negotiation with Iran, as well as hard-liners within Tehran's own Revolutionary Guard opposed to a deal with the outside world, have an incentive to sabotage mediation efforts, he argued.

Jon Alterman, senior vice president of the Center for Strategic and International Studies in Washington, pointed to the Iranians' use of brinkmanship as a strategy and the risks involved.

"They calculate that some action will not draw an American response and it does. So it's not just an undesirable trip toward war, it's a misjudgment that leads to war," he said. "It's really easy to get into a war you can't figure out how to get out of."

The risk of tensions degenerating into open conflict makes a calm examination of the situation essential. For Iran, with Washington having withdrawn last year from the 2015 nuclear accord, the other five signatories -- the U.K., France, Germany, Russia and China -- must be kept on board.

Tehran "has options to project an image of a 'strong Iran,' such as exiting the nuclear agreement, resuming [high-level] uranium enrichment, or closing off the Strait of Hormuz, but it knows that actually doing any of those things would make it the enemy of the international community," said Momoyo Kondo, a researcher at the Middle East Institute of Japan.

Did Iran's leadership engage in sabotage even as it told Abe that Tehran did not want a war? Was the attack the work of a radical splinter group in conflict with Iran's revolutionary-led government? Or was it caused by some other force seeking to undermine Iran's position?

What is clear is that the region is a tinderbox -- thanks in part to U.S. energy policy. Washington has long been deeply entangled in the Middle East to protect what it considered core interests: cheap crude and sea lanes to transport it. But this has changed with the shale gas boom, which has made energy independence a real possibility. This freedom has likely emboldened the administration of U.S. President Donald Trump to take a harder line on Tehran.

In this Nov. 12, 2011, file photo, the Unit 4 reactor building of the crippled Fukushima Dai-ichi nuclear power station is seen through a bus window in Okuma, Japan.   © AP

By contrast, the Strait of Hormuz is more vital than ever to Japan -- a reality reflected by Abe's visit to defuse tensions.

During the 1973 oil crisis, Japan was rattled by the prospect of losing access to Middle Eastern crude. The government has since reshaped its energy policy to keep such a situation from recurring, focusing on reducing its reliance on oil from the region, pivoting to alternative energy sources and taking energy-saving measures.

But these efforts came to a crashing halt with the March 2011 Fukushima Daiichi meltdowns, after which all of Japan's nuclear power facilities gradually went offline. The country turned to thermal power to make up the difference, and fossil fuel usage surged to account for 90% of electricity generation. This figure has fallen only as low as 80%, as nuclear plants have been slow to return to operation.

This has made Japan more reliant on the Strait of Hormuz as a supply route. It tapped excess Middle Eastern supply to meet its needs after the 2011 disaster, and it sources an even larger share of its crude oil from the Middle East now than during the oil crisis -- 87% in 2017 compared with 78% in 1973.

"Our high dependence on fossil fuels is unjustifiable," said Hiroaki Nakanishi, chairman of the powerful Japan Business Federation lobby, which has compiled energy policy recommendations for the Japanese government. "Eight years later, the situation is the same as it was right after the [Fukushima Daiichi] disaster."

While oil makes up less of Japan's energy consumption now than in the 1970s, it would be hit harder if Iran blocked the Strait of Hormuz. A closure would send prices skyrocketing, weighing on the global economy. Japan's shipments of oil and liquefied natural gas from the Middle East would be cut off, potentially disrupting the country's power supply and manufacturing operations.

Japan is far from the only country at risk. China's massive Belt and Road infrastructure initiative is intended in part to secure a supply route for oil to fuel its economic growth. Asian manufacturing supply chains also rely on oil and gas from one of the world's most volatile regions.

The tanker attack is likely to shape the discussion when Group of 20 energy and environment ministers meet in Japan on Saturday. While moving away from carbon is expected to be the main theme, energy security is likely to be on the agenda as well, as Japan and developing Asian countries worry about the outlook for their supply from the Middle East.

Trump and Abe discussed the incident and the prime minister's Iran visit in a phone call Friday. "All countries involved should strictly refrain from actions that increase tensions," Abe said.

"I will continue working toward regional peace and stability and global prosperity in close cooperation with the international community," he said.

Nikkei staff writers Kaori Yoshida in New York, Ryo Nakamura in Washington and Shunsuke Shigeta in Tokyo contributed to this article.

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