TOKYO -- Many Japanese companies are restricting employees from traveling to the Middle East after Iran attacked Iraqi bases hosting U.S. troops in retaliation for the killing of a top military commander.
Growing tensions are threatening business activity beyond the region through rising fuel prices, while the tourist sector is bracing for a plunge in demand as well.
In response to the U.S. airstrike that killed Gen. Qassem Soleimani, head of Iran's elite Quds Force, as well as subsequent retaliations in the region, construction machinery maker Komatsu has prohibited travel to Iran and Iraq for the time being. Hitachi Construction Machinery, which has an office in Dubai, banned employees from traveling to the two countries as a general rule, and discouraged visits to the rest of the Middle East.
Oil refiner Idemitsu Kosan told employees to refrain from business trips to Iran, Saudi Arabia, Egypt and Israel, lifting the countries to the second of its three categories for risky destinations. President Shunichi Kito attended an emergency meeting Wednesday to discuss the Iran situation.
Engineering company Chiyoda barred business trips to the Middle East, including Qatar and the United Arab Emirates, starting Wednesday. Trading houses Mitsui & Co. and Mitsubishi Corp. told all employees to avoid non-urgent travel to the Middle East. Mitsui also encouraged employees to stay away from U.S. military facilities and embassies in Africa and Asia.
Materials maker Toray Industries, which produces reverse osmosis membranes for desalination plants in Saudi Arabia, launched an emergency response headquarters there in September. It is looking to evacuate Japanese employees from the area should tensions between the U.S. and Iran escalate.
Sumitomo Chemical operates a large petrochemical facility in Saudi Arabia. "We will exchange information closely with experts and Saudi Aramco, our local partner," President Keiichi Iwata said.
Tourist travel to the Middle East, which has become an increasingly popular destination in recent years, is also taking a hit. Travel agency JTB has begun to see trip cancellations to Egypt and Turkey.
All Nippon Airways and Japan Airlines do not directly operate flights to the Middle East, and have not been affected so far. But other Asian carriers have begun reevaluating their routes. Singapore Airlines is circumventing Iranian airspace for all of its flights to and from Europe. Malaysia Airlines issued a statement saying it will avoid the "conflict airspace" of Iran.
The situation could have an even stronger impact on business activity. Farm equipment maker Kubota's Chairman Masatoshi Kimata worries of a strengthening yen, since the company takes a 2.7 billion yen ($24.7 million) hit to its profit every time the yen strengthens by 1 to the dollar.
Should Kubota's operations suffer from a strong yen or expensive fuel, "we could be forced to postpone investments," Kimata said.
Gasoline prices in Japan recently topped 150 yen per liter for the first time in seven months, and are only expected to increase. Oil distributors have notified gas stations that they will raise wholesale prices. An increase in gas prices will lift transportation costs and squeeze corporate earnings.
Japanese companies face a 2.3% decrease in earnings per share when crude oil prices increase by $10 a barrel, according to calculations by Nomura Securities. Combined with a stronger yen and the impact on investor sentiment, "share prices could fall up to 5% or 6%," said strategist Yunosuke Ikeda.