Japan must use reserves in a US-Iran conflict: Japanese analyst

Dubai (Platts)--2May2006

A US-Iran conflict in the Persian Gulf will hit Asian buyers hard
particularly Japan. "A conflict between the U.S. and Iran will have a very
serious impact on Japan," Dr Ken Koyama, Director at The Institute of Energy
Economics, Japan, a major Japanese think tank told Platts.

Japan, a major importer of Middle Eastern oil and second largest
economy in the world, bought 4.2 million b/d in 2005. The share of the Middle
East was the 90% of those imports. "We rely on Iran to provide us with about
15% of our crude oil needs and the rest comes from Saudi Arabia and the UAE,"
Koyama said.

In March, Nippon Oil Corp, Japan's largest refiner, announced it plans to
cut its imports of Iranian crude by 15% this year, the first hint Tehran's
nuclear dispute with the West is affecting its vital oil trade.

The level of impact on Japan in a Persian Gulf conflict will depend on
the magnitude of cut in supply and duration of the cut. "Japan will have to
release its strategic crude oil reserves, as happened after hurricane Katrina,
and impose demand and consumption controls," Koyama said. On the other hand,
Japanese demand for Asian crude is expected to rise but "the low production
levels and availability of crude in Asia is a problem," Koyama added.

Japan is feeling increasingly insecure about crude supplies leading the
government to adopt an energy strategy presented in an interim report
published at the end of March. The strategy aims at reducing the dependence on
crude oil from 50% of total energy requirements currently to 40% in 2030. The
strategy will combine the use of coal, gas and nuclear power to diversify
energy sources. The strategy also aims at using nuclear energy to produce
30-40% of power generation in the country while the dependence of the
transport sector on oil will be reduced by 20% to 80 % in 2030.

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