Hormuz Crisis Forcing Japan To Domesticate Its Energy Security

Within days of the initial US-Israeli strikes against Iran in late February, underwriters invoked 72-hour cancellation provisions for affected war-risk coverage. This meant that ships operating in or near the affected waters could quickly lose insurance coverage, raising the cost and uncertainty of transporting energy supplies through the region.

The episode showed how quickly a choke point can become commercially unusable once insurance costs rise or coverage contracts. Military threats alone become an economic constraint even without the de facto blockades that Iran subsequently instituted.

Tokyo's proposed response is a state reinsurance mechanism that would help keep Japanese shipping covered when private markets retreat. In short, the government would assume part of the risk that private insurers are unwilling or unable to cover, allowing Japanese vessels to maintain conflict-risk insurance and continue operating in the region.

The idea has historical precedent.

The United Kingdom confronted a similar problem during World War I, when private insurers struggled to carry war risk at scale. The British state eventually became the reinsurer of last resort, formalized in the War Risks Insurance Act of 1939.

Japan is reaching a comparable conclusion: When war risk exceeds what private capital will carry, the state can absorb part of the exposure.

The insurance mechanism put in place to counter the impact of the Strait of Hormuz crisis sits within a wider package that Japan's Ministry of Economy, Trade and Industry has been developing since late July.

Japanese refiners and trading houses would contribute to a fund administered through the Japan Organization for Metals and Energy Security, helping cover the added freight and insurance costs of importing crude and naphtha along routes that avoid Hormuz, including pipelines through Saudi Arabia and the United Arab Emirates and longer maritime routes around the Cape of Good Hope.

The arrangement would spread part of the cost of diversification across the industry.

The government is also working to restore national crude reserves to the International Energy Agency's 90-day standard during fiscal year 2026–27, while targeting a 90-day level that also accounts for domestically refined naphtha in fiscal year 2027–28.

The Hormuz crisis has exposed a particular vulnerability in naphtha, whose shortage forced some of Japan's manufacturers to suspend sales or simplify packaging to conserve naphtha-derived printing inks.

Tokyo is also considering domestic stockpiles of U.S.-sourced crude and a dedicated naphtha reserve.

At the same time as building up domestic reserves, Japan is also helping Arab Gulf producers reduce their exposure to Hormuz. Saudi Arabia and the UAE have asked Japan to help finance pipeline expansions that could move crude to export terminals without transiting the strait. The Japan Organization for Metals and Energy Security mandate is being widened to support this kind of overseas infrastructure investment.

These measures strengthen resilience for Japan without creating independence. Saudi Arabia's east-west pipeline and the UAE's Habshan-to-Fujairah corridor can bypass Hormuz, yet even expanded capacity would cover only a fraction of the roughly 20 million barrels a day that normally transit the strait.

Abu Dhabi's project is targeted at doubling its capacity to 3.6 million barrels a day by mid-2027. The Fujairah terminal anchoring the UAE's pipeline has also come under attack during the current conflict.

Japan is therefore financing ways to bypass the choke point while retaining substantial exposure to it. Tokyo has paired this hedging with direct diplomacy aimed at keeping regional shipping routes open.

Meanwhile, a nuclear component of POWERR GX looks to further ween Japan off Middle East oil. The Ministry of Economy, Trade and Industry's proposal to add up to 14 reactors by the 2050s would reshape Japan's energy mix.

But it offers little relief during a live crisis. Japan currently has 12 of its 33 operable reactors online, while the nuclear fuel cycle continues to face storage and disposal constraints as well as opposition from a public still scarred by the memory of the Fukushima nuclear accident of 2011.

The restart of Kashiwazaki-Kariwa, the world's largest nuclear power plant, drew several hundred protesters outside the Niigata prefectural assembly in December 2025 after years of local negotiations.