How the Middle East conflict exposes Japan’s energy vulnerability and accelerates the case for clean power

The rapidly escalating conflict in the Middle East has triggered renewed volatility in global energy markets and exposed the structural vulnerabilities of oil and gas importers. Following U.S. strikes on Iran on 28 February and the temporary closure of the Strait of Hormuz, one of the world’s most critical maritime energy chokepoints, oil and gas supplies from the Persian gulf have been halted and global energy prices have soared. 

According to the Financial Times, Iranian attacks on energy infrastructure have already triggered the largest rise in global natural gas prices since Russia’s full-scale invasion of Ukraine in 2022. The newspaper also notes that the length of the conflict in the Middle East will largely determine the scale of its impact on global prices. But the episode already illustrates a broader structural risk: fossil fuel supply chains remain highly vulnerable to geopolitical instability. 

The jump in European gas prices has demonstrated that even when physical supply is not directly constrained, fossil fuel dependency creates oversized exposure to global price shocks. Prices rose 39% despite only 10% LNG coming from Qatar through the Strait of Hormuz.  

 For Japan, the implications are immediate. The country remains one of the most energy import-dependent major economies in the world, importing around 87% of its energy supply in 2024. Approximately 90% of its crude oil and 11% of its liquefied natural gas (LNG) comes from the Middle East, with a large share transiting through the Strait of Hormuz.  

This reliance exposes the country to global price volatility, supply chain disruption and geopolitical risk, elevating energy policy from an economic concern to a strategic vulnerability. The current price and supply shocks reveal this all too well, with PM Takaichi seeking to reassure the public on security of energy supply. 

Power supply is Japan’s most immediate vulnerability 

Japan maintains significant crude oil reserves, providing a buffer against immediate fuel shortages. Prime Minister Sanae Takaichi confirmed on 2 March that the country currently holds around 254 days of oil reserves. Electricity supply, however, is far more exposed.  

Between 30% and 40% of Japan’s electricity generation relies on LNG, and the country holds only two to three weeks of LNG feedstock for power generation. Unlike oil used in transportation, LNG must be continuously delivered to maintain power supply. 

If gas imports were disrupted for an extended period, electricity shortages could emerge within weeks, affecting industrial production and essential services such as hospitals, supermarkets and logistics networks. Even without physical shortages, price volatility in global LNG markets could significantly increase power costs for businesses and households. 

Energy security is crucial to economic resilience and strategic autonomy. Strengthening domestic clean power generation reduces external dependencies and builds long-term economic stability and national security. For Japan, this is no longer only a climate or economic issue. It has become a central pillar of national security in an increasingly volatile geopolitical environment. 

Achieving Japan’s energy security 

While the current crisis is geopolitical, the underlying vulnerability is structural: Japan’s energy system remains heavily dependent on imported fossil fuels. 

Scaling domestic renewable energy offers a pathway to reduce these risks while strengthening long-term economic resilience. Japan possesses substantial renewable resources, particularly solar power and floating offshore wind, with research from the Ministry of Environment suggesting domestic wind and solar could theoretically power the country twice over. 

The key constraint is not resource availability but deployment speed, grid expansion and regulatory alignment. With the right policy framework and investment signals, Japan could reach 80% or more clean power by 2040, exceeding current policy targets. 

At the same time, electricity demand is projected to increase by around 5.8% by 2034, driven largely by the expansion of AI data centres, semiconductor manufacturing and digital infrastructure. 

This demand growth presents a strategic investment opportunity. Long-term power agreements linked to institutional, market, and regulatory reforms can enable rapid change across Japan’s power sector. 

Achieving this transition would require an investment of JPY 38 trillion through 2035 to expand renewable power and strengthen Japan’s energy security. This amount is equivalent to around 25% of Japan’s planned JPY 150 trillion Green Transformation (GX) programme. These costs are substantially offset by avoided fossil fuel imports.  

To unlock Japan’s clean power potential at the scale required by current security and economic imperatives, Climate Bonds outlined four priority actions: 

1.    Upscaling transmission and distribution capacity across power grids (as per the existing METI plan) 

2.    Fast-tracking planning and permitting for renewable energy deployment 

3.    Expanding distributed energy systems 

4.    Using long-term offtake agreements to mobilise low-interest capital  

Download the full report here: https://www.climatebonds.net/data-insights/publications/renewable-power-key-japans-energy-security 

Scaling domestic clean power is one of the most effective ways for Japan to reduce energy vulnerabilities while supporting both national security and the growth of global sustainable bond markets. The technologies exist, the capital is available, and Japan’s engineering and financial capabilities are world-leading. What is required now is policy alignment that treats clean power infrastructure as a strategic national asset. 

Till' next time,  

Climate Bonds