The war in the Middle East has heightened fears that Japan and the global economy will be hit hard by surging crude oil prices.

Although the Japanese government moved to restore gasoline subsidies, it is only a temporary fix.

Japan should cooperate with other nations suffering from higher crude oil prices and persistently try to persuade the United States and its ally, Israel, as well as Iran to reach an early resolution of the conflict.

The benchmark West Texas Intermediate crude oil futures at one point reached $119 (19,000 yen) per barrel, and the price has since hovered around $100.

Japan depends on the Middle East for about 90 percent of its crude oil imports.

An extended closure of the Strait of Hormuz will further increase oil prices. And if supply should be cut off, serious effects will be felt in many areas of daily life.

The national average price of a liter of regular gasoline in Japan exceeded 190 yen for the first time.

Higher prices for heavy and diesel oil will put pressure on farmers, fishermen and transport companies.

Electricity and gas prices could possibly rise after a few months because the price of liquified natural gas is largely linked with that of crude oil.

If procurement of naphtha, the raw material for plastics obtained from crude oil, is delayed, the effects could reach a wide range of products, from automobile parts to daily items.

Member nations of the International Energy Agency agreed to coordinate the release of oil from national reserves.

Japan began its release from March 16, but its reserves are only sufficient for about eight months.

While the release was an appropriate measure, the volume of crude oil reaching Japan is expected to sharply decrease. If oil transport is hampered over a long period, Japan’s reserves may be unable to cover the country’s needs.

With the sudden turn in events in the Middle East, Japan decided to resuscitate the gasoline subsidy that ended with the abolishment of the gasoline tax surcharge late last year.

The subsidy should bring gasoline prices down to about 170 yen per liter.

But many issues are involved. For example, the subsidy goes against moves toward a carbon-neutral future since it will prop up demand even as supply decreases.

The fund to pay for the subsidy is expected to run out in about a month.

If the need arises for a longer-term response for a continuing Middle East war, the yen could weaken due to concerns about Japan’s worsening fiscal condition, and that might accelerate the surge in crude oil prices in Japan.

Such an increase will not only push up consumer prices, it will also be a factor in slowing down the overall economy.

Japan will face greater difficulty in responding through monetary policy. If the country must decide whether to deal with higher consumer prices or a worsening economy, a wrong move could trigger stagflation in which both factors continue.

While the Bank of Japan is showing signs of continuing to raise interest rates, it should flexibly implement policy while scrutinizing trends in the economy and consumer prices.

However, given the limits of domestic policy on dealing with higher crude oil prices, the best response is to bring stability to the Middle East.

In her meeting with U.S. President Donald Trump, Prime Minister Sanae Takaichi reportedly mentioned the need to bring the situation under control as soon as possible.

Diplomatic efforts must continue.

--The Asahi Shimbun, March 23

© The Asahi Shimbun