Japan’s diversified LNG procurement strategy cannot fully shield it from global price spikes in Oil & Companies News 31/03/2026 Following the Middle East conflict and closure of the Strait of Hormuz, the Takaichi government has stated that Japan is insulated from direct impacts because only 6% of Japan’s total liquefied natural gas (LNG) imports pass through the Strait and that it holds three weeks of domestic LNG inventory. However, this view overlooks several indirect risks if the Strait of Hormuz closure continues. First, Japan would be exposed to greater volatility in LNG spot prices, raising overall import costs. Second, higher fuels costs would translate into electricity price hikes at a time when Japanese households and businesses are already struggling with inflation. Third, government efforts to curtail these price increases would exacerbate Japan’s macroeconomic and fiscal pressures. The risks of fuel price volatility to domestic electricity prices and macroeconomic and fiscal stability were strikingly clear during the global energy crisis triggered by Russia’s invasion of Ukraine. Similar dynamics are beginning to play out as a result of the Iran conflict. The severity of these risks depends on the duration of the Strait of Hormuz closure. In the medium to long term, Japan should prioritize deployment of domestic energy sources — particularly renewable energy — to hedge against volatile energy markets amid geopolitical uncertainty. LNG price exposure cannot be mitigated through diversification LNG accounts for over 30% of Japan’s power generation. A central pillar of the country’s LNG procurement strategy is portfolio diversification. Japanese utilities and trading houses source LNG from geographically diverse suppliers to reduce concentration risk and hedge against disruptions in any single production region. However, diversification does not shield Japan from price volatility resulting from severe global supply shocks. This vulnerability became evident during the Russia-Ukraine war when Japan’s LNG import costs surged. In April 2021, LNG imports amounted to JPY221.3 billion. As Russia began to limit its pipeline gas exports to Europe, forcing European buyers to import more LNG and driving up global LNG prices, Japan’s monthly LNG import bill rose to nearly JPY600 billion. By August 2022, six months after the invasion, Japan paid over JPY878 billion for LNG imports in a single month — nearly a fourfold increase compared to April 2021 — despite Russian LNG accounting for only 8.7% of Japan’s total imports in 2021. Notably, Japan has not significantly reduced imports of Russian LNG since. On an annual basis, and in United States (US) dollar terms, the total value of Japan’s LNG imports increased by 65% between 2021 and 2022, even as import volumes declined by 3%. In local currency terms, Japan’s LNG import bill increased by 98% over the same period due to the weakening yen. The country’s annual LNG spending remains above 2021 levels even though imports were 8.8 million tonnes lower in 2025 than four years prior, according to Kpler data. This underscores that diversification of supply sources does little to protect Japan from global LNG price hikes. LNG spot prices for Japan followed a similar trend. From a low of USD5 per million British thermal units (MMBtu) in February 2021, rising European gas prices pushed Japan’s spot prices up to USD56/MMBtu in October 2021. Following the outbreak of the Russia-Ukraine war, spot prices s