Newsletter No. 20
June 22, 2005

 

RISING OIL PRICES ALARM JAPAN

The rapid rise in global oil prices to record levels has garnered a considerable amount of attention from Japanese business circles and the newspaper press. On June 9th the Japanese government announced that higher oil prices were raising Japan’s energy costs and may negatively affect the demand for Japanese goods worldwide. As a whole, however, Japan’s economic position remains stable because of rising profits from overseas investments like US Treasuries.

Nevertheless, on the 18th, METI Minister Shoichi Nakagawa expressed some ‘concern’ about the possible economic effects of the rising oil prices when he spoke to reporters in Hokkaido. In the meantime, all the major newspapers have weighed in with editorials on the issue of oil prices.

The Nihon Keizai Shinbun noted the steep rise in demand for oil and encouraged the oil consuming countries to try to suppress demand while the oil-producing countries should expand production as quickly as possible. However, in an article on the 19th, the Nikkei cautioned against an overreaction as well. They noted that even if oil remained in the $US50-60 dollar range for some time, its negative economic effect, according to the Mitsubishi Research Institute, would be to slow economic growth by only 0.2%. Also, the Nikkei noted that in real terms oil prices are only at about 70% of the peak 1982 levels, despite the apparently higher cost per barrel.

The Yomiuri Shinbun editorial noted that OPEC had almost reached the limits of its production capacity and still prices are rising above expected levels. It counseled that the development of new oil fields should be advanced and conservation measures taken.

The Asahi Shinbun editorial noted that almost 90% of Japan’s oil comes from the Persian Gulf and Arab countries where the possibility of instability is present. They suggested that Japan, in particular Prime Minister Koizumi, should act proactively to create a far-reaching new energy strategy in cooperation with other Asian consumers. ODA and energy conservation were mentioned as being possible tools.

Finally, the Mainichi Shinbun notes that since January 2002 oil prices have risen more than threefold, thus signaling the return to a more intense phase of energy diplomacy. The Mainichi believes that Japan’s best strategy is to focus on creating new energy-saving products and industries in which Japan may have a competitive advantage.

SAUDI ARAMCO RAISES ITS STAKE IN SHOWA SHELL

One more bit of oil industry-related news should be noted: Saudi Aramco has made a large purchase of shares in Japan’s Showa Shell Oil Company. Aramco raised its stake in the company from about 10% to about 15%. This move is probably related to Aramco’s desire to further secure Japanese orders of Saudi oil. As mentioned in Shingetsu Newsletter No. 11, Saudi Arabia has recently replaced the UAE as Japan’s largest single oil supplier.