Japan to Subsidize Oil Importers Amid Surging Tanker Freight Rates

The Japanese government announced it will compensate oil importers for the sharp rise in tanker freight rates, as part of a plan to reduce the country's dependence on the Strait of Hormuz, an increasingly risky waterway. The Japanese cabinet approved three bills on October 13 aimed at diversifying energy imports, supporting tanker insurance, and financing alternative oil transport infrastructure.

The first bill creates a grant program to compensate refiners, traders and petrochemical companies for part of the additional cost of sourcing crude and refined products from alternative suppliers to the Persian Gulf. The scheme will be administered by the state-owned Japan Organization for Metals and Energy Security (JOGMEC) and will be funded through contributions from oil importers themselves. Last year, 94% of Japan's crude imports came from the Middle East, and official data showed a 93% dependence on the Strait of Hormuz, although that figure is based on countries of origin rather than actual vessel movements.

Diversifying toward suppliers such as the United States would sharply increase ton-miles and freight costs: a voyage from the U.S. Gulf Coast to Japan via the Cape of Good Hope could take between 45 and 60 days, or 35 days via the Panama Canal, compared with the 20 to 30 days required for the Middle East route. The second bill targets marine insurance: Tokyo aims to partially cover hull and cargo claims when international reinsurers are unable to offer coverage due to geopolitical risks, while also extending government protection and indemnity (P&I) guarantees from crude oil to refined petroleum products and LNG. The third bill grants JOGMEC greater powers to invest in overseas pipelines that constitute alternative export routes and to guarantee their financing.

Minister of Economy, Trade and Industry Ryosei Akazawa stated that the legislation seeks to fundamentally strengthen Japan's energy supply security, and the government hopes to secure parliamentary approval during the current extraordinary session of the Diet. The announcement comes amid escalating tensions: two Iranian officials indicated that Tehran plans to expand its attacks toward the Gulf of Oman and beyond, partly to keep oil prices high ahead of the U.S. midterm congressional elections in November, while a U.S. military official noted that Iranian forces, following the destruction of their radar capabilities, are using spotters on small boats to identify targets.

The move follows a sharp escalation of attacks in the Strait of Hormuz, where two commercial vessels, a tanker and a container ship, were struck by unidentified projectiles on a Tuesday. Japan's strategy contrasts with that of other major importers: India launched a $1.5 billion marine insurance fund in May backed by a $1.4 billion sovereign guarantee, South Korea allocated 1.4 billion won ($1.05 million) to subsidize premiums for small shipping companies, initially covering nine vessels, and China, the world's largest crude importer, opted for strategic reserves and overland pipelines from Russia and Kazakhstan without announcing state insurance subsidies. Investment banks such as HSBC, Goldman Sachs and JPMorgan expect the disruption in the Middle East to persist, with JPMorgan projecting an average Brent price of $87 per barrel in 2027, while ING and Citi are more optimistic about potential diplomatic progress around the November U.S. elections.