Inpex's decision to prioritize Japanese customers for its oil from Azerbaijan is a textbook energy security response to the sudden crisis in the Strait of Hormuz.
The situation is severe. A conflict with Iran has led to a near-complete shutdown of the Strait of Hormuz, a critical chokepoint for global oil supply. Tanker traffic has plunged by about 90%, physically cutting off a huge portion of the world's oil. For a country like Japan, which relies on the Middle East for over 70% of its crude oil, this is a direct threat to its economic stability.
This physical disruption has also created financial chaos. The Dubai/Oman benchmarks, which are used to price oil for Asia, have become extremely volatile. At one point, the premium for physical Dubai crude skyrocketed, making it incredibly expensive and unreliable. The situation became so untenable that Japan's Ministry of Economy, Trade and Industry (METI) took the unusual step of asking fuel wholesalers to switch their pricing reference from Dubai to Brent crude to protect consumers.
So, what led to Inpex's move? It was a logical sequence of events. First, the physical risk of shipping through Hormuz became unacceptable. Second, the price distortion of Middle East benchmarks made those barrels financially challenging. Third, these factors prompted a policy response from the Japanese government, signaling an urgent need for alternatives. This created the perfect conditions for a company like Inpex to act.
Inpex's solution leverages its overseas assets. The company holds a 9.31% stake in the Azeri-Chirag-Gunashli (ACG) oil fields in Azerbaijan. The oil from these fields, known as 'equity barrels,' is transported via the Baku-Tbilisi-Ceyhan (BTC) pipeline to a port in Türkiye on the Mediterranean Sea. This route completely bypasses the Strait of Hormuz. While the volume—about 32,600 barrels per day—only offsets about 1.9% of Japan's at-risk supply, its strategic value is immense because it provides a reliable, secure flow of oil when other sources are cut off.
This move is a clear example of how energy companies and governments can work together during a crisis. It highlights the importance of diversifying energy sources and supply routes to build resilience against geopolitical shocks.
- Glossary
- Strait of Hormuz: A narrow waterway between Iran and Oman, through which a significant portion of the world's oil supply passes.
- Equity Barrels: The share of oil or gas a company is entitled to based on its ownership stake in a production project.
- BTC Pipeline: The Baku-Tbilisi-Ceyhan pipeline, which transports crude oil from the Caspian Sea to the Mediterranean Sea, bypassing Russian territory and the Strait of Hormuz.