Crude Oil Squeezes Importers as Japan’s Costs Hit Record Highs
Crude oil analysis: record-high Japanese import costs, US-Iran conflict disruption, tighter balances and inflation risks for major importing economies.
Prices
Front-month Brent has recently traded back above the equivalent of roughly EUR 82–84/bbl (around USD 90), revisiting levels last seen in mid‑June as Middle East fighting escalates and tanker traffic through Hormuz is repeatedly disrupted.
Price volatility has been significant: relief rallies tied to temporary ceasefire headlines and partial reopening of Hormuz were followed by renewed gains when US strikes on Iran resumed and new tanker incidents were reported.
For importing economies with weak currencies, the effective burden is even heavier. Japan’s import bill illustrates this: even with a 13.7% drop in crude import volumes, the value of oil purchases surged 59.3% year on year, pushing unit costs in yen to a record high.
Supply & Demand
Japan’s June import data show how physical flows are being reshuffled rather than collapsing outright. Overall import value jumped 25.4% year on year, with crude oil the dominant driver, even though volumes fell. Japan has diversified away from its traditional Middle East concentration, increasing purchases from the US and Russia while the decline from the Middle East has moderated, signalling active rerouting to manage geopolitical risk.
At the global level, oil flows from the Persian Gulf recovered significantly after the mid‑June reopening of Hormuz but remain below pre‑war norms, as fresh attacks on tankers and renewed US‑Iran strikes curb shipping and keep insurance and freight premia elevated.
IEA’s latest assessment still sees world oil supply in 2026 below pre‑war levels and warns that the early‑July re‑escalation could derail a tentative path back to surplus next year, suggesting a market that is fundamentally tighter and highly sensitive to further disruptions.
Fundamentals & Macro Linkages
Japan’s experience highlights how crude is transmitting geopolitical risk into domestic inflation. Import prices are being amplified by a weak yen, raising local fuel and utility costs and contributing to a wider June trade deficit of about USD 2.49 billion despite strong export growth.
Exports rose 19.3% year on year, supported by demand for AI‑related infrastructure and data centres and by a currency that boosts competitiveness abroad. Shipments to the United States climbed 13%, with elevated gasoline prices encouraging American consumers to shift toward more fuel‑efficient hybrid vehicles.
Even so, higher energy costs and currency weakness are straining Japan’s terms of trade and placing the Bank of Japan in a policy bind: pressing too hard on inflation risks undercutting a fragile recovery, while tolerating higher inflation leaves households and energy‑intensive industries exposed.
Globally, the renewed spike in crude and product prices is reviving concerns that the disinflation trend could stall. Market commentary increasingly links bond yields and inflation expectations to oil, as investors reassess the risk of another energy‑driven inflation shock from the Middle East conflict.
Geopolitics & Logistics
The US‑Iran conflict remains the central upside risk. After a brief easing around the mid‑June memorandum of understanding, hostilities have intensified again, with repeated US strikes, Iranian attacks on tankers and stepped‑up threats by regional proxies.
The effective closure or intermittent blockage of the Strait of Hormuz and new threats to the Bab el‑Mandeb mean that two critical chokepoints for global crude and product flows are simultaneously at risk, forcing exporters like Saudi Arabia to rely more heavily on pipelines and alternative routes to the Red Sea and Mediterranean.
While some Iranian crude exports and rerouted Gulf flows have cushioned the tightness so far, the system has little spare logistics capacity. Any escalation that materially curbs exports from the Gulf would likely push prices materially higher from already elevated levels.
Short-Term Outlook & Trading Views
Japan’s June trade figures underline that import‑dependent economies are acutely sensitive to further oil price gains, especially where currencies are weak. With Japan already facing record import costs and a widening trade deficit, additional spikes would intensify pressure on inflation and on the Bank of Japan’s policy stance.
In the broader market, the balance of risks over the next weeks appears skewed modestly to the upside. Supply remains below pre‑war levels and logistics routes are vulnerable, while demand from AI‑related industrial activity and resilient US consumption continues to underpin product use, even as pockets of macro weakness emerge in producer price data.
Trading Outlook (1–4 weeks)
- Importers / end-users: Consider maintaining elevated hedge ratios for Q3–Q4, particularly in Asia, where currency weakness magnifies crude costs. Opportunistic buying on dips remains prudent given high geopolitical risk.
- Producers: Current price levels and elevated war premia offer attractive opportunities to lock in forward sales. Gradual layering of hedges is advisable given headline volatility.
- Speculative participants: Risk-reward favours a cautiously bullish stance while Hormuz/Bab el‑Mandeb disruptions persist, but tight stop-loss discipline is essential amid fast, headline-driven reversals.