Japan and Canada signed a strategic agreement on Friday to strengthen cooperation in defense, economic, and energy security, amid heightened concerns about international oil supplies following military strikes on Iran by the United States and Israel [1]. Japanese Prime Minister Sanae Takaichi and Canadian Prime Minister Mark Carney emphasized the importance of energy security during a period of 'geopolitical uncertainty,' and agreed to diversify energy resources and expand trade and investment to support energy supply chains [1]. Carney, during his first visit to Japan since taking office last year, highlighted the global turning point caused by the Middle East conflict and called for de-escalation of the Iran war earlier in Australia [1]. The two leaders also agreed to launch bilateral dialogues on economic security and cyber policies, and to begin negotiations for a defense pact to facilitate military cooperation [1]. Additionally, Japan is seeking to expand its defense sales, with a proposal submitted to scrap restrictions on lethal weapons sales, expected to be formally endorsed in the coming months [1].
In response to the escalating conflict in the Middle East and the paralysis of shipping traffic through the Strait of Hormuz—a vital oil route—Japan is considering releasing its national oil reserves to mitigate possible prolonged supply disruptions [2]. Japan may act independently rather than as part of a coordinated international effort, which would be unprecedented since the establishment of its oil stockpiling system in 1978 [2]. The government is weighing whether to release reserves and how much, with the most likely scenario being sales to domestic oil wholesalers to ensure stable supply [2]. As of the end of December, Japan had oil reserves totaling 254 days of domestic consumption, with 146 days' worth government-owned and 101 days held by the private sector [2]. The government may also utilize private sector stockpiles depending on the situation [2].
The release of oil reserves is intended to offset declines in oil held by wholesalers and trading firms, but is expected to have only a limited impact on curbing price rises in gasoline and other oil products [2]. If other countries seek to join the move, Japan plans to hold talks, though releases are typically coordinated under the International Energy Agency, as seen after Russia's invasion of Ukraine in 2022 [2]. Past releases of oil reserves in Japan have addressed supply concerns following natural disasters and overseas political turmoil, such as the Gulf War and the 2011 earthquake and tsunami [2].
The strategic agreement between Japan and Canada, alongside Japan's consideration of releasing oil reserves, underscores the urgency of securing energy supplies and enhancing defense cooperation amid ongoing geopolitical risks and supply chain disruptions [1][2].
CONCLUSION
Japan and Canada are taking significant steps to strengthen energy and defense cooperation in response to heightened geopolitical risks and oil supply concerns. Japan's potential release of national oil reserves marks an unprecedented move, reflecting the seriousness of supply disruptions caused by the conflict in the Middle East. These actions are likely to have a high market impact, especially for energy and defense sectors.