EDITORIAL: As oil prices rise, Japan should push Mideast stability

Crude oil prices are skyrocketing again in a way reminiscent of their breakneck rise three years ago.

A wave of pro-democracy protests is spreading across the Middle East, toppling regimes and causing turmoil in many countries of a region that accounts for a large portion of global oil production. Jitters about what is taking place in the Middle East have pushed oil futures prices past $100 per barrel in the United States and Europe.

Oil prices have yet to reach the record high of $147, registered in the U.S. market in 2008. But oil will get costlier if the contagion of political upheavals continues to fuel the convulsion in the Middle East. Some market reports have said that oil prices could top $200 per barrel.

The International Energy Agency has warned that if oil prices remain at the level of $100 per barrel throughout this year, the negative effects on the world economy could be as serious as those caused by the first oil crisis in 1973 or the global economic crisis that broke out in 2008.

Pricier oil is already beginning to affect prices in Japan.

Airlines have decided to raise fuel surcharges for tickets issued in April. The average retail price of regular gasoline is now approaching 140 yen ($1.6) per liter. Electricity charges and other energy bills are also expected to rise in the coming months.

Japan imports some 10 trillion yen worth of oil annually. A 10-percent rise in oil prices will wipe out 1 trillion yen of Japan's national wealth. That would depress the nation's economic growth rate by 0.1 percentage point.

This is a crucial time for Japan's economic recovery. Steep rises in fuel costs would require emergency policy measures. The government should keep close watch on prices.

Three years ago, however, gasoline prices rose more sharply in Japan, surpassing 180 yen per liter. The current climb is less steeper mainly because of the yen's strength vis-a-vis the dollar. The greenback is now worth around 82 yen, compared with the 110-yen levels three years ago.

The yen's sharp appreciation has made the rise in yen-denominated import prices of oil much milder than the surge in the dollar prices.

Japan has an inveterate phobia for a strong yen that is widely believed to deliver a serious blow to Japanese export industries. But a higher yen also has the benefit of curbing rises in the prices of imported raw materials. The positive effects of the yen's strength on the economy should also be recognized.

The factors behind the soaring crude oil prices include growing demand for energy in emerging countries due to their robust economic growth. If oil prices are on a long-term upward trend, it is necessary to step up the important, if low-profile, policy efforts to reduce energy consumption and boost the supplies of natural gas, nuclear power and renewable energy sources for greater energy diversity.

In the short term, the hope for oil price stability lies in Saudi Arabia, the world's largest oil-producing country and the leader of the Organization of Petroleum Exporting Countries (OPEC). It is encouraging to hear Saudi Arabia saying it is ready to pump up oil production to compensate for the decline in global oil supply due to production disruptions in countries gripped by turmoil, like Libya.

The wave of democratization could spread to Saudi Arabia as well. But progress toward democracy in major oil-producing countries could make crude oil trading fairer, more transparent and stable over the long term.

Japan, which depends on the Middle East for 90 percent of its oil imports, should pay close attention to the developments in the region from this point of view.

As a member of the international community, Japan should not just keep watch on the movements toward democracy in the Middle East, but it should also try to figure out ways to provide cooperation to make sure that these movements will lead to political stability in the region and global economic stability.

--The Asahi Shimbun, March 3