Oil Surge May Force 40% of Japan’s Firms to Cut Core Business Within Six Months

Difficulties in Procuring Raw Materials

Following US and Israeli attacks against Iran, the Strait of Hormuz, which is a critical chokepoint for the transportation of crude oil, has been effectively closed. The outlook remains uncertain, despite some efforts to seek an end to the conflict, so there are still concerns about rising oil prices and supply disruptions.

Teikoku Databank conducted a survey of companies across Japan from April 3 to 7, receiving 1,686 valid responses. When asked how long the current surge in crude oil prices could continue before it might force them to scale down their core businesses, the largest share of respondents, at 26.7%, answered “3 months or more but less than 6 months.” Additionally, 17.2% said “less than 3 months.” This means that, in total, 43.9% of companies could be forced to scale back their main operations within six months. Meanwhile, 18.3% of the companies surveyed would be able to “persevere for more than one year.”

By industry, the retail sector (including gasoline stations and automobile dealers) was the most affected, with 54.5% of respondents indicating the possible need to scale down their core businesses within six months. The manufacturing sector was also heavily impacted, with the largest share (22.8%) saying they would scale down operations within the very short period of “less than 3 months.”

The survey question focused on the impact of rising crude oil prices on business operations, but difficulties in procuring raw materials have also become a serious issue. Comments from respondents included the following from a manufacturer in the pulp, paper, and paper-products industry: “We will have to cease our manufacturing if we cannot obtain petroleum-derived raw materials like polyethylene, plastic film, and solvents. The risk of our clients going bankrupt is also increasing.”

Some manufacturers have faced difficulties in procuring raw materials for system bathrooms, suggesting that the impact on production may spread across the industrial sector.

Data Sources

• Data on the impact of rising oil prices and supply concerns (Japanese) from Teikoku Databank

(Translated from Japanese. Banner photo © Pixta.)