Over the past week, everything seemed to converge on energy. The unrest in the Persian Gulf raised the specter of the disruption of oil supplies to the rest of the world,
and an earthquake in Japan knocked out a string of nuclear reactors
with potentially devastating effect. Japan depends on nuclear energy and
it depends on the Persian Gulf,
which is where it gets most of its oil. It was, therefore, a profoundly
bad week for Japan, not only because of the extensive damage and human
suffering but also because Japan was being shown that it can’t readily
escape the realities of geography.

Japan is the world’s third-largest economy, a bit behind China now.
It is also the third-largest industrial economy, behind only the United
States and China. Japan’s problem is that its enormous industrial plant
is built in a country almost totally devoid of mineral resources.
It must import virtually all of the metals and energy that it uses to
manufacture industrial products. It maintains stockpiles, but should
those stockpiles be depleted and no new imports arrive, Japan stops
being an industrial power.

The Geography of Oil

There are multiple sources for many of the metals Japan imports, so
that if supplies stop flowing from one place it can get them from other
places. The geography of oil is more limited. In order to access the
amount of oil Japan needs, the only place to get it is the Persian Gulf.
There are other places to get some of what Japan needs, but it cannot
do without the Persian Gulf for its oil.

This past week, we saw that this was a potentially vulnerable source. The unrest that swept the western littoral of the Arabian Peninsula and the ongoing tension between the Saudis and Iranians, as well as the
tension between Iran and the United States, raised the possibility of
disruptions. The geography of the Persian Gulf is extraordinary. It is a
narrow body of water opening into a narrow channel through the Strait
of Hormuz. Any diminution of the flow from any source in the region, let
alone the complete closure of the Strait of Hormuz, would have profound implications for the global economy.

For Japan it could mean more than higher prices. It could mean being
unable to secure the amount of oil needed at any price. The movement of
tankers, the limits on port facilities and long-term contracts that
commit oil to other places could make it impossible for Japan to
physically secure the oil it needs to run its industrial plant. On an
extended basis, this would draw down reserves and constrain Japan’s
economy dramatically. And, obviously, when the world’s third-largest
industrial plant drastically slows, the impact on the global supply
chain is both dramatic and complex.

In 1973, the Arab countries imposed an oil embargo on the world.
Japan, entirely dependent on imported oil, was hit not only by high
prices but also by the fact that it could not obtain enough fuel to keep
going. While the embargo lasted only five months, the oil shock, as the
Japanese called it, threatened Japan’s industrial capability and
shocked it into remembering its vulnerability. Japan relied on the
United States to guarantee its oil supplies. The realization that the
United States couldn’t guarantee those supplies created a political
crisis parallel to the economic one. It is one reason the Japanese are
hypersensitive to events in the Persian Gulf and to the security of the
supply lines running out of the region.

Regardless of other supplies, Japan will always import nearly 100
percent of its oil from other countries. If it cuts its consumption by
90 percent, it still imports nearly 100 percent of its oil. And to the
extent that the Japanese economy requires oil — which it does — it is
highly vulnerable to events in the Persian Gulf.

It is to mitigate the risk of oil dependency — which cannot be
eliminated altogether by any means — that Japan employs two alternative
fuels: It is the world’s largest importer of seaborne coal, and it has
become the third-largest producer of electricity from nuclear reactors,
ranking after the United States and France in total amount produced.
One-third of its electricity production comes from nuclear power plants.
Nuclear power was critical to both Japan’s industrial and national
security strategy. It did not make Japan self-sufficient, since it
needed to import coal and nuclear fuel, but access to these resources
made it dependent on countries like Australia, which does not have choke
points like Hormuz.

It is in this context that we need to understand the Japanese prime
minister’s statement that Japan was facing its worst crisis since World
War II. First, the earthquake and the resulting damage to several of Japan’s nuclear reactors created a long-term regional energy shortage in Japan that, along with
the other damage caused by the earthquake, would certainly affect the
economy. But the events in the Persian Gulf also raised the 1973
nightmare scenario for the Japanese. Depending how events evolved, the
Japanese pipeline from the Persian Gulf could be threatened in a way
that it had not been since 1973. Combined with the failure of several
nuclear reactors, the Japanese economy is at risk.

The comparison with World War II was apt since it also began, in a
way, with an energy crisis. The Japanese had invaded China, and after
the fall of the Netherlands (which controlled today’s Indonesia) and
France (which controlled Indochina), Japan was concerned about
agreements with France and the Netherlands continuing to be honored.
Indochina supplied Japan with tin and rubber, among other raw materials.
The Netherlands East Indies supplied oil. When the Japanese invaded
Indochina, the United States both cut off oil shipments from the United
States and started buying up oil from the Netherlands East Indies to
keep Japan from getting it. The Japanese were faced with the collapse of
their economy or war with the United States. They chose Pearl Harbor.

Today’s situation is in no way comparable to what happened in 1941
except for the core geopolitical reality. Japan is dependent on imports
of raw materials and particularly oil. Anything that interferes with the
flow of oil creates a crisis in Japan. Anything that risks a cutoff
makes Japan uneasy. Add an earthquake destroying part of its
energy-producing plant and you force Japan into a profound internal
crisis. However, it is essential to understand what energy has meant to
Japan historically — miscalculation about it led to national disaster
and access to it remains Japan’s psychological as well as physical
pivot.

Japan’s Nuclear Safety Net

Japan is still struggling with the consequences of its economic
meltdown in the early 1990s. Rapid growth with low rates of return on
capital created a massive financial crisis. Rather than allow a
recession to force a wave of bankruptcies and unemployment, the Japanese
sought to maintain their tradition of lifetime employment. To do that
Japan had to keep interest rates extremely low and accept little or no
economic growth. It achieved its goal, relatively low unemployment, but
at the cost of a large debt burden and a long-term sluggish economy.

The Japanese were beginning to struggle with the question of what
would come after a generation of economic stagnation and full
employment. They had clearly not yet defined a path, although there was
some recognition that a generation’s economic reality could not sustain
itself. The changes that Japan would face were going to be wrenching,
and even under the best of circumstances, they would be politically
difficult to manage. Suddenly, Japan is not facing the best of
circumstances.

It is not yet clear how devastating the nuclear-reactor damage will
prove to be, but the situation appears to be worsening. What is clear is
that the potential crisis in the Persian Gulf, the loss of nuclear
reactors and the rising radiation levels will undermine the confidence
of the Japanese. Beyond the human toll, these reactors were Japan’s
hedge against an unpredictable world. They gave it control of a
substantial amount of its energy production. Even if the Japanese still
had to import coal and oil, there at least a part of their energy
structure was largely under their own control and secure. Japan’s
nuclear power sector seemed invulnerable, which no other part of its
energy infrastructure was. For Japan, a country that went to war with
the United States over energy in 1941 and was devastated as a result,
this was no small thing. Japan had a safety net.

The safety net was psychological as much as anything. The destruction
of a series of nuclear reactors not only creates energy shortages and
fear of radiation; it also drives home the profound and very real
vulnerability underlying all of Japan’s success. Japan does not control
the source of its oil, it does not control the sea lanes over which coal
and other minerals travel, and it cannot be certain that its nuclear
reactors will not suddenly be destroyed. To the extent that economics
and politics are psychological, this is a huge blow. Japan lives in
constant danger, both from nature and from geopolitics. What the
earthquake drove home was just how profound and how dangerous Japan’s
world is. It is difficult to imagine another industrial economy as
inherently insecure as Japan’s.
The earthquake will impose many economic constraints on Japan that will
significantly complicate its emergence from its post-boom economy, but
one important question is the impact on the political system. Since
World War II, Japan has coped with its vulnerability by avoiding
international entanglements and relying on its relationship with the United States.
It sometimes wondered whether the United States, with its
sometimes-unpredictable military operations, was more of a danger than a
guarantor, but its policy remained intact.

It is not the loss of the reactors that will shake Japan the most but
the loss of the certainty that the reactors were their path to some
degree of safety, along with the added burden on the economy. The
question is how the political system will respond. In dealing with the
Persian Gulf, will Japan continue to follow the American lead or will it
decide to take a greater degree of control and follow its own path? The
likelihood is that a shaken self-confidence will make Japan more
cautious and even more vulnerable. But it is interesting to look at
Japanese history and realize that sometimes, and not always predictably,
Japan takes insecurity as a goad to self-assertion.

This was no ordinary earthquake in magnitude or in the potential
impact on Japan’s view of the world. The earthquake shook a lot of
pieces loose, not the least of which were in the Japanese psyche. Japan
has tried to convince itself that it had provided a measure of security
with nuclear plants and an alliance with the United States. Given the
earthquake and situation in the Persian Gulf, recalculation is in order.
But Japan is a country that has avoided recalculation for a long time.
The question now is whether the extraordinary vulnerability exposed by
the quake will be powerful enough to shake Japan into recalculating its
long-standing political system.

George Friedman is chief executive officer of Stratfor, the world’s
leading online publisher of geopolitical intelligence.Japan, the Persian Gulf and Energy is republished with permission of STRATFOR. George Friedman is