IEEJ： August ©IEEJ 2024
Special Bulletin
A Japanese Perspective on the International Energy Landscape (704)August 28, 2024

Reconsidering Importance of Oil Issue in International Energy Situation
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, Japan
Almost a quarter century after the end of the 20th century, known as the “century of oil,” theworld today is moving toward a new energy transition. In the international energy market, oil's shareof total primary energy consumption peaked at 49% in 1973 and has continued its long-term
downtrend, falling to 32% in 2023. From the perspective of the overall international energy situation,
it can be said that the importance or presence of oil has shown a gradual but steady relative decline.
In important news related to the international energy situation, however, the oil issue hasremained the center of attention as an issue that exerts great impacts on the world economy,international politics, the geopolitical situation, national security, international order, and the balanceof power. While a variety of energy-related information and news dominate newspaper headlines today,
the oil issue seems to be the largest focus of global attention.
For example, a global stock market crash that occurred in early August was accompanied bya steep crude oil price fall. The crude oil price plunge amid the global stock market crash and a capitalflight from risk assets was the top economic news. On the other hand, the risk of a surge in crude oil
prices through the Gaza crisis that occurred in October last year and the subsequent instability of thesituation in the Middle East has become a matter of serious concern worldwide. Recently, the news of
the loss of oil supply from Libya due to the destabilization of the Libyan situation has pushed up crude
oil prices and attracted attention from market participants.
When the international energy situation was severely shaken by Russia's invasion of Ukraine,
the oil issue and crude oil price spikes attracted the greatest attention in regard to the world economy,
international politics, geopolitics, and security. From a technical point of view of the energy market,
the gas crisis in Europe, which depended heavily on Russian gas, should be seen as the most importantand serious regarding the impact of the Ukraine crisis. In reality, however, Western economic sanctions
on Russian oil, subsequent oil supply instability and oil price spikes, and Russia's discount oil sales toChina and India amid the sanctions were most significantly and frequently covered by various media
to report on the international energy situation. In the context of the Ukraine crisis, the oil issue has
become the center of the world's attention as a serious issue that decisively affects the internationalenergy situation.
From the perspective of consumers and national governments, the crude oil price spikes
amid the Ukraine crisis caused gasoline price hikes, which led to political responses such as gasoline
subsidies for low-income groups even in developed countries. The U.S. government, while refraining
from providing federal gasoline subsidies, had no choice but to take strong measures such as therelease of strategic oil reserves and the request for Saudi Arabia and other oil-producing countries toincrease oil production in order to deal with the political issue of soaring gasoline prices. Theinternational energy situation in the past few years thus leads us to reaffirm the oil market issue as an1

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important factor that moves the world significantly.
Why is the oil issue so important as a global issue? In the following, I would like to consider
the question from various angles in order to derive the answer.
First, we must pay attention to the fact that oil is still the largest source of energy, albeit in
decline in the share in total primary energy, while energy is an indispensable commodity for civic life,
economic and industrial activities, and sometimes for the operation of the state. Although oil’s shareof energy consumption has been gradually decreasing over the past half century, oil consumption has
basically continued to expand in the world as a whole. The use of oil as an important energy source
has been expanding. The stable supply of oil as the energy source that has the largest share of totalenergy consumption at present is undoubtedly the most important challenge in the world. Although its
share of primary energy consumption is expected to continue to decline, oil is likely to remain thelargest energy source for quite some time to come. While the peak oil demand concept has recently
become an attention-attracting topic, I personally feel that the peak oil demand is unlikely to comerelatively early and that even if the peak comes, a later oil demand decline will be moderate (a rapiddecline is unlikely).
Second, an even more important fact is that the importance of oil as an internationally tradedenergy commodity is dominantly high. It is a global reality that countries that supply energy resourceson the strength of high competitiveness in terms of production costs and abundant resources and thosethat consume massive energy are geographically far apart. From the viewpoint of international trade
between remote sources of energy supply and consumption, it is fair to say that no other energy sourcewith such advantages for oil has so far been found. The most important fact in this regard is that oil isa liquid. Compared to coal and natural gas, oil has demonstrated overwhelming advantages regarding
cost competitiveness and ease of handling for transportation. Against the backdrop of these strengths,
the more the importance of oil as an internationally traded energy commodity occupies anoverwhelming position, the greater the impact of the oil issue on the international energy situation
becomes.
Price fluctuations for oil, which occupies the position of the most important energy source
as an internationally traded energy commodity, have become an important factor that exerts a decisive
influence on the global economy. Such fluctuations have also affected the balance of power between
oil-producing and -consuming countries. Serious oil supply insecurity has undermined the solidarity
and cooperation between allies and between oil-consuming countries, causing the international order
to be shaken. Because the oil market functions as a big global market, oil price fluctuations cause
similar problems for countries that import oil and those that are self-sufficient for oil. In the UnitedStates, which has finally regained its status as a net oil exporter thanks to the shale revolution, forinstance, crude oil price hikes in the international market induce domestic gasoline price hikes that
immediately develop into a domestic political issue.
Third, the oil issue has become a central international issue very frequently in the history
and reality of the international oil market. This means that the destabilization of the oil market and its
enormous impacts on the world are taken for granted in reality. As there are many powerful players in
the international oil market, upheaval has always occurred depending on their relationships, bargaining,and geopolitical developments. Given the reality that the international situation regarding the UnitedStates, Russia, China, the Middle East, Europe, and India is becoming more complex in a manner tofurther divide the world, it should be assumed that various turbulent and disruptive factors willcontinue to exist in the international oil situation and trigger great fluctuations in crude oil prices and2

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serious oil supply insecurity for the entire world.
The process of the world's energy transition toward decarbonization may be bumpier andlonger than imagined. In the meantime, oil and other fossil fuels will continue to play a major role,leading their stable supply to remain an extremely important challenge for the world.
Contact: report@tky.ieej.or.jp
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