Major Domestic and International Energy Policy Trends (April 8, 2026 Edition) — "Reaching the Limits of Physical Crude Oil Scarcity" and "Simultaneous Transformation of Japan's Institutional and Cost Structures"

Summary for Busy People

Today's energy situation must be interpreted through two axes: "reaching the limits of physical crude oil scarcity" and the "simultaneous transformation of Japan's institutional and cost structures."

Globally, Dated Brent, the benchmark for the physical crude oil market, hit a record high of $144.42 per barrel on April 7, the highest since calculations began in 1987 [1]. The divergence from Brent futures (approximately $109–$113) has reached over $30, signifying that the scramble for "crude oil available for immediate delivery" has reached its limit. Ahead of the final deadline for Iran set by President Trump for 8:00 PM (EDT) on April 7, the U.S. military attacked military targets on Kharg Island [2], and Israel destroyed eight bridges within Iran [3]. Ceasefire negotiations are effectively deadlocked over Iran's 10-point counter-proposal, and the risk of expanded attacks on civilian infrastructure is amplifying market fear.

Domestically, government subsidies for electricity and gas bills ended on April 1, marking a new phase where fuel price hikes caused by the Hormuz crisis are being passed directly to households [4]. Household electricity bills are expected to rise by approximately 15,000 yen per month [5], and may increase further through the summer via the fuel cost adjustment system. Additionally, the mandatory phase of the GX-ETS (Emissions Trading System) began on April 1 [6], and institutional changes that fundamentally alter the cost and revenue structures of energy businesses, such as the reduction of the price cap in the supply-demand adjustment market (to approximately 7.21 yen/ΔkW), are also being implemented from fiscal year 2026 [7].

Major Policy Trends and News

Dated Brent Hits Record High of $144 — The Reality of "Supply Depletion" in the Physical Crude Oil Market

On April 7, Dated Brent, the global benchmark for physical crude oil trading, reached $144.42 per barrel, breaking the record since S&P Global Platts began publishing the index in 1987 [1]. Brent futures on the same day hovered around $109–$113, with the price gap between futures and physical (backwardation) at an abnormal level of over $30 [8]. This divergence clearly reflects the reality that refineries and power companies are paying premiums to secure "barrels available for immediate delivery."

The background is physical supply constraints due to the de facto blockade of the Strait of Hormuz. The IEA estimates that production stoppages in Iraq, Saudi Arabia, Kuwait, the UAE, Qatar, and Bahrain will expand from 7.5 million barrels per day in March to 9.1 million barrels per day in April [9]. While the largest-ever coordinated release of 400 million barrels agreed upon by the 32 IEA member countries is underway [10], even including the U.S. Department of Energy's additional 10-million-barrel emergency exchange tender, it has not been enough to fully bridge the supply-demand gap [11]. There is a growing view that if current price levels persist, the blow to the global economy will be comparable to the eve of the 2008 financial crisis. It is a phase where fortunes are diverging by stakeholder: soaring procurement costs for energy-intensive industries, and arbitrage opportunities capturing physical premiums for financial investors.

Japan's "Triple Shock" — The Simultaneous Arrival of Subsidy Termination, the Hormuz Crisis, and Record Crude Oil Prices

As of April 1, the government's electricity and gas bill subsidy program has ended [4]. This has shifted the structure to one where LNG and crude oil prices, which remain high due to the Hormuz crisis, are passed directly to electricity and gas bills without a buffer. According to analysis by the IEEFA (Institute for Energy Economics and Financial Analysis), household electricity bills are expected to rise by approximately 15,000 yen (about $95) per month [5].

Japan relies on the Middle East for 93.5% of its crude oil imports, 73.7% of which pass through the Strait of Hormuz [12]. While direct reliance on Hormuz for LNG is only about 6.3%, about 20% of the world's total LNG supply passes through Hormuz, so the impact on spot prices spreads to all imports [13]. The fuel cost adjustment system is a mechanism that reflects fluctuations in fuel prices in electricity bills about three months later; the sharp rise in March will be reflected in June bills, and April's in July [14]. In other words, there is a possibility of the "worst timing" occurring, where bills are at their highest during the peak summer electricity demand period.

The government began releasing approximately 80 million barrels of oil reserves (about 45 days' worth) from both the public and private sectors on March 16 [15], and has also decided to inject an additional 800.7 billion yen in reserve funds into gasoline subsidies [16]. However, if the Hormuz blockade is prolonged, there are estimates that it could push down GDP by up to 3% [5], and we are entering a stage where the sustainability of fiscal spending itself is being questioned. While major power companies can pass on costs through the fuel adjustment system, for new power providers (PPS), the risk of soaring JEPX spot prices hitting their management is high, and there are concerns that the same competitive pressure seen during the power market surge in the winter of 2021 will return.

GX-ETS Mandate and Reduction of Price Caps in the Supply-Demand Adjustment Market — The Revenue Structure of the Battery Business is Changing from the Ground Up

On April 1, with the enforcement of the revised GX Promotion Act, the Japanese version of the Emissions Trading System (GX-ETS) shifted from voluntary participation (Phase 1) to mandatory (Phase 2) [6]. It applies to businesses with direct annual CO2 emissions of 100,000 tons or more (approximately 300–400 companies, covering about 60% of Japan's greenhouse gas emissions) [17]. Fiscal year 2026 is a "warm-up period" for calculation and reporting, with the allocation of emission allowances and full-scale trading scheduled to begin from fiscal year 2027, but a price cap of approximately 4,300 yen/t-CO2 and a price floor of approximately 1,700 yen/t-CO2 have been set [18].

The term "warm-up period," while meaning "leaving leeway in institutional design" in administrative terms, effectively means that if target companies do not build a system to accurately grasp emissions within this year, they risk being placed in a disadvantageous position in the fiscal year 2027 emission allowance allocation. For energy-intensive industries, this will be a "double-pain" year, with the added compliance burden of emissions management on top of increased operating costs due to the Hormuz crisis.

At the same time, the most significant impact for grid-scale battery (BESS) operators is the reduction of the bidding price cap in the supply-demand adjustment market. The Agency for Natural Resources and Energy has indicated a policy to reduce the price cap for primary adjustment power and secondary adjustment power ① from the current 19.51 yen/ΔkW per 30 minutes to approximately 7.21 yen/ΔkW per 30 minutes [7]. Furthermore, market procurement volume will be capped at "up to 1σ equivalent," the trading method will change from weekly to day-ahead, and time blocks will be subdivided from 3 hours to 30 minutes [19].

This institutional change fundamentally overturns the conventional optimistic business model of "recovering investment in a few years after subsidies using the high price cap of the supply-demand adjustment market." Batteries are expected to account for about half of the bid volume in the fiscal year 2026 primary adjustment power tender [19], and it is certain that price competition among battery operators will intensify under the significantly lowered price cap. Operators are being forced to shift to a "multi-market strategy" that combines JEPX arbitrage, the capacity market, and long-term decarbonized power source auctions. Ironically, the surge in JEPX prices due to the Hormuz crisis has temporarily expanded arbitrage profit opportunities, but it must be said that business plans dependent on this are high-risk.

Summary

In the short term, as indicated by the arrival of President Trump's final deadline and the record high of Dated Brent, the Hormuz crisis remains in the midst of a "spiral of tension with no exit." Without progress in ceasefire negotiations, Brent futures may also be dragged by physical prices toward over $120, making an impact on Japan's summer electricity bills inevitable.

In the medium to long term, the mandatory GX-ETS and the reduction in prices in the supply-demand adjustment market are forcing Japanese energy businesses to "simultaneously adapt to decarbonization and market liberalization." BESS operators, in particular, are in a situation where a shift from a single-market-dependent business model is urgent. Points to watch in the future include the reality of military actions after President Trump's deadline, the deadline for private release of oil reserves scheduled for mid-April (April 15), and the progress of the calculation system construction by GX-ETS target companies.

References

[1] Dated Brent Oil Price Jumps to Highest Level on Record - Bloomberg
[2] U.S. military launches strikes on Iran's Kharg Island - NPR
[3] US–Israel war on Iran, day 39: Key highway in Iran closed as Trump's deadline nears - Gulf News
[4] The next price hike starting with the Hormuz Strait shock: How high will electricity, logistics, and prices go? - Global SCM
[5] Japan's diversified LNG procurement strategy cannot fully shield it from global price spikes - IEEFA
[6] [Enforced April 2026] What is the revised GX Promotion Act? Corporate obligations and the list of impacts and countermeasures for emissions trading - GX DiG
[7] [Emergency Explanation] In FY2026, the price cap for the supply-demand adjustment market will be halved!? Serious impact on the grid-scale battery business and countermeasures - Jonetsu Denryoku
[8] Current price of oil as of April 7, 2026 - Fortune
[9] Oil supply crunch will worsen in April, IEA warns as it weighs releasing more strategic reserves - CNBC
[10] IEA agrees to release record 400 million barrels of oil to address Iran war supply disruption - CNBC
[11] Energy Department Initiates Additional Strategic Petroleum Reserve Emergency Exchange - U.S. DOE
[12] The day the "worst-case scenario" became reality — The true impact of the Hormuz Strait blockade and soaring crude oil prices on the Japanese economy - FP Media
[13] Japan's diversified LNG procurement strategy cannot fully shield it from global price spikes - IEEFA
[14] Thorough forecast of electricity, gas, and gasoline prices from April 2026 onwards - Enegaeru
[15] Government begins release of oil reserves, largest scale ever, due to Hormuz blockade - Jiji Press
[16] Preparing for a prolonged Hormuz blockade: National reserve release, reserve funds for gasoline subsidies - Jiji Press
[17] Emissions trading system becomes mandatory | FY2026 is a warm-up period for calculation and reporting - FP Trendy
[18] GX-ETS starting April 1, 2026: Trading standards for large companies subject to the system and available credits - Shin-Denryoku Net
[19] About the supply-demand adjustment market (January 23, 2026, Agency for Natural Resources and Energy, Document 4) - Ministry of Economy, Trade and Industry