TOKYO — Japan’s three biggest banks are teaming up with major U.S. and European lenders to loan $1 billion to help Kuwait increase oil output, seeking to calm energy markets roiled by Russia’s invasion of Ukraine.
Mizuho Bank, Sumitomo Mitsui Banking Corp. and MUFG Bank are making the loan to Kuwait Petroleum Corp., along with HSBC and JPMorgan Chase. Mizuho is expected to be the lead underwriter.
Japanese Trade Minister Koichi Hagiuda will meet with Kuwaiti Oil Minister Mohammed al-Fares as early as the coming week to sign off on the deal.
Disruptions caused by the war in Ukraine and sanctions on Russia have dominated oil markets for the past few weeks, sending prices up and setting off a frantic scramble by governments to look for energy supplies from other regions.
The loan comes after Kuwait asked Japan for support in lifting its oil production capacity. Japan’s government is backing up the deal with trade insurance. By insulating private companies from investment risks, the government seeks to help shore up oil supplies from the Middle East.
The ban on Russian oil imports by the U.S. and Europe have accelerated energy price increases. West Texas Intermediate futures have risen to above $110 per barrel from $90 on the New York Mercantile Exchange since the invasion of Ukraine.
Japan has joined the U.S. and Europe in urging oil-producing nations, particularly those in the Middle East, to step up production. But only a handful, including Kuwait, have room for capacity expansion.
The latest deal could spur similar efforts to encourage production increases with direct financial assistance.
Kuwait accounted for 8.4% of Japan’s energy imports in 2021, according to the Agency for Natural Resources and Energy, making the country a key oil supplier after Saudi Arabia and the United Arab Emirates.
Japan had been trying to expand procurement from Russia to reduce its reliance on the Middle East. But the war in Ukraine has upended that plan, with the Group of Seven leading industrial nations pledging to reduce energy dependence on Moscow in a statement released on March 11.
Finding alternative crude sources has become imperative for Japan and other countries.