Japanese power futures surged after Middle East tensions drove traders to hedge against potential energy supply disruptions. The Tokyo-area baseload contract for fiscal 2026 on the European Energy Exchange jumped 11% to a record 13.58 yen per kilowatt-hour on Monday, marking one of the exchange's busiest trading days with 2.8 terawatt-hours exchanged.

Japan's heavy reliance on imported fossil fuels makes it vulnerable to Middle East conflicts, with liquefied natural gas generating much of the nation's electricity. The US-Israeli attacks on Iran and subsequent retaliation have raised concerns about LNG flows through the Strait of Hormuz, a critical chokepoint for global oil and gas shipments.

Analysts warn that a prolonged conflict could push Japanese power prices to levels not seen since the 2022 energy crisis triggered by Russia's invasion of Ukraine. BloombergNEF projects wholesale power prices could rise 24% to average 15.6 yen/kWh this year, with severe supply disruptions potentially driving prices another 25% higher to 19.6 yen/kWh.