TODAY.AZ / World news

Japan and Iran - sharing fates

27 February 2012 [15:33] - TODAY.AZ
Oil sanctions on Iran have already affected the world economy, and this process continues. One of Iran's biggest oil importers, Japan is facing a dilemma, at the same time trying to keep balance between the West and the Islamic Republic.

It may seem that Japan has become a victim of outside interests, going along with the sanctions imposed on Iran. Since Japan does not want to lose Iran completely, the country is trying to find a reasonable way out. Being one of Iran's major oil importers, Japan has things to worry about - according to Japanese ambassador in Tehran Kinichi Komano, the Japanese companies in the U.S. are in dangerous situation.

Komano told Iranian Mehr news agency that more than 30 Japanese firms have representative offices in Iran, adding that these companies are among large Japanese firms, which have representative offices around the world, and hence these companies have representative offices in the United States.

"These companies have more trade interactions with the United States than Iran, and therefore, these centers should take the interests of the entire country into consideration. These interests are in the United States. Therefore, the law, which has been newly ratified in the U.S., has made the situation difficult for the Japanese firms," he explained.

Japan admits that after country's most important nuclear power plant in Fukushima was damaged in the tragic tsunami disaster, the government had to look for other options to produce energy locally. Operations at other local nuclear plants have been suspended, and Japan has been facing electricity shortages ever since. All but two of Japan's 54 reactors are off-line and those will be shut for checks by late April.

Since a way out had to be found, Japan started using its fossil fuel power stations and coal power plans to somehow deal with oil and gas consumption. In the context of a disastrous situation within the country, Iran's oil imports can be assessed as a helping hand to Japan.

And while Japan believes Iran's nuclear program is peaceful, the sanctions continue to pressure the Islamic Republic. And Japan seems to be looking the other way for its own benefits. According to the recent news reports, Japan may cut Iranian crude oil imports by more than expected - if earlier it was 10 percent, now it has grown up to 20 percent, according to Reuters. Such a move would spare Japanese banks from a major blow, but would also boost its rising fuel import bill.

Under the pressure of the sanctions on Iran, Japan has been decreasing its purchase of Iran's oil. In 2011, Japan's crude imports from Iran fell by 11.7 percent to 313,000 barrels per day, considering that Japan is the third major importer of Iranian crude.

Being also one of the world's biggest oil importers, last year Japan bought almost 9 percent of its crude from Iran and its dependence on fuel imports has increased since the 2011 natural disaster. The country imported over 313,000 barrels of Iranian crude oil per day last year. Cutting down 20 percent off that amount would bring the oil imports to less than 250,000 in 2012, according to Reuters.

Japan claims it does have strategic reserves, and will be able to manage with less of Iranian oil in a short term. However, Japanese officials rightfully believe that pushing up oil prices would impact not only Japan but the U.S. as well.

Imports continue despite sanctions

While Japan seems to be dealing with the fact of cutting down as much as 20 percent of Iran's oil imports, it does not show any signs of cutting down all Iranian crude imports. Japan's Showa Shell Sekiyu KK, which runs the fifth biggest oil refinery in Iran, has announced that it will continue to import crude from Iran despite the Western sanctions against the Iranian oil sector, according to Press TV.

The company had already announced on Feb.14 that it would continue to import about 100,000 barrels per day of Iranian crude oil despite mounting pressure from the United States to cut the oil imports. Showa Shell Sekiyu KK President Jun Arai called Iran "an important source of crude for Japan", adding that the company will wait for the government's guidance on the matter.

The announcement came as the U.S. sanctions on Iran over its peaceful nuclear program aim to make it difficult for refiners around the world, including in Japan, to buy Iranian crude or pay Tehran for its oil. Since Iran is the fourth-biggest crude supplier to Japan, substantial money payments have to be made on a regular basis. In this particular case, big payments create even bigger problems.

Someone's loss is someone else's gain

On Dec.31, US President Barack Obama signed into law fresh economic sanctions against the Central Bank of Iran in a bid to punish foreign companies and banks that do business with the Iranian financial institution.

The U.S. had already barred its own banks from dealing with the Iranian Central Bank. Thus, the new U.S. sanctions were intended to dissuade other foreign banks from doing transactions with Iran's Central Bank by threatening to cut off their access to US financial institutions.

Under the new U.S. law, a country can be exempt from the embargoes if it significantly slashes its trade with Iran. According to the U.S. officials, many countries are in negotiation with Washington in an attempt to obtain the exemption. Tokyo has reportedly planned to reduce its oil imports from Iran an attempt to win an exemption from the US for Japanese banks.

Japan's trade and foreign ministers said this week that Tokyo was close to an agreement with Washington on Iranian oil imports, but gave no indication of the size of the cuts. The sides might be able to reach a formal agreement by the end of February.

The United States has said it will punish financial institutions that deal with Iran's Central Bank by shutting them out of the U.S. markets. A country can earn a waiver from the sanctions if it significantly reduces trade with Iran. A previously mentioned waiver would protect Japan's big banks - Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group, from being punished for handling payments to Iran.

Shifting suppliers, however, could force Japan to pay more for alternatives to Iranian crude as Iran's rising tension with the West has helped drive benchmark Brent crude prices to a nine-month high this week. In Thursday's trades, Brent crude for delivery in April was traded at over $123 after hitting a session peak of USD124.09 per barrel.

Global crude prices went up high after Iran warned that it may cut its oil exports to more EU member states. World's largest oil trader, Vitol, has warned that crude prices could spike above $150 per barrel if tensions with Iran escalate further.

On Dec.31, 2011, Washington imposed new sanctions on Iran to penalize other countries for importing the country's oil. The European Union also imposed similar sanctions on January 23 to ban Iran's oil imports by member states. The US, Israel and their European allies accuse Iran of diversion in its peaceful nuclear program and have used this as an excuse to pass four rounds of international sanctions against the country at the UN Security Council.

Refuting the claims, Tehran insists that as a member to the International Atomic Energy Agency and the Nuclear Non-Proliferation Treaty (NPT), it is fully entitled to peaceful applications of the nuclear energy. The new U.S. sanctions go into effect for non-petroleum transactions with the Iranian central bank on Feb.29 and for oil-related transactions on June 28.

Japan has the strategic resources as it claims, and has Iran as its fourth biggest oil supplier. While the situation is difficult for Japan, it is not as alarming as it could have been, if Iran was the major oil supplier.

By getting a waiver from the U.S., Japan will save its own banks from being punished, and have time to search for a substitute of Iran's oil if necessary. At this point, however, Japan does not seem to be willing to abandon Iran's oil exports completely.

S. Isayev /Trend/

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