Japan the sushi in sandwich between US and Iran Options

[BigBenChow]

Japan the sushi in sandwich between the US and Tehran


February 08, 2006
JAPAN is in a bad jam over Iran and if, as now seems likely, the international campaign against Tehran's nuclear program progresses to economic sanctions, the Japanese will find themselves uniquely under pressure from both sides.

The hinge of their problem is southern Azadegan, a massive oil project in western Khuzestan province in which Japan's semi-government petroleum company Inpex Corp is investing $US2 billion ($2.7 billion) for access to a potential 260,000 barrels per day (bpd).

The Americans want their ally out of Azadegan while the Japanese fear China - their bitter rival in the global search for secure energy supplies - will pounce on any opportunity they let go.

Azadegan is the biggest untapped oilfield in the Gulf region, containing an estimated 26 billion barrels, though only 7 billion barrels is thought to be commercially recoverable.

Two years ago, against strong American urging, Inpex agreed to develop the southern section of the Azadegan field, with 75 per cent equity. The northern contract is yet to be let, though Tehran is said to favour China's state oil company Sinopec.

Japan imports about 4.2 million barrels of oil daily, of which Japanese companies control only 450,000 bpd. Azadegan and other possible large-scale investment in Iran offer significant relief for Japan's acute external energy dependency.

Whatever its position in the vanguard of anti-nuclear proliferation efforts, Japan is loathe to drop Azadegan or, as a Foreign Ministry official put it, "punch Iran in the face".

More than 13 per cent of Japan's oil already comes from Iran, but supply isn't the pressing issue in the looming sanctions campaign. There's no panic among Japanese and other Asian refiners, according to Petroleum Intelligence Weekly, because heavy crude supplies are currently abundant. Plus, Iran is telling customers not to worry about oil being caught up in any sanctions campaign.

Oil investment, on the other hand, would be a sanctions target and Japan's particular problem is that any economic blockade would almost certainly be run, not by the UN, but by its Washington friends.

All five UN Security Council permanent members voted last week in the International Atomic Energy Agency to refer Iran to the UN. So did Japan.

But even if Tehran remains unbending, China and Russia will be unwilling to join any economic sanctions motion. So will India, which has recently secured a foothold in another big Iranian oil project, Yadavaran, and is a growing presence in the international jostling to secure energy supplies.

So the US is likely to come away from the Security Council with some kind of non-binding condemnatory motion that it will use to demand its allies and friends join a sanctions campaign against Iran.

For Japan, this is the worst of all likely scenarios. Harry Harding, research director at Eurasia Group, an international political risk consultancy, says it constitutes the most immediate risk of stress in the US-Japan alliance.

If everyone else were involved in an investment embargo, the Japanese might be quite happy. All foreign investors in Iranian oil struggle with Tehran's tough investment regime and might hope a blanket ban would force an easing of conditions in future.

But only Japan is directly vulnerable to US government-to-government pressure. The Japanese Government still controls Inpex which, though publicly listed, remains 36 per cent state-owned and its strategic decisions are subject to government veto.

Given the strong involvement of the "European Three" in the Iran nuclear crisis, the EU might also join sanctions but the big western European oil companies have been much less keen on Iran in recent years than the Asians.

Inpex has tried to spread its risk by offering Total a share of Azadegan but the French show little enthusiasm. Royal Dutch Shell rejected an advance from the Japanese and walked away from the major Bangestan development over the difficult investment conditions. The oil majors also say western Iran's oil geology presents expensive technical difficulties.

Japan is desperately trying to head-off a sanctions campaign, and of course a proliferation crisis, by persuading Iran to retreat. This week, Foreign Minister Taro Aso renewed an invitation to his Iranian counterpart, Manouchehr Mottaki, to start fresh negotiations in Tokyo.

Michael Green, the White House's top Japan policy adviser before he left the National Security Council recently, says the Security Council reference puts Japan under "enormous pressure".

Green is also hopeful China's support for the Security Council move means that though Beijing won't join a sanctions campaign against Iran, it will restrict its petroleum companies' investments while one is in operation.

"That's why I think it's significant that China at the highest levels has supported this move to the Security Council, because it opens up prospects for co-operation behind the scenes on who invests and how much," Green said this week.

"Which, frankly (the US) tried to do with mixed success two years ago - I think it will be a lot easier now."

Japan better hope so.

[Hawaii]

Aww didn't know that by just reading the news, wonder what Japan's official stand on this issue is?

[W&N]

I just read the news yesterday. Unfortunitily, China faces the same problem too. They just signed a contract with Iranian with a 30 years or 10 years something project which worth a couple billion dollars.
I wish US will never invade Iran.

[yajthaugluv]

Looks like we will soon have to fight for oil.:P