Japan and Iran said to be near 2.5 billion oil deal

Reviewed by Hitoshi URABE

Article:
"Japan and Iran said to be near 2.5 billion oil deal"
(by Ichiro Suzuki and Julie Tay (Bloomberg)) International Herald Tribune
http://www.iht.com/ihtsearch.php?id=101125&owner=(Bloomberg%20News)&date=20030629174817

Related Article:
"Japan pressed over $2bn Iran oil deal"
Financial Times
http://search.ft.com/search/article.html?id=030628000861

Comments:

The captioned article explains about the proposed oil pact between Japan and Iran, and the related article above reports that the US is uncomfortable with the idea and telling Japan to back off.

Japan is a resource poor country. About 80% of it's energy source is imported, of which more than 60% is crude oil, which means that imported oil covers just about half of Japan's total energy needs. It might be interesting to note that the share of domestic energy has increased during the past 20 years, from 11% to 20%. But the increase has been totally nuclear power and it is currently experiencing trouble. On top of people's general sentiment against nuclear power plants, recently revealed cover-ups of minor accidents at a number of plants have forced them to be shut down, while nuclear waste is accumulating with no effective means to get rid of them in sight. In the short run, it is feared that Tokyo might experience blackouts this summer, and in the long run, nuclear power could be increased very little, if at all.

Accordingly, import of crude oil is vital for Japan's survival. This is in comparison with the US, where 25% of their energy source is foreign, but most of them are provided by allies such as Canada and the UK, and imports from the Middle East is very little as it is not a trade out of necessity but rather from political considerations.

As the article above indicates, Japan needs oil and Iran needs foreign capital, which seems to be a perfect match. Many European companies have signed agreements with Iran for their acquisition of rights over oil there. Japan used to have a right to pump crude oil from the offshore neutral zone between Kuwait and Saudi Arabia, but in 2000 the pact was revoked by Saudi Arabia because of Japan's refusal of Saudi's request to pay for building a railroad in an unrelated project.

The US, pursuing its own policy against Iran, would be in no trouble even if Iran, and other Arab nations, stop delivering crude oil. As indicated in the article also, American companies are banned from investing in Iran.

There is a possibility, therefore, that there are US industries backing their government to press Japan to cancel the deal with Iran. Japan does not want Iran to develop nuclear weapons, but needs to diversify its source of oil suppliers to improve energy security. It would be interesting to see how Japan's government handles the situation.