Japan's Iran dilemma

Posted in Japan | 09-Feb-06 | Author: Kamiguri Takashi and Abe Hidea| Source: Asia Times

Azadegan oilfield
Iran's publicly stated intention to advance its nuclear technology threatens a key element of Japan's energy strategy - development of the Azadegan oilfield.

Defying international opposition, Iran announced on January 10 that it had resumed uranium-enrichment operations. If Tehran does not alter its position, Japan could lose its rights to the field.

As the international community leans toward sanctions against Tehran via the United Nations Security Council, a senior official of the Ministry of Economy, Trade and Industry explains Japan's dilemma.

"We want to develop the field at any cost," the official said. "But opposing nuclear-weapons proliferation is the national policy of Japan as the world's only country to suffer atomic bombings. It's impossible for Azadegan alone to escape any impact" from the nuclear issue and possible sanctions.

Chief Cabinet Secretary Shinzo Abe said on January 13 that Japan supported a call to send the issue to the Security Council. While joining the US and Europe in calling on Iran to drop its nuclear program, resource-poor Japan cannot afford to lose the development rights.

With estimated reserves of 26 billion barrels, the Azadegan field is one of the largest in the Middle East. Japan's Inpex Corp, in which the government has a 36% stake, won 75% of development rights in February 2004.

An Iranian government official said at the time the agreement was announced that plans were for southern Azadegan to pump 150,000 barrels per day (bpd) by mid-2008 and reach 260,000 bpd by early 2012.

It was a much-needed enhancement of Japan's energy security after Arabian Oil Co, a Japanese company, lost its rights to Saudi Arabia's Khafji field in 2000. When in full operation, Azadegan is expected to produce 260,000 barrels a day, boosting Japan's imports of self-developed oil by 60%.

In fiscal 2004, Japan imported 4.17 million barrels of oil a day, of which only 450,000 barrels came from fields of its own development.

Iran's nuclear move came just as Inpex was preparing to begin full-scale development this spring after land mines from the Iran-Iraq War are removed. Inpex is also negotiating with France's Total SA on handing over part of its development rights to reduce risk, industry sources said.

Its integration with Teikoku Oil Co is intended to tap Teikoku's technical expertise to develop Azadegan, the sources said.

But those efforts could be nullified by Iran's nuclear ambitions. "The impact is extremely grave," said Toshihiro Nikai, minister of economy, trade and industry. "We will decide how to act in consultation with other countries."

Some officials of his ministry, however, are set to go ahead with the Azadegan project. Even if the Iranian issue were sent to the Security Council, it would not lead to a ban on Azadegan development or on imports of Iranian oil, the officials say.

The officials are concerned with China's aggressive push to strengthen ties with Iran, where it recently won rights to the Yadavaran oilfield. "Even if Japan gives up Azadegan, China will move in, resulting in no damage whatsoever to Iran," said a senior ministry official. "We should separate the nuclear issue from oil development."

Pessimism is growing, however, in the oil industry. "The United States and Europe take the Iranian move seriously," an industry source said. "As it stands, it will be difficult to start drilling."

The government is stepping up its diplomatic efforts to persuade Iran to drop the nuclear program. Foreign Minister Taro Aso phoned his Iranian counterpart, Manouchehr Mottaki, recently to press for cessation of nuclear activities.

Aso told Mottaki that criticism in the international society was far stronger than Iran thought. But the Iranian minister stuck to the country's stance, telling Aso the moves were intended only for research.

At a news conference, Aso did not hide his irritation over Iran's hardline position. "As it stands, the issue will surely be sent to the Security Council. Does Iran understand that?" he asked.

If the council moves to impose sanctions, its negative impact will be felt strongly by Japan. The damage will not be limited to Azadegan. If the sanctions involve an Iranian oil embargo, or if Iran, angered by the US and European criticism, halts its oil exports, it will hit Japan hard. Iran is the third-largest oil exporter to Japan, accounting for about 15.9%.

Aso said he would continue efforts to dissuade Iran from its nuclear development.

Since Washington has said it is seeking a diplomatic resolution, a senior Foreign Ministry official said it is unlikely that the council would immediately impose sanctions.

But even without sanctions, there are concerns Washington may call for Japan to stop development of the Azadegan field, the official added.

(Republished with permission from Japan Focus )