• Tue
  • Dec 23, 2014
  • Updated: 8:48am

Nuclear qualms no bar to Japanese oil deal with Iran

PUBLISHED : Saturday, 09 September, 2006, 12:00am
UPDATED : Saturday, 09 September, 2006, 12:00am

Japan's courtship of Iran over oil has long been seen as a dangerous, if alluring, liaison. Now, as the affair intensifies, it is looking particularly intriguing.


Iranian officials have announced that a final deal with a Japanese firm over its biggest oil find in four decades could be struck within two weeks.


Talks over the Azadegan field have stuttered over the last two years despite the signing of joint-development rights, complicated by work to remove thousands of land-mines that litter the site dating back to the Iran-Iraq war.


Negotiations have intensified in recent months - just as concern from the US hardens over an increasingly bellicose Iran and its nuclear ambitions.


Japan, of course, is a close US ally as well as a long-time importer of Iranian crude. It would usually be expected to fall in line and back any US-led move to impose sanctions on Iran through the United Nations.


Yet talks over Azadegan continue. In terms of oil alone, it is not hard to understand the interest of Japan, the world's second-largest oil importing nation. It has traditionally imported about 20 per cent of its oil from Iran, but the latest deal would increase that significantly.


Azadegan is thought to hold an estimated 7 billion barrels - one of the biggest fields in the Middle East. Japanese blueprints involve an investment of US$2.59 billion to exploit the reserves at a rate of 260,000 barrels a day at full production. At least two-thirds will be imported by Japan.


Diplomatic sources say the extent of Washington's concerns over any Japanese deal has been kept firmly out of the public domain, given the nature of the US-Japanese alliance.


'Washington has made clear that it is not happy but neither side wants any kind of friction in public over this,' one diplomatic source said. 'It is not like other aspects of the relationship that are constantly being turned over and debated openly. When dealing with a state like Iran, it is important for the alliance to look strong. So far it seems to be holding.'


Informed US scholars and former Bush administration officials such as Georgetown University's Harry Harding and former deputy secretary of State Richard Armitage have warned about the deal's potential for deepening tension, however.


Even without UN economic sanctions, the US has the Iran-Libya Sanctions Act on its books, a document dating back to 1996 which threatens retaliation against foreign firms investing in Iran's oil business. It is unlikely to be deployed against such a strong ally, however.


The situation could be complicated by the fact that the Japanese company at the centre of the talks, Inpex Holdings, is only partially privatised. The government holds the so-called 'golden share'.


So how will the Japanese government handle a political and diplomatic dilemma?


A senior Japanese Foreign Ministry official insisted that nuclear concerns would ultimately rise above all else, even oil.


'The nuclear issue has to be the first, second and third priority for us ... and Iran knows that,' the official said.


'We have been urging Iran to come clean about its nuclear ambitions, to follow international inspection regimes. We have urged Iran to try to stop the rhetoric and to try to win hearts and minds. We have told them that if they say they are entitled to a nuclear programme, then they have to go out and win international votes,' the official.


'We have been doing this consistently and this has been articulated at the highest level ... it is an entirely different matter to the oil relationship.'


But the official added that Inpex was operating within its commercial rights and the government had no plans to intervene by exercising its 'golden share' powers.


'In terms of any concerns from the US side ... there has been no explicit signal coming from the US,' he said.


The Iranians seem to be covering all bases in ways that could only deepen the strategic questions over the deal. As they seek to impose another deadline for Japan to move, Iranian oil officials have reportedly made overtures to China and Russia about exploiting the field.


French oil giant Total is also now in talks with Iran over exercising its own 15 per cent rights to the Azadegan.


Japan has so far managed to effectively ignore previous Iranian deadlines over the deal. With fresh UN discussions on sanctions also possibly just weeks away, the latest attempt at brinkmanship could be harder to ignore.


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