Japan to withdraw from Iran's Azadegan oil field project

Sept. 30, 2010
The government of Japan and Inpex Corp. plan to withdraw from Iran’s Azadegan oil field in an effort to avoid the possibility of violating US sanctions against the country, according to media reports.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Sept. 30 -- The government of Japan and Inpex Corp. plan to withdraw from Iran’s Azadegan oil field in an effort to avoid the possibility of violating US sanctions against the country, according to media reports.

“There are various risks, as we were asked by Iran to invest more in the project,” an anonymous government official told Japan’s Yomiuri Shimbun, which reported the story along with the Nikkei business daily.

If Inpex’s name appears on the list of companies subject to sanctions, it would restrict the firm’s access to the US market, and could also adversely affect other Japanese development programs in the Middle East and Africa.

The withdrawal of Inpex, which is expected to be officially announced this week, follows an earlier decision by Tokyo to impose new sanctions against Iran, including an assets freeze on people and entities linked to the country’s nuclear program and tighter restrictions on financial transactions.

Japan's Trade Minister Akihiro Ohata expressed the belief that Inpex was considering withdrawing from the project. “I have heard that it is considering that as a managerial policy," Ohata said.

A spokesman for Inpex said the firm has yet to reach a decision on the matter but that it is considering the situation carefully.

"After Japan imposed sanctions on Iran on Sept. 3, the government told us to deal with the project with great care,” said Inpex spokesman Kazuya Honda, adding that it is now “our policy to closely consult with the government over this project.”

Earlier this month, Iran’s Ambassador to Tokyo Seyed Abbas Araqchi downplayed the Tokyo’s decision to impose the UN Security Council sanctions, saying it would not affect economic relations between the two countries.

"Our general assessment shows that the status quo of economic interactions between Tehran and Tokyo will not change so much by the approval," Araqchi told Iran’s Farsi News Agency.

“For instance, Iran's crude sales to Japan and much of the two countries' common trade ties will continue in the future irrespective of the recent approval,” Araqchi said.

Imports unaffected
That view was underscored by Akihiko Tembo, chairman of the Petroleum Association of Japan, who also said earlier this month that Japan’s stricter sanctions wouldn't affect crude imports from Iran.

However, crude imports from Iran by Japanese refiners and trading companies fell sharply in August both on-month and on-year, despite a slight rise in their overall crude imports, according to data from the Ministry of Economy, Trade, and Industry.

METI data show that Japanese refiners and trading companies imported 289,000 b/d of oil from Iran in August, down 37% on-month and down 31% on-year.

The decline in imports from Iran contrasted with overall crude imports, which rose 0.2% on-month and 0.3% on-year to 3.59 million b/d in the same month, due to higher fuel demand amid unusually hot weather.

Japan’s reduced imports from Iran stood in marked contrast to increased imports from Russia, which in August stood at 326,000 b/d, a 93.3% increase from a year earlier.

Tsutomu Sugimori, senior vice-president of JX Nippon Oil & Energy Corp., said the increased imports from Russia could be explained as an effort by Japanese refiners to diversify their sources of supply in order to enhance energy security.

The launching of Russia’s East Siberia-Pacific Ocean pipeline late last year makes for improved energy security for all East Asian nations in contrast to the riskier shipping lane stretching from the Persian Gulf through the pirate-infested Straits of Malacca.

That perception was heightened in August when an investigation by UAE authorities concluded that a terrorist attack was likely responsible for the damage caused to a Japanese oil tanker a month earlier.

The UAE’s investigation concluded that the attack had serious security and economic implications for the gulf region, which is a major hub for the global oil and gas industry.

The Strait of Hormuz, where the Japanese ship was targeted, links the gulf, bordered by petroleum-rich states such as Bahrain, Iran, Kuwait, Saudi Arabia, Qatar and the UAE, with Oman, and is a strategically important waterway through which 40% of the world's oil transits.

Extra sanctions adopted
Also in August, European Union foreign ministers adopted extra sanctions on Iran, in particular targeting investment in the country's oil and gas industries, as well as curtailing its refining and natural gas capabilities.

"The message to the Iranian government could not be clearer: The longer it refuses to talk…about its nuclear program, the greater the pressure and isolation Iran will bring upon itself," said Britain's Foreign Sec. William Hague.

The EU move follows earlier efforts by the UN and the US. The UN Security Council imposed a fourth set of sanctions on Tehran in early June, but the US and the EU decided to impose their own penalties against the Iranian energy sector (OGJ Online, Aug. 9, 2010).

Contact Eric Watkins at [email protected].