Geopolitical concerns related to the Iraq conflict could well be complicating oil and gas deals between some major Persian Gulf exporters and their biggest customers.
A recent diplomatic meeting between Japan and the UAE appeared to revolve around Tokyo's shift from the UAE to Iraq for some of its oil supply needs, as well as its support for US policy in Iraq. UAE Deputy Prime Minister Sheikh Hamdan bin Zayed Al Nahyan last week told Japanese leaders that his country is committed to meeting Japan's oil and natural gas needs.
Hamdan's statement seemed ironic, as Japan has been relying less on the UAE's oil and more on new supplies coming from Iraq. But Hamdan seemed to suggest the situation could be reversing as increased unrest in Iraq might disrupt oil supplies.
Declining oil exports
Already faced with a hostage crisis, and acutely aware of the growing danger to its 1,000 troops already deployed in Iraq, the government of Japanese Prime Minister Junichiro Koizumi apparently has begun to reconsider its oil supply shift along with its support for US policy in the country.
According to a report last month in the UAE's Gulf News, Japan "slashed" its oil imports from the UAE in November due to a decline in domestic seasonal demand and a resumption of Iraqi crude supplies.
During the first 9 months of 2003, the UAE was the top oil exporter to Japan, supplying it with about 1.03 million b/d.
From about 987,000 b/d in October, however, the UAE's crude oil exports to Japan slumped by 19.5% to nearly 793,000 b/d in November, the report said, quoting Japan's Ministry of Economy, Trade and Industry (METI).
From zero supplies during most of 2003 and 2002, Japan imported around 125,655 b/d of Iraqi crude in November, the METI report showed.
The METI report said the oil shipments from Iraq in November were the first in nearly 19 months, as crude production in the Arab country had been disrupted for several months due to United Nations sanctions before it was occupied by a US-led coalition in April.
Although oil imports from Saudi Arabia also receded, the sharp decline in UAE supplies pushed the emirates back to second place after the kingdom on the list of oil exporters to Japan.
Japan's crude oil imports from Iran also tumbled, by nearly 25% while supplies from Kuwait surged by more than 37%.
There were also declines in supplies from Qatar, Oman, and the Neutral Zone, which produces about 300,000 b/d, shared equally by Kuwait and Saudi Arabia.
Industry sources quoted by Gulf News attributed the decline in supplies from the UAE, Iran, Saudi Arabia, and other Middle East countries to the fresh supplies coming from Iraq and to a drop in domestic consumption in Japan due to the mild weather during autumn.
In public comments during his visit to Tokyo, Hamdan did not mention the reduction in Japanese imports of UAE oil, but he nonetheless stressed the uncertainty of supplies coming from Iraq, as well as Japan's vulnerability for supporting US policy in the Arab country.
UN's role in Iraq
Hamdan went into talks with Koizumi on Apr. 15 saying that the UN should play a more active role in Iraq to ensure the country's long-term stability, instead of the US dominating the scene. He said Iraqis would be happier with such arrangements.
"Considering the future of IraqU [an expanded UN role] would ensure that reconstruction efforts would receive wider Iraqi public support," Hamdan said, according to a Japanese diplomat.
Hamdan further underlined Japan's vulnerability by offering the UAE's help in securing the release of several Japanese nationals taken hostage in Iraq—an offer eagerly accepted by Koizumi, who had been under heavy pressure over the kidnappings.
Koizumi also took up Hamdan's broader theme, saying he had urged the US to place more importance on the UN's role in the war-torn country during his meeting Apr. 12 with US Vice-President Dick Cheney in Tokyo.
That appeared to appease Hamdan, who later said, "The UAE appreciates the role played by Japan in assisting the people of Iraq within the framework of the United Nations."
Three of the Japanese hostages were released the same day and flown to the UAE on Apr. 16 for medical checkups, while the other two hostages were released the following day.
Rebuilding Iraq
But Hamdan's underlying message about the insecurity of Iraqi oil supplies apparently has taken hold in Tokyo, where officials said the cost of reconstructing the country and resuming its oil field development is likely to exceed the original estimate of $55 billion due to the worsening security situation.
Sources close to the Japanese government also told the Nihon Keizai Shimbun newspaper Apr. 18 that Japan's financial pledge of $5 billion to Iraqi reconstruction will have to be reviewed if the security situation does not improve after coalition forces hand over sovereignty to an interim Iraqi government on June 30.
The UN and the World Bank last autumn estimated the cost of rebuilding Iraq at about $55 billion during 2004-07, on the assumption that security in the Arab country would improve.
Of that amount, $35 billion would be needed to restore infrastructure and education and employment, while $19.4 billion would go for maintaining peace and order and restarting oil field development.