WATCHING THE WORLD: The Azadegan pressure play

Sept. 4, 2006
Iran’s defiance over the development of a nuclear program continues to cast a shadow over supplies of oil to Japan.

Iran’s defiance over the development of a nuclear program continues to cast a shadow over supplies of oil to Japan. But the Japanese are not worried.

“Unlike in the past two oil crises, we now have ample oil reserves, and I believe we can deal with (emergencies) without a hitch,” said Japan’s Vice-Minister for Economy, Trade, and Industry Takao Kitabata on Aug. 31. Japan depends on Iran for about 15% of its total oil imports.

“We have developed alternative resources, and our country is most advanced in the world in energy conservation,” he said. “We have a thoroughgoing system in terms of oil.” Tokyo maintains oil stockpiles able to meet demand for about 170 days.

His statement came as Iranian President Mahmoud Ahmadinejad said Iran would not back down an “inch” in the face of pressure by world powers as a United Nations deadline was due to expire for Tehran to halt sensitive nuclear work.

Sanctions threat

In a resolution adopted in July, the UN Security Council gave Iran until Aug. 31 to halt its uranium enrichment and reprocessing activities and accept an incentives package or face the possibility of sanctions.

Ahmadinejad’s words had a predictable effect on oil futures, sending October-dated Brent contracts up 37¢ to $70.55/bbl and October-dated US light crude futures up 37¢ to $70.37/bbl.

Apart from the direct effect of sanctions on supply, analysts also fear that Iran could retaliate by disrupting oil exports through the Strait of Hormuz, through which an estimated 20% of the world’s supply passes every day.

To underscore that fear, Iran test-fired a new submarine-to-surface missile called the Thaqeb during war games in the Persian Gulf on Aug. 27, an event interpreted as a show of its military might in the standoff with the West.


The Iranians know what they’re doing. They know that supplies are tight and that prices will quickly rise with reports of problems in Nigeria or Venezuela or any other oil-producing country. The Iranians hope that high prices will soften the opposition to their nuclear ambitions.

They are particularly hopeful that resource-poor Japan, one of the world’s leading industrial nations and a major diplomatic player, will soften. And to achieve that end, the Iranians are putting extra pressure on Japan.

Indeed, the day of the missile test, Iran warned Japan of the possibility that it may seek joint development of its giant Azadegan oil field with Russia or China instead of with the Japanese government-linked Inpex Corp., which currently holds the licenses. The Iranians even gave Japan a deadline: Sept. 15.

But the Japanese know how to play the diplomatic game. Their response shows character in the face of the Iranian threat. And in having their response delivered by a mere vice-minister, the Japanese also showed their ability to hurl back an insult or two of their own.