US zero tolerance for Iranian oil imports a blow to Japan
US move to sanction countries that import oil from Iran is another economic blow to Japan and South Korea, both of which hoped to win an exemption as US allies
When it came to helping to get Iran to the nuclear negotiating table, few countries sacrificed as much in terms of economic security as Japan. Now, if Tokyo doesn’t get on board with the latest round of US-led sanctions, it faces another economic menace.
In order to pressure Iran into signing the 2015 nuclear deal, Japan severely cut imports and divested itself of potentially lucrative oilfield deals, all in the interest of being a good soldier in America’s crusade against Iran.
But if Tokyo mandarins thought that this loyalty, Japan’s position as a major ally, and its forbearance in rushing into new investments into Iran’s petroleum sector would pay off down the line, they have been badly mistaken.
No concessions from Washington
According to the US State Department, Washington will adopt a position of zero tolerance for Iranian petroleum imports. No concessions are on offer to its Asian allies.
“We view this as one of our top national security prerogatives … and the preposition would be, no, we’re not granting waivers,” a senior State Department official was quoted as saying by Japan Times.
Two years ago, while the Joint Comprehensive Plan of Action (JCPOA) was being negotiated and signed, Japan and South Korea received some exemptions in recognition not only of their alliances with the US, but because both are entirely dependent on oil imports.
Tokyo was hoping to obtain another exemption as Washington tries to rally the world in another effort to curb Iran’s possible interest in nuclear weapons and be nicer to its people.
Ever since US President Donald Trump pulled the US out of the JCPOA in May, Washington has been putting the squeeze on Iran’s economy and demanding that everybody else do so too. This is taking place even though Japan was never a signatory to the joint plan.
This latest Trumpian blow follows hot on the heels of the US refusal to exempt Japan from new and controversial tariffs on steel and aluminum.
Seoul and Tokyo in the same quandary
Yoshihide Suga, Tokyo’s chief cabinet secretary, told reporters that Japan is involved in talks now over the reapplication of US sanctions against Iran, but said he could provide few details.
“We are watching carefully the impact that the US measures would cause,” he said in a daily press briefing. “We would like to negotiate with the countries involved so as not to have a direct adverse impact on Japanese firms.”
The South Korean Energy Ministry is also in a bind. “We’re in the same position as Japan,” said a spokesman for the ministry, as reported by Reuters.
The two countries have until Nov. 4 to arrange different suppliers. In the past, Saudi Arabia and the United Arab Emirates supplied more than half of Japan’s needs. President Trump is pressuring Saudi Arabia to up its production.
Suga said that Japan would probably make its arrangements public in early August. Japan and South Korea will most likely fall in line as Washington could wield a big stick: blocking firms from the countries from obtaining bank credit.
This latest dispute comes at an awkward time for both Japan and South Korea, since they are seriously concerned about unwanted friction among allies at a time when North Korea may be preparing to give up its nuclear and missile programs.
Post-sanctions Iranian oil exports to Japan peaked at around 700,000 barrels per day, down to about 500,000 bpd in 2017, indicating some nervousness on part of importers about Trump’s intentions for the Iran deal, which was negotiated by his predecessor, Barack Obama and signed in 2015.
It remains to be seen how the new sanctions will impact infrastructure deals in Iran. At one time, the Japanese oil company Inpex owned 70% of the Azadegan oilfields in southwestern Iran, the largest potential pool in the world.
With great reluctance and under extreme pressure, Inpex gradually reduced its share of the project, finally giving up its entire stake in 2010. Tehran initially offered the site development to China, but results were unsatisfactory, and the Chinese were expelled.
In the most recent development, a petroleum consortium made up of Inpex, France’s Total and Petronas of Malaysia responded to a tender request for Azadegan. However, the consortium was still in the exploratory stage when new sanctions were announced.
The new sanctions may also affect South Korean engineering firms with ambitions in Iran. SK Engineering fears the new sanctions may kill its planned $1.6-billion project to upgrade a refinery in Tabriz. Hyundai is worried about a deal to build a plant that produces ingredients for the plastics industry. A company representative could only say that they are paying close attention to developments.
In less trying times, Japan and Iran enjoyed close and friendly relations; Prime Minister Shinzo Abe fully supported the deal that Trump broke. In return, the Iranian leadership has been willing to give Tokyo a break, understanding the country’s need to maintain close agreements with its chief ally, the US.
Almost as soon as Barack Obama’s 2015 Iran deal was concluded, then-foreign minister Fumio Kishida flew to Tehran to sign an agreement allowing further Japanese investment. Abe is pondering a trip to Tehran this month. But exactly when that will take place, and what can possibly be agreed, is up in the air.