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Japan, Iran sign major oil deal, US dismayed
By Richard Hanson

TOKYO - Despite a US warning against doing business with Iran, a Japanese consortium has signed a US$2 billion deal to develop a major Iranian oilfield on the Iraq border, one of the world's largest, with estimated reserves of 35 billion barrels. Japan expects to pump 300,000 barrels a day by 2006.

The United States rebuked Japan, citing problems with Iran's nuclear program, and tried to block the deal so crucial to Japan's energy security.

This is about oil, not friendship, and the story goes back 30 years.

During the first "oil crisis" of 1974, a senior executive of Mitsui & Co visited Iran and saw tons of gas burning off over an Iranian oilfield. "We could use that," he observed. The result was what became a disastrous, and expensive, petrochemical project named Bandar Shapur, or Port Shah. The unfinished project was badly damaged in the 1979 Islamic revolution. Renamed Bandar Khomeini, it was left to rust. Chalk it off to an early, somewhat naive, attempt to secure oil supplies in an unstable region.

On Wednesday, another Japanese consortium, after lengthy talks, signed a basic agreement on a very large oil-development project in Azadegan, one of the world's largest oilfields recently found, close to the border with Iraq. It marks the apparent success of a long campaign to secure oil supplies in an unstable region.

Japan is still dependent on imports for virtually all of its oil. And in recent years, oil sales and other ties with Iran have grown stronger and more extensive.

This time, Japan is doing business with Iran despite a sharp rebuke by the United States, its ally in rebuilding war-torn Iraq, where Japan has sent a substantial humanitarian aid contingent. The US severed diplomatic relations with Iran after the fall of the Shah, and a bitter hostage standoff, and President George W Bush named Iran one of the three "axis of evil" nations, suspected of working on a nuclear bomb. Iraq and North Korea are the other two axis members.

Oil from the new Azadegan Field could be up and pumping some 300,000 barrels a day by 2006 and supplying as much as 6 percent of Japan's needs. On the Japanese side, the Japan Petroleum Exploration Co, Inpex Corp and Tomen Corp are participating.

On the Iranian side, Tehran's deputy oil minister, Mehdi Mirmoezi, signed the contract at a ceremony. Inpex president Kunihiko Matsuo represented Japan.

Under the agreement, European oil companies may be able to participate in Azadegan, with estimated reserves of up to 35 billion barrels.

It took four years to negotiate the deal, valued at about US$2 billion, which was largely inspired by the failure of Japan's Arabian Oil Co to renew its rights to drill in the Saudi Arabian portion of the Khafji field in 2000 - leaving Japan with no drilling rights in the area.

Iran's efforts to attract investment have been hampered by internal problems and by the US efforts to block the deal.

After the agreement was signed, Japan's Ministry of Foreign Affairs said it hoped that "the signing of this contract will further promote cordial Japan-Iran relations". At the same time, Prime Minister Junichiro Koizumi has said that "Japan shares a concern about nuclear proliferation with the International Atomic Energy Agency" (IAEA) and wants Iran to "faithfully comply" with resolutions that urge Iran to cooperate in inspections (for nuclear-weapons programs).

How seriously does the US take this deal? Under Secretary of State John Bolton put a reasonable spin on it in one press interview: "I think the Azadegan arrangement has just been proceeding on a completely separate track and the government of Japan has made it very clear that they remain very concerned about Iran's proliferation activities and very concerned that Iran be held strictly accountable" under the nuclear Non-Proliferation Treaty and resolutions of the IAEA.

"I don't think that there is any difference in the view in the government of Japan and the United States on this point," he told news agencies.

But then again, the US and Japan are also trying to demonstrate a united front in forthcoming talks with North Korea, which is rattling its own nuclear-secrets sabers. In what is called the Six Nations meeting to be held in Beijing next Wednesday, they will meet with officials from China, Russia and North and South Korea. This is no time to show disunity.

It is also no time to ignore the fact that the US and Japan are at odds over what one scholar once described as "a budding Iranian enchantment with lasting consequences", especially when Iran's relations with the US and European powers have been strained. Princeton University Professor Kent E Calder has pointed out that Iran's underlying attraction for Japan has always been its strategic location in the Persian Gulf, from which Japan gets so much of its oil.

Other relations with Iran also have also been strengthened. About 7,000 Iranians are living in Japan, partly because of a loose visa policy, since tightened in 2000. This is far more than any other immigrant population from any other country in the Middle East. Former prime minister Ryutaro Hashimoto has come as close as any Japanese leader in trying to define Japan's relations with the Caspian Sea region in general, with a presentation in 1997 dubbed his "Silk Road Speech".

"Whatever the contours of Japan's coming involvement with Central Asia, it will be profoundly linked to the critical reality of Iran," he also said in a paper called "Japan's Energy Angst and the Caspian Great Game".

Prime Minister Koizumi realized that the US would be disappointed with the agreement, especially because of the Iran's nuclear issues. But he didn't give ground. "It is not only the United States but Japan that is concerned about nuclear proliferation," he said recently, observing that Japan is the only country to be struck by atomic bombs. He also said Japan believes that "Iran has been dealing with [the nuclear issue] fully taking into consideration the relationships with he IAEA".

Japan's chief Cabinet Secretary Yasuo Fukuda said earlier, "Our country will deal with the [Iran-related] issue in a cautious manner, given there are problems which the US is concerned about."

Japan does not want another Port Shah.

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Feb 20, 2004


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