Analyze This: Between Japan and Teheran

Why Iranian oil is fuel propelling Olmert's visit to Tokyo.

By CALEV BEN-DAVID
oil pipes 224.88 (photo credit: AP [file])
oil pipes 224.88
(photo credit: AP [file])
As Prime Minister Ehud Olmert touches down in Tokyo on Monday, he will be looking to boost Japan's trade ties with Israel and discuss its involvement, primarily in the form of economic aid, with the peace process. But Japan's economic relations with Iran, especially in the energy sector, will no doubt also be high on the agenda as he meets with its leaders. Last week, the Iranians announced to the world that they had finally started pumping oil from the Azadegan field, a massive oil reserve in the country's southwest corner. As it happens, the saga of Japan's involvement with the Azadegan oil field illustrates some of the complexities that the prime minister will face in his discussions in Tokyo, as he tries to build support for firmer international sanctions against Teheran. About 20,000 barrels of crude are now being pumped daily from Azadegan - a literal drop in the sea of the 42 billion barrels believed lying in Iran's biggest oil field. That's obviously news not particularly welcome to those nations most concerned about limiting the pace of Iran's nuclear program development through economic pressure - foremost among them Israel, of course. News of the Azadegan pumping is also of the strongest interest to Japan - although for a very different reason. No economy in the world is more dependent on imported oil than Japan. Oil from Iran accounts for about 14 percent of Japan's petroleum imports, enough to make it Teheran's biggest customer. Japan is no passive consumer, though; to guarantee a diverse and steady flow of future product, it also uses its technological capabilities to help oil-producing nations extract and refine crude, in return for a guaranteed percentage of the final product. That was the case with Azadegan. In 2004, a government-backed Japanese consortium signed a deal with Teheran to help develop the oil field, for which it was slated to receive 75% of the 400,000 barrels per day it was expected to generate at peak production. Just two years later, though, that deal was off, as it was announced that Japan would dramatically reduce its involvement in Azadegan and in return would now get only 10% of its production. What happened? According to Dr. Raquel Shaoul, a lecturer in the Department of East Asian Studies at Tel Aviv University and research fellow at the Center for Iranian Studies, there were a few factors involved. "Japan has had some difficult experiences with the Iranian oil industry in the past, and that's made them very cautious in dealing with Teheran," she says. In 1990, for example, after dealing for years with disruptions due to the Iran-Iraq War, the Japanese pulled out of a long-standing partnership with Teheran in the Iran-Japan Petroleum Company, with Tokyo forking over a buyout payment of close to $1 billion. "There are several production problems, too, with the Azadegan field, which is situated quite close to Iraq," says Shaoul. The biggest issue, though, was American pressure on Tokyo to lower its involvement in the Iranian economy following Mahmoud Ahmadinejad's accession to the presidency. "The new government of Shinzo Abe in 2006 very much wanted to stay on good terms with Washington, and that was a major reason in reducing its interest in the Azadegan deal," says Shaoul. While the Japanese have supported the UN sanctions against Iran, Shaoul says Olmert should not expect too much from the Japanese when it comes to discussing their own economic ties with Teheran. If the current government of Prime Minister Yasuo Fukuda has any interest in reducing oil imports from Iran, it's solely part of a long-term interest by an ultra-cautious Tokyo looking to diversify its energy sources (the primary one being Saudi Arabia) while keeping on Washington's good side, and not because of the threats hurled this way by Ahmadinejad and his cohorts. At least in theory, then, this policy dovetails nicely with Jerusalem's own interests. But there is a major complication with this approach - and like so much else in geopolitics, the source is to be found in Japan's giant neighbor to the west. Competition with Beijing for foreign oil, Shaoul believes, was already a major factor driving Tokyo to enter into the Azadegan deal - and the booming Chinese economy's inexhaustible thirst for oil remains a key reason Japan cannot afford to give up any available source, including Iran. Thus, any attempt by Israel to make a convincing case in Tokyo on the need for broader economic measures against Teheran clearly has to be part of a broader strategy that includes Beijing. When it comes to containing the Iranian nuclear threat, it seems that all roads lead to China - even when routed through Japan.