Japan Vows to Proceed with Oil Deal in Iran

Japan will press ahead with a $2bn (E1.8bn) oil deal in Iran so long as it is commercially viable, despite US pressure to withdraw from the investment, according to a senior Japanese government official.

Japanese companies, which won exclusive negotiating rights to invest in Iran's Azadegan oilfield, failed to conclude an agreement by the initial deadline of June 30, triggering widespread speculation that Tokyo had abandoned the project because of US objections. Washington is discouraging business with Tehran, which it accuses of seeking to develop nuclear weapons.

But a senior Japanese official with close knowledge of the negotiations said: "We have not withdrawn from the deal. We basically think the issues of nuclear and oil are separate."

The official said the Azadegan decision had been held up for purely commercial considerations and that Tokyo was trying to persuade Washington to drop its objections. "We want to sign if the commercial conditions are met," he said.

Jiro Okuyama, foreign ministry spokesman, said: "The nuclear concern is one thing. But Azadegan is another."

However, he added: "Of course we share the concern about possible nuclear development in Iran. That's why we have been putting pressure on the Iranian side to sign the additional

protocol of the International Atomic Energy Agency." Such a protocol would allow the agency to carry out unannounced visits to registered and non-registered nuclear sites.

Some oil executives in Tokyo say a deal cannot be signed if Washington objects, partly because of the threat of sanctions under the 1996 Iran-Libya Sanctions Act.

One diplomat said that, despite Tokyo's bravado, it was unlikely to defy Washington over such a high-profile issue.

Japanese officials are privately furious at Washington's attitude. They say years of patient diplomacy with Tehran, including the provision of $3bn in loans, could be thrown away

because of exaggerated concerns about Iran's nuclear intentions.

The Azadegan oilfield is considered a vital part of Japan's strategy to diversify its oil supply. It could provide 6 per cent of Japan's oil imports, reducing its dependence on Arab oil from 75 per cent to 69 per cent.

"A close and intimate relationship with the US is a sine qua non. We cannot harm this basic relationship," said the government official. "But we are not fully convinced of the US logic and reasoning."

Tokyo is trying to persuade Washington to engage with Iran by encouraging it to sign the "additional protocol" to the Nuclear Non-Proliferation Treaty. "Our policy towards Iran is

that of engagement, so that is different from the US," the official said.

Japan's sense that it is being victimised by the US is compounded by the fact that several European companies are doing business in Iran with impunity. However, last week, Spencer Abraham, the US energy secretary, warned the Dutch and Italian governments not to allow their companies to invest in Azadegan, which is up for grabs following the expiry of

Japan's exclusive negotiating period.

"This is one of the most difficult decisions we arefacing," the Japanese official said. "What is at stake is the crucially important Japan-US relationship against an obvious case of national interest, not to mention our relations with Iran."