Japan to continue to import Iran’s oil

By Eric Watkins

LOS ANGELES, May 29 – What gives? The incoming head of the Petroleum Association of Japan said the country’s oil industry will work with the government to make sure Iran’s oil continues to flow into the country despite U.S. and E.U. sanctions.

“With an eye toward maintaining stable procurement, we will continue to deal (with Iran) properly,” said Yasushi Kimura, recently appointed Chairman of JX Holdings and President of JX Nippon Oil & Energy Corp.

“We hope a measure that will enable insurance coverage will be realized through the cooperation of shipping companies, insurers and the government,” Kimura said, referring to Brussels’ ban on insurance companies within the E.U. from providing insurance or reinsurance related to oil transactions with Iran.

Earlier this month, the Japanese government said it was considering a new law that would enable the government to cover most of the insurance benefits removed by the sanctions for domestic shipping companies transporting Iran’s oil.


The law, yet to be approved or implemented, is meant to allay concerns that Japanese shipping firms would be unable to carry Iranian crude due to a sharp reduction in the amount of insurance money that could be paid out in case of accidents.

Japan has expressed the desire to continue importing Iran’s oil for a variety of reasons, not least that Tokyo does not want to adversely impact its long-term relations with the Islamic Republic – which controls about 10% of the globe’s oil supplies.

“It would not be easy to resume once we terminate our stable, long-term dealings with Iran,” said one Japanese official. Given Japan’s recent turmoil over nuclear power generation, that view is understandable.

Japan’s oil demand for thermal power generation roughly doubled in the fiscal year ended March as nuclear reactors remained closed, according to Akihiko Tembo, Kimura’s predecessor at the Petroleum Association of Japan


The International Energy Agency recently spelled out the situation for Japan’s increased oil imports following closure of the country’s 50-plus nuclear reactors after the disaster at its Fukushima Daiichi plant in March 2011.

“OECD Pacific demand remains supported by the nuclear-related shutdowns in Japan, with preliminary consumption of 8.4 million b/d in March, 335,000 b/d (4.2%) more than the corresponding month in 2011,” IEA said in its May report.

IEA said its 2012 demand outlook for Japan remains “unchanged for now at 4.5 million b/d” but it noted that the nuclear closures bring “an additional layer of uncertainty” to the forecast.

“We continue to assume a very gradual nuclear recovery towards end-2102, although a zero-nuclear case has only a marginal impact and would raise our oil demand projections by 80,000 b/d for 2012 as a whole,” IEA said.


The effect of a zero-nuclear case was underlined last month by Tembo who said that Japan’s oil demand for thermal power generation will remain strong this summer even if the Oi No.3 and No.4 reactors are restarted.

As Tembo put it, two working reactors alone can’t compensate for the country’s lost nuclear output.

If anyone doubts Tokyo’s resolve in seeking to reduce the country’s reliance on Iranian oil, they need to think again – especially in light of recent figures that show Japan’s oil imports from Iran dropping 36% on the year in March.

According to a preliminary report from Japan’s Agency for Natural Resources and Energy, the country’s overall crude oil imports rose 11% from a year earlier, largely due to stronger energy demand as a result of the nuclear meltdown.


Despite that increased demand, Japan’s imports from Iran dropped by 760,000 kiloliters on the year to 1.33 million kl. To make up the difference, Japan increased imports from Saudi Arabia by 14%, or 850,000 kl, to 6.78 million kl in March, while imports from Kuwait jumped by nearly 50%.

Japan is clearly pulling its weight when it comes to sanctions against Iran, and no one can expect a complete shut down of its imports from the Islamic Republic.

That’s why the U.S. in March said it was exempting 11 nations, including some E.U. members and Japan, from tough new sanctions on Iran, saying those countries were reducing their dependency on oil from the Islamic Republic.

Japan’s efforts to continue receiving Iran’s oil are not part of sanctions busting. Those efforts are being undertaken responsibly against a background of sharply declining imports from Iran despite the haunting specter of sharply increased — and increasing — domestic demand.

Japan is on course with sanctions.

© Glamma Productions Inc. 2012


About Eric Watkins

Eric Watkins is a consultant specializing in oil diplomacy. A former journalist, Mr. Watkins's work has appeared in numerous leading publications including The Wall Street Journal, The Economist, The Financial Times, and specialist media such as Oil & Gas Journal, Middle East Economic Survey (MEES), and Lloyd's List.
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