Japan's Dilemma Over Iran Sanctions

If the U.S. wants to isolate the Islamic Republic, it will need Tokyo's help. But are they able to give it?

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Japanese Prime Minister Yukio Hatoyama with U.S. President Barack Obama at the 2010 Nuclear Security Summit in Washington / Reuters

Cutting off Iranian oil imports has put Tokyo in a difficult position. The United States and its European allies have already agreed to up the ante on sanctions against Iran, but the domestic costs that Japan has to bear in order to cooperate are higher.

Prime Minister Yoshihiko Noda's government has indicated its desire to cooperate, and last December the Ministry of Foreign Affairs announced new restrictions on the operations of 106 entities as well as one individual with potential links to proliferation-sensitive activities in Iran. But the real effort now is to reduce Japan's oil imports from Tehran, and to negotiate an exemption from more stringent restrictions on Japanese banks included in the new U.S. sanctions law.

Rebalancing Japan's energy supply is even more delicate at the moment, as most of the nations' nuclear power plants remain offline. Efforts to compensate by increasing access to overseas sources of supply, including oil and LNG imports, have ensured Japan's national power supply since the disasters of March 11 last year. The Institute of Energy Economics, Japan estimated an additional twenty-nine million kiloliters of demand for crude and heavy oil since 2010, and an added cost of 3.3 trillion yen, or $43.2 billion, for imports of fossil fuel for thermal plants. Thus, suddenly imposing more severe oil import restrictions would be difficult and expensive at a time when the economy is fragile.

Japan has been decreasing its reliance on Iranian oil steadily since the 2006 sanctions took effect. Since 2007, Japan has reduced its imports from Tehran by roughly 40 percent, according to the Ministry of Economy, Trade and Industry. Roughly 500 barrels per day of Iranian crude oil imports have dwindled to 316 barrels per day over this period. That works out to be an 11 percent annual rate of reduction, which by 2010 had brought Japan down to the third largest importer from Iran after the European Union and China. In contrast, South Korea's crude oil imports from Iran increased by 20 percent in 2011, and China's imports rose by 30 percent.

Tokyo now must accelerate this rate of reduction to satisfy U.S. legal requirements and the rising political interest of the U.S. Congress. Japan has already promised to do so, but what remains to be negotiated is the speed of those reductions. Officials from the Japanese government are expected to visit Washington, DC, on Thursday to discuss how much faster Japan must cut its imports.

Part of that answer depends on alternate suppliers. Japan has already diversified its sources considerably. In 2010, Iran accounted for only 9.6 percent of Japan's oil imports, with Saudi Arabia (28.8 percent), the UAE (20.4 percent), and Qatar (11.8 percent) taking a leading role as Japan's crude oil suppliers. The continued cooperation of alternative crude oil suppliers, of course, will be critical to sustaining Tokyo's ability to meet its energy needs and find alternative source of supply. Foreign Minister Koichiro Gemba's visit to the region from January 5 to 12 demonstrates how keenly Tokyo depends on their willingness to continue upping their production.

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Sheila A. Smith is the senior fellow for Japan Studies at the Council on Foreign Relations. She writes regularly at Asia Unbound.

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