Japan near deal with U.S. on Iran oil, wary of China on defense

Reuters News
Posted: Mar 05, 2012 7:19 AM
Japan near deal with U.S. on Iran oil, wary of China on defense

By Linda Sieg and Kiyoshi Takenaka

TOKYO (Reuters) - Japan and the United States are close to an agreement on cuts in Japanese imports of Iranian oil that will allow Tokyo to avoid U.S. sanctions, and may conclude a deal this month, Japanese Foreign Minister Koichiro Gemba told Reuters on Monday.

But Gemba said the two sides might not make public the size of the cuts because of the possible impact on markets.

"We are in the final stage, but are still making final adjustments (to an agreement)," Gemba said in an interview. "Certainly, we will reduce (the imports), but because the concrete figures would influence the market, I am thinking at this point that it would be better not to announce them."

Japan's government has previously said the country would likely be spared from the U.S. sanctions, aimed at pushing Tehran to curb its nuclear ambitions, and has cut its Iranian oil imports by 40 percent over the past five years.

Imports from Iran, the world's fifth-largest oil exporter, accounted for 8.8 percent of Japan's total oil imports in 2011, but Gemba noted that the imports had fallen about 16 percent in terms of barrels per day from the first half to the second half of last year.

Japan's Nikkei business daily reported last month that Japan could cut its Iranian oil imports by a more-than-expected 20 percent in its drive to win a U.S. exemption.

The pressure to cut Iranian imports comes as Japanese utilities are boosting overall fossil fuel imports in the wake of the nuclear disaster at Tokyo Electric Power Co's (Tepco) Fukushima atomic plant last March.

All but two of the country's 54 nuclear reactors are off-line, mostly for checks and maintenance, and the remaining two will be shut down by early May.

About 85 percent of Japan's oil imports and 20 percent of its LNG imports travel through the Strait of Hormuz, Gemba noted, but said that even if Iran blockaded the crucial shipping lane, Japan could keep the economic impact on the country to a minimum because it has ample reserves.

"Even in the worst case, naturally we would consider (measures) including the release of reserves to keep the impact on the Japanese economy and people living in Japan to a minimum," he said. Blocking the Strait would not be in Iran's economic interests and would probably not last long, he added.

Gemba, 47, who took over as foreign minister last September, declined to say whether Japan would consider dispatching its navy, whose overseas deployment is constrained by the pacifist constitution, in the event the Strait of Hormuz was closed.

"It is not appropriate to say anything very concrete at this stage. Of course, we are considering our options based on various possible scenarios," he said.


Gemba expressed concern about China's double-digit defense spending, but said it was vital for the world's second and third biggest economies to develop a "win-win" relationship.

China said on Sunday that its official outlays on the People's Liberation Army would rise 11.2 percent after a 12.7 percent increase last year and a near unbroken string of double-digit rises across two decades.

"I think that China's development is basically an opportunity and that is why it is important to develop a mutually beneficial, strategic 'win-win' relationship," he said.

"But that does not mean there are no causes for concern. The growth in defense spending continues in double digits and we don't know the breakdown well, so we must pay heed."

Japan, China and South Korea were making progress in talks on an investment treaty to protect cross-border investments, Gemba said, adding an agreement was possible this year.

"We are currently aiming at steady progress and we are getting close," he said.

China and Japan this year mark 40 years since resuming diplomatic relations and both sides seem eager to keep ties on an even keel. But strains persist over matters ranging from China's bitter memories of Tokyo's wartime aggression to rows over the rights to gas beds in the East China Sea.

Gemba, who represents nuclear crisis-hit Fukushima in parliament, also urged foreign countries to base limits on travel and imports from Japan on a scientific foundation, and said he hoped the rebuilding of the disaster-hit northeast region would be a model for revitalising the country as a whole.

(Reporting by Linda Sieg, Kiyoshi Takenaka and Yuko Yoshikawa; Editing by Edmund Klamann and Sanjeev Miglani)