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Japan sets its sights on opportunities in Iran

Financial Times (London)
August 24, 2000,

In the early 1950s, a tanker left Iran, making a lonely journey to Japan with a consignment of oil.

The tanker was breaking a worldwide boycott of Iranian oil after the government seized the oilfields of Anglo-Iranian Oil Company (now BP) and nationalised the country's oil operations.

The tanker's journey was seen as heroic in Japan and symbolic of a small nation's defiance of world opinion.

Japan was to defy the world again more than four decades later when several countries withdrew their ambassadors from Tehran in 1997 after a German court linked Iran with the assassination of Kurdish leaders in Berlin. Japan stopped official dialogue for a few months but took no other action.

Japan's view of Iran has been coloured primarily by its need for oil and more recently by its desire not to be left behind when US sanctions preventing large investment in Iran expire next year.

This week, a Japanese government delegation is in Iran to discuss broad energy issues, according to Japanese officials. But many believe this is part of a charm offensive to gain an oil development contract with Iran after Japan lost the oil concession in Saudi Arabia's Neutral Zone.

"Japan is very keen to have 'Japanese flag oil' and after the deal with Saudi Arabia collapsed, Iran is the next target," said Kazuo Takahashi, associate professor of international studies at Hoso university.

Japan has no natural resources and imports 85 per cent of its energy needs. Most of its oil comes from the Middle East and Iran is the third largest source.

Japan is eager to endear itself to the Iranians. NHK World, Japan's main broadcaster, broadcasts daily radio programmes in Farsi to Iran. Iran has recently reciprocated with its own Japanese-language broadcasts.

In the 1980s, Japanese companies were eager to employ Iranian workers escaping the Iran-Iraq war and the high unemployment that followed. Last year Japan made a Y7.5bn (Dollars 70m) loan to Iran, the second instalment of a credit agreed in 1993, and more financial aid is likely to follow.

The Japanese government is pinning its hopes on Mohammad Khatami, Iran's pro-reform president. Since Mr Khatami's election in 1997, the number of official visits between the two countries has increased markedly, including a visit from Keidanren, Japan's leading business federation, two years ago.

While Japan looks to Iran for business opportunities and oil supplies, Iran is eager to attract foreign investment to bolster its sagging economy. The Iranian parliament yesterday passed a bill to encourage foreign investment and to protect investments against seizures.

Japan's leading trading companies, such as Mitsui, Mitsubishi and Tomen, already export steel, machinery and chemical products to Iran, and hope the recent flurry of diplomatic activity will lead to increased trade.

"We sincerely hope that the energy dialogue in Tehran will further enhance the mutual understanding of the two countries and lead to the expansion of business activities," says Morihiko Tashiro, president of Tomen.

Japan is concerned that some European companies are already working in Iran and that there may be a sudden U-turn in US policy towards Iran, similar to its change of heart towards China in the 1970s, which took Japan by surprise.

"For a long time the US told Japan not to make deals with China but suddenly we saw American leaders shaking hands with the Chinese. Japan felt slighted by the US and it doesn't want a repetition of that. It's eager to get a strong base in Iran before more powerful US companies get there," says Mr Takahashi.

Japan is concerned that as China's economy grows, so will its appetite for Iranian oil. Mr Khatami visited China, which has been a net importer of oil since the mid-1990s, in June after the two countries agreed to strengthen political and economic co-operation. China is building supertankers for Iran, breaking a Japanese-Korean duopoly, and China National Petroleum Corporation won an Dollars 85m drilling contract in Iran.

Tomorrow, as the energy delegation leaves Iran, Taro Nakayama, a former foreign minister, will begin a visit during which he will invite Mr Khatami to Japan. A trip by Iran's president to Tokyo and the better trade relations that could follow would be seen by Japan as a vindication of its independent policy towards Iran.


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