Investment-hungry Iran eyes Tokyo’s funds

Friday 05/02/2016
Relations are warming

London - Relations between Japan and Iran are warming, if not as fast as Tehran would like. Much of the visit of Japanese Foreign Minister Fumio Kishida to Tehran in October looked at possibilities for economic cooperation, espe­cially in energy, and invitations have been extended for visits by Iranian President Hassan Rohani and Japanese Prime Minister Shin­zo Abe.

As Japan marked the 70th an­niversary of the Hiroshima bomb­ing on August 6th, US Secretary of State John Kerry said the com­memoration reinforced the impor­tance of the July 14th agreement with Iran in reducing “the possibil­ity of more nuclear weapons”.

Washington wants Iran to follow the Japanese example in develop­ing a civilian nuclear programme near the threshold for weapons but operating under international con­straints and a domestic consensus against having a bomb. Four years after the meltdown at Fukushima prompted Japan to take its 54 re­actors offline, the country recently restarted a reactor on the island of Kyushu under new, tighter safety rules.

This was clearly of interest to Ali Akbar Salehi, Iran’s atomic energy chief and a vice-president, when he visited Tokyo in November and asked for Japanese assistance set­ting up an atomic safety centre in Iran.

Before Fukushima, nuclear power had supplied 27% of Japan’s electricity, so stalling the nuclear programme sent energy imports and carbon emissions spiralling upward. Charges for domestic and business customers have risen 19% and 29%, respectively.

A few days after Kerry’s speech, therefore, Tokyo’s main item for its most senior delegation in Tehran in 14 years was oil. This also kicked off talks, now gathering pace, on increasing investment and trade. These are aimed at reviving warm ties with Iran that go back at least to 1953, when the Japanese tanker Ni­ssho Maru defied a British blockade imposed after Iran’s prime minister, Mohammad Mossaddegh, national­ised the oil industry.

Iranians have long appreciated a country that combines advanced technology with retaining its cul­tural and social traditions. Way before diplomatic relations were established in 1929, many Iranians admired Japan’s defeat of the Euro­pean power, Russia, in the 1904-05 war.

More recently, during the 2003 parliamentary elections, funda­mentalist conservatives — includ­ing Gholam-Ali Haddad-Adel, who became parliamentary speaker — made great play of wanting Iran to become an “Islamic Japan”. They argued that Iran could develop its economy and technology, including the nuclear programme, without the social liberalisation favoured by reformists.

Japan was skilful in balancing economics and geopolitics. In 2003 it was Iran’s biggest market for crude oil, taking 683,000 barrels per day (bpd), despite its corner­stone foreign policy alliance with the United States, which is crucial both to balancing China and to con­taining North Korea’s missile and nuclear programmes.

But US pressure grew and, despite its negligible hydrocarbon reserves, Japan scaled back oil imports from Iran to 313,000 bpd by 2011.

Just as seriously for Tehran, the Japanese company Inpex dragged its feet over a $2 billion agreement, signed in 2004 against US objec­tions, to develop Iran’s vast Azade­gan oil field, the largest found in Iran in the last 30 years. The delay annoyed Tehran, which cut Inpex’s share in 2006 from 75% to 10% be­fore the company reluctantly with­drew in 2010.

The possible return of Inpex to Azadegan has been floated.

Bijan Zanganeh, Iran’s oil minis­ter, has said oil exports to Japan will return to levels before the stringent US and EU sanctions of 2012. This is unlikely. Iranian exports to Ja­pan fell from 313,000 bpd in 2011 to 173,000 bpd in the first half of this year but, given current high global production and keen competition over terms between producers, any increase will be gradual. Saudi Arabia has also taken advantage of Iran’s position, becoming Japan’s main supplier with more than 1.1 million bpd.

Iran sees Japan not just as a market for oil. Tehran’s desire to increase non-oil trade from a low annual figure of just $250 million is focused on accessing Japan’s ad­vanced technology.

Iran also lacks capital, as has been reflected in its struggle to develop Azadegan. In January 2015, the government announced a planned $15 billion, four-year investment in oil fields in Khuzestan province (which would include both north and south Azadegan), but Tehran has struggled for years to raise capital domestically. In February, Zanganeh, asking parliament for $4.8 billion, described the state of the oil industry as “catastrophic” with the ministry without funds to pay staff.

Whatever its energy dilemmas, Japan has a record of high pub­lic and private-sector investment that has helped make it the world’s third-largest economy. Even a small share of Tokyo’s foreign di­rect investment — at $119 billion in 2014, one of the world’s highest — would be welcome in Tehran.