Column  Foreign Affairs and National Security  2010.12.06

Japan's Withdrawal from Iran Oil Field

Japan's Inpex Corp, which has exclusive drilling rights to Iran's Azadegan oil field, is withdrawing from development of the field. The decision comes as its relations with Iran places it at risk of being on a list of businesses targeted by U.S. government sanctions, which, in turn, would prevent U.S financial institutions and corporations from having any dealings or joint development with it.

Inpex Corp is a private-sector corporation but 30% of its shares are owned by the Minister of Economy, Trade and Industry. Based on this ownership, the Japanese government tried to convince its U.S. counterpart to keep the company off the sanctions list, but Washington was steadfast.

The widely held view in Japan is that the company's withdrawal from the development of the oil field was inevitable, so that Japan could be seen as cooperating with the U.S. efforts to place additional pressure on Iran to deter its nuclear development. It also is said that there were commercial considerations in Inpex's decision to retreat from the Azadegan oil fields. The matter seems complex and the incident makes one reflect on Japan's relationship with the U.S.

Regarding Iran's nuclear development, the P5+1 countries (U.S., the United Kingdom, France, Russia, China, and Germany) have been negotiating with Iran to halt its nuclear development, along with the UN Security Council and the IAEA (International Atomic Energy Agency); however, they are making little progress. The U.S., the U.K., France and Germany are basically on the same page and have been proposing that sanctions be strengthened if Iran continues to refuse to allow inspection. China and Russia, by contrast, have been reluctant to support any decision of the Security Council that would result in enhanced sanctions; it has been difficult to persuade them and the negotiations have dragged on.

Under these circumstances, with Iran's nuclear development reaching a dangerous point of no return, the U.S. decided that it should rapidly implement additional sanctions and it requested that other countries follow suit. Japan, South Korea and EU either have announced sanctions or are currently working on them. The U.S. announced its own measures, while asking other countries to enforce their respective sanctions. Up to now, the U.S. has been attempting to implement its sanctions with others.

Because the U.S. is a superpower, its domestic measures have several implications for other countries, however. One such example is the decision of Inpex to withdraw from the Azadegan oil field. China seems to be ready to replace Japan but would U.S. sanctions include Chinese corporations as well? If so, Chinese corporations that would thereby be prevented from dealing with U.S. financial institutions would suffer significantly. If not, on what grounds would they be exempted from the U.S. sanctions?

Russia has been assisting Iran's nuclear development. Although this cooperation is for peaceful use of nuclear power, it still has the potential to lead to the development of nuclear weapons. What kind of damage would Russian corporations suffer if they were placed under the U.S. sanctions regime?

The impetus for U.S. actions is not always apparent. Motivations other than Iran's nuclear development may be contributing factors. A major factor in U.S. policy towards Iran is Iran's denial of Israel's existence, and Iran has been provocative in this aspect. Then, of course, there was the Iranian hostage crisis as well. Iran's actions are certainly problematic. Iran also seems to have its own problems with the U.S., however.

All this is within the scope of diplomacy. If the U.S. engages in further forceful actions against Iran, especially of a sort that may be criticized as unilateral, that will create a very difficult situation for Japan and European countries whose relations with Iran are different in nature than that of the U.S. In the case of Iraq, the U.S. started a war, even while international inspections were still under way, believing that they were going nowhere. One may say that such extreme measures are rare, but Iran is more dangerous to the U.S. than Iraq ever was. In the U.S., the tendency to demonize Iran is highly esteemed, as we saw during the Bush administration.

Although the Obama administration has indicated its willingness to engage in a dialogue with Iran and to cooperate with other countries, as the administration becomes more frustrated, one cannot totally discount the possibility of its resorting to more forceful, unilateral measures.