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Is Japan Giving Up On Securing A Sanction Waiver For Iranian Oil?

Crude oil pipeline

Conflicting reports surfaced today regarding Japan’s outlook for future purchases of Iranian oil as US sanctions against Tehran close in.

S&P Global Platts today cited a Japanese government official as saying it was not giving up the fight for a sanction waiver on the grounds that it would cause grave energy security concerns. The fight to obtain that elusive waiver from the United States that would allow Japan to continue importing oil from Iran has included multiple meetings with the US government.

“During the second round of talks, Japan clearly explained its position to continue [Iranian oil] imports to the US in an effort to gain their understanding,” Ryo Minami, director-general of oil, gas and mineral resources at Japan’s Ministry of Economy, Trade and Industry said in an interview with Platts on Thursday.

Minami added that Japan would hold even more talks with the US government in hopes of finally securing a waiver.

The Nikkei Asian Review, however, reported today that Japanese oil companies would indeed stop importing Iranian oil, because talks with the United States on the matter were unsuccessful, adding that the Japanese government intends to officially notify oil companies as soon as next week that an exemption will not be forthcoming.

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While private oil companies in Japan will technically have the ability to continue to import Iranian oil even if Japan is not granted a sanction waiver, the reality of the situation is that those companies may find it extremely difficult if not impossible to do so, considering that banks, including Japan’s largest bank, Mitsubishi UFJ Financial Group Inc (MUFG), will stop all transactions related to Iran due to the sanctions. For the most part, international trade relies on financial institutions to facilitate sales.

Japan is not well positioned to weather another round of Iranian sanctions, being the world’s third largest oil consumer and net importer. Further, it has the resources to meet less than 10% of its primary energy use each year, and imports nearly all of its fossil fuels, according to the Energy Information Administration (EIA).

Japan reduced its Iranian oil imports during the last round of sanctions to 170,000 bpd in 2015, down from 313,000 bpd in 2011.

Japan does have agreements with Saudi Arabia and the United Arab Emirates that allows the oil-thirsty nation to have priority purchasing power in the event of a serious supply disruption in exchange for offering crude oil storage space to them, although pricing may be an issue.

By Julianne Geiger for Oilprice.com

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