Volume 4 | Issue 12 | Article ID 2296 | Dec 02, 2006 The Asia-Pacific Journal | Japan Focus Oil and Power: The Rise and Fall of the Japan-Iran Partnership in Azadegan Michael Penn Oil and Power: The Rise and Fall of the Japan-Iran Partnership in Azadegan By Michael Penn The story of how Japan gained, and then lost, the development rights to one of the richest oil fields in the world has been treated rather casually in the international media despite the fact that it will strongly affectJapan ’s relations with Iran and other countries for many years to come. The issue of the Japanese involvement in the Azadegan oil field was divisive from the start, but became more Azadegan oil field and more so as the political situation in the Persian Gulf deteriorated after September 11 and the U.S. invasion of Iraq. This essay traces the development of the Japan-Iran partnership in Azadegan from its inception in November 2000 to its effective dissolution in October 2006. Map of Azadegan oil field 1 4 | 12 | 0 APJ | JF The Courtship signaled Tokyo’s desire to tighten both political and economic links withIran , On September 28, 1999, Iranian Oil including the resumption of yen loans for Minister Bijan Zanganeh announced to the previously-suspended Karun River the world during a radio interview the Dam project in southernIran . discovery of a major oil field in the southwestern portion of the country, near No Japanese foreign minister had visited the Iraqi border. In fact, this area had Iran since Nakayama Taro in May 1991, been a battlefield during the Iran-Iraq and yen loans to Iran had been frozen War, and was still littered with landmines since 1993 in deference to Washington. from the conflict. The originalHowever, with the establishment of the announcement described Azadegan as moderate administration of Mohammad the largest Iranian oil discovery since the Khatami in August 1997, Japanese 1960s, with estimated reserves of 26 leaders had become increasingly billion barrels of oil, and a capacity to uncomfortable with the tough American produce 400,000 barrels daily. Zanganeh line on the oil-rich Persian Gulf country. further announced that the IranianIn seeking to expand influence and government would begin development of access to oil in the Middle East, Japan the field by the end of March 2001. [1] seemed ready to challenge US preferences in the region and strengthen ties with Tehran. Tokyo pointed to moves toward democratization and the loosening of restrictions on Iranian political dissidents as a justification for a more proactive policy toward Iran. Still, tensions remained in the Japan-Iran relationship. Komura reiterated Tokyo’s concerns overIran ’s possible development of weapons of mass destruction, as well as its missile development projects in cooperation with Iranian Oil Minister Bijan Zanganeh North Korea. For Tehran’s part, there was the lingering worry that Tokyo was From Japan’s perspective, thisstill tied too tightly toWashington ’s announcement came at a very fortuitous apron strings. The conservative Tehran juncture. In December 1998, Japan and Times explicitly stated: “We would like Iran had issued a joint declarationJapan to realize its own economic might… pledging to expand economicrather than echoing what theUnited cooperation. [2] Furthermore, Foreign States dictates… Komura should come Minister Komura Masahiko had just here for economic and political visited Tehran the previous month and cooperation to serve mankind, not just 2 4 | 12 | 0 APJ | JF the United States.” [3] emerging opportunities in Iran can be attributed to their desire to make up for At any rate, signs of warmth in Japan-Iran the setback in negotiations with the relations were apparent throughout the Saudis. Be that as it may, the key point to following year. In January 2000, the be noted at this point is that the first Ministry of International Trade and major step leading specifically to the Industry (MITI, later METI) announced Azadegan deal was made by the Japanese that medium- and long-term tradegovernment. insurance would be issued to Japanese companies for activities in Iran for the In June 2000, Toyo Engineering received first time in eight years. By March, a major contract to help build a new companies such as NEC and thepetrochemical plant in Iran. [7] That Sumitomo Corporation were already same month, Tokyo announced the taking advantage of this new policy. [4] possibility of the first yen-loans toIran In February, the Japanese Foreignfor entirely new projects including Ministry welcomed the parliamentary improving the air-quality of Tehran and elections in Iran, which it described as for a new railway signal system. [8] having been “carried out in a democratic atmosphere with an extremely high This led to the major breakthrough event: voting rate.” [5] the arrival in Tokyo of Iranian President Khatami in October-November 2000. This In April, after President Khatami’s second was the first visit to Japan by an Iranian great electoral victory, MITI took the head-of-state since the May 1958 visit of initiative to propose a regular dialog with Mohammad Reza Shah, an interval of Iran’s Oil Ministry. The main purpose was more than 42 years. The visit was clearly to explore ways in which Japanesestated as being aimed at deepening companies might participate in theJapan-Iran ties, particularly the Iranian Iranian oil sector. The Iranians quickly desire to see more Japanese investment agreed and talks began inTehran in in their country. August. Nevertheless, it was still something of a In the background to MITI’s initiative in surprise when it was announced that proposing regular energy talks with the Japanese companies would be given Iranian government was the loss, in precedence in negotiations for the February 2000, of the Japanese-owned development of the huge Azadegan oil Arabian Oil Company’s long-termfield. A consortium of Japanese oil concession in the Khafji oil field, along companies led by Indonesia Petroleum, the Saudi-Kuwaiti border. ThatLtd. (the Inpex Corporation) would take concession had been the jewel in the the lead in these negotiations. crown in Japan’s upstream oil developments since December 1957. [6] On the Japanese side, MITI Minister Much of MITI’s enthusiasm to seize the Hiranuma Takeo took the lead in pushing 3 4 | 12 | 0 APJ | JF for Japan’s participation in Iranian oil Group entered the discussions to provide development, in part to compensate for technical support. [13] the loss of the Khafji concession, and in part simply to diversify the sources of oil In July 2001, MITI Minister Hiranuma led imports from the perspective of energy an 80-man delegation of business leaders security. It was thus appropriate that the to Tehran to solidify the relationship. original agreement between Japan and Hiranuma met with both President Iran was reached in a meeting between Khatami and Oil Minister Zanganeh to Hiranuma and Iranian Oil Ministerreconfirm Tokyo’s strong interest in Zanganeh at the MITI building in Tokyo rebuilding its overall business connection on October 31, 2000. [9] In the following with Iran. [14] Hiranuma also suggested days, Zanganeh told reporters that he that if Washington dropped its sanctions expected the contract to be signed within on Iran, American oil companies might a year-and-a-half at the longest, and also participate in the project. Oil probably before the end of 2001. [10] Minister Zanganeh signaled that he Hiranuma spoke of Iran as a “long-term would welcome such a move. [15] partner” for Japan, and expressed However, the issue of the Iran-Libya eagerness to establish a relationship of Sanctions Act (ILSA) remained a trust. [11] stumbling block. Although the moderate Newspaper editorials in Japan were also President Mohammad Khatami had just positive. For example, the Nihon Keizai been re-elected in another landslide in Shinbun -- the respected financial daily -- June 2001, the U.S. Congress remained wrote: “From the viewpoint ofJapan ’s hostile to the Tehran regime, perhaps economic security, it is important to under pressure from various domestic cooperate with Iran, a country that has lobbying groups. Tokyo was thus very the world’s fifth-largest proven oildispleased when the new Bush reserves and second-largest provenadministration signed a five-year natural gas reserves, and which serves as extension of ILSA on August 3. In a rare a point of contact between theMiddle action, Tokyo even released a public East and Central Asia… We welcome the statement critical of the U.S. It read, in efforts to take advantage of thispart: “Considering that the Sanctions Act opportunity and to rebuild a cooperative might not only give rise to the relationship between the two countries.” extraterritorial application of domestic [12] law, which is not permissible under international law, but also inconsistent In the months following the Khatami visit, with WTO Agreements, the Government the negotiations made good progress. In of Japan has repeatedly conveyed its December, the Japan National Oilconcerns to the U.S. side. It is regrettable Corporation signaled that it too would be that the Act came into effect with these willing to participate in the project, and problems still unresolved, despite Japan’s by mid-2001, the Royal Dutch Shell repeated appeals. We strongly urge the 4 4 | 12 | 0 APJ | JF U.S. administration to implement the Act powerful adverse effects on the carefully while maintaining itsinternational position and domestic consistency with international law.” [16] politics of the Islamic Republic. Al- Furthermore, officials in Tokyo let it be Qaida’s attacks inNew York and known to the press that they were Washington hardened Western attitudes prepared to fight if Washington actually toward political Islam in general and tried to impose the ILSA regulations on undermined President Khatami’s more Japanese companies: “We are not sure if generous notions of a “Dialogue among the U.S.