TOKYO -- Japan will help its businesses reclaim stakes in Iranian oil and gas projects after lifting trade sanctions as early as Friday.
"An environment in which Japanese companies can step up activities in Iran is taking shape," Chief Cabinet Secretary Yoshihide Suga told a news conference Monday. The government aims "to provide firm support to those companies through the conclusion of an investment agreement and other measures," he said.
Japan's cabinet will sign off on lifting sanctions as soon as the end of the week now that Iran has met its obligations under last year's nuclear deal. A ban on trade insurance contracts longer than two years will end.
Japanese businesses will once again be allowed to make new investments in the Middle Eastern nation's oil and gas sector, putting a spotlight on the fate of the Azadegan oil field. Inpex was initially involved in developing the site but withdrew from the project in 2010 for fear of running afoul of American sanctions, which would have disqualified the Japanese energy company for funding from U.S. financial institutions.
Seeking energy security
Japan depends heavily on fossil fuels, with Saudi Arabia and the United Arab Emirates alone accounting for around half of its oil imports. Growing imports from Iran would help diversify petroleum sources, making it an essential step in securing a stable energy supply in the medium to long term, a government source said. Many officials have thus pinned high hopes on Japanese companies retaking their former stakes in oil projects.
Iran has also reportedly indicated that Japanese interests could make a return. Tokyo is prepared to lend businesses a hand on this front. Trade insurance, which companies purchase when exporting products or making overseas investments, could be applied to oil and gas deals, for example.
Yet there are reasons for caution. If Iran breaks the deal and sanctions are reimposed, foreign businesses could be prevented from retrieving their own invested capital. Controls on foreign investment also remain a concern. New model oil and gas development contracts presented by Tehran in November include proposals for looser restrictions on foreign companies, but certain ambiguities persist.
Tokyo is leaning on Tehran to announce favorable conditions for foreign investment when details of the contracts are released in February. The government is providing as much support as possible to enable Japanese companies to secure petroleum interests, an official said.
Iran holds the world's largest natural gas reserves and fourth-largest oil reserves, giving it ample wealth in natural resources. A population of 78 million also makes it an attractive market. Japanese automakers and others are considering resuming exports to the country.
Aging oil production facilities are expected to come up for replacement as Iran moves to return petroleum output to previous high levels. Demand for railways, roads, power plants and other infrastructure is also seen swelling -- a major opportunity for technologically advanced Japan, according to an official at the Ministry of Economy, Trade and Industry. The two countries are in discussions to sign an investment agreement as early as February. A measure to ratify the pact would be introduced in the current Diet session, positioning the deal to take effect by year-end.