TOKYO -- Japanese oil distributors are preparing to suspend imports of Iranian crude oil in line with U.S. demands, which come with threats of sanctions against companies that refuse to comply.
Japan's oil imports from Iran are expected to fall to zero as early as October. Saudi Arabia and the United Arab Emirates are among possible alternative suppliers.
The U.S. told oil distributors like Japan's JXTG Holdings and Idemitsu Kosan in late June to stop imports of Iranian crude and condensate altogether by Nov. 4, when it plans to resume sanctions on Tehran. It threatened to impose penalties on companies that continue to do business with the Middle Eastern country.
In response, MUFG Bank notified oil distributors that it will stop settling Iran-related transactions starting this summer, unless there is progress in government negotiations. Mizuho Bank is considering a similar policy. Without bank guarantees for the payments, it would be very difficult for the distributors to complete the purchases.
Japan's maritime shippers are also notifying clients that they probably will not transport Iranian crude beyond September.
U.S. Secretary of State Mike Pompeo has said that Washington could consider exempting certain countries from sanctions for importing Iranian oil. But hopes are fading that Tokyo will gain a waiver.
"All we can do is to talk with the U.S. and convince it to exempt us," a Japanese Foreign Ministry official said. But an official from the Ministry of Economy, Trade and Industry was more pessimistic, saying Japan will most likely be forced to stop shipments from Iran.
The oil distributors are moving with the assumption that an exemption will not be granted to Japan. They will start negotiating with such oil producers as Saudi Arabia and the United Arab Emirates in August and do not expect any disruptions to the oil supply. But some of them have not received all the Iranian crude they paid for under full-year contracts. They plan to ask the Japanese government to help make up for their losses.
Iranian crude can easily be processed into profitable products like gasoline and kerosene, according to JXTG. The American move to withdraw from the Iran nuclear deal and reimpose sanctions is already pushing up crude prices. A switch in suppliers could lead to further increases in gasoline prices in Japan.
Japan relies on the Middle East for about 90% of its crude imports. Iran is its sixth-biggest supplier, accounting for about 5% of the total. Japan has traditionally been on friendly terms with Iran as part of its campaign to diversify its crude supply and bolster its energy security. For Iran, around 60% of crude exports go to Asia, including Japan and China.
U.S. demands for an embargo are rippling through the global energy business. French oil major Total has also announced that it will exit a natural gas development project in Iran unless it is exempted from American sanctions.