Toru Fujioka and Aki Ito – Business Week January 14, 2012
U.S. Treasury Secretary Timothy F. Geithner’s efforts to tighten economic sanctions on Iran over its nuclear program won backing from Japan a day after China rejected limiting oil imports from the country.
“We want to take concrete steps to reduce our share in an orderly way as soon as possible,” Finance Minister Jun Azumi said at a joint press conference in Tokyo today with his U.S. counterpart. “The world cannot tolerate nuclear development.”
Geithner’s meetings were part of a trip to Asia’s two largest economies aimed at building support for tighter Iranian economic sanctions after international monitors detected an acceleration in the nation’s nuclear development program. China, which counts Iran as one of its top petroleum suppliers, yesterday snubbed the U.S., with a vice foreign minister saying his nation “opposes imposing pressure and sanctions.”
Crude for February delivery climbed 49 cents, or 0.5 percent, to $101.36 a barrel in electronic trading on the New York Mercantile Exchange as of 5:00 p.m. Tokyo time.
JX Nippon Oil & Energy Corp., Japan’s biggest refiner, is in talks with Saudi Arabia and other producers to replace crude shipments in the event of an embargo, according to an official who declined to be identified, citing company policy. JX buys about 90,000 barrels of Iranian oil a day, the official said.
Japanese Chief Cabinet Secretary Osamu Fujimura said the government hasn’t made a final decision on cutting Iranian imports, and that Azumi’s pledge “is just one of several opinions.” Azumi later said he is seeking ways to make sure sanctions on Iran don’t hurt the Japanese economy.
“Japan will try and seek a halfway solution where they’ll try and limit imports from Iran and boost imports from other Middle Eastern countries that are also U.S. allies,” said Razeen Sally, a professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. Given its military alliance with the U.S., Japan “is much more susceptible to U.S. pressure than China,” he said.
The U.S. will send officials to Japan next week to discuss how the Japanese government will implement its plans, NHK Television quoted Geithner as saying in an interview. “We share a sense of urgency,” he told NHK.
Asked about China, Geithner told NHK: “They have been actually very cooperative with the international community with this common objective because of course they share our interests in trying to make sure Iran is compliant with its international obligations.”
“They actually have been quite supportive in tangible ways,” Geithner said. “I heard additional evidence of their intentions on that when I was there.”
The Obama administration’s “basic objective is to assure that China is more fully integrated into the global economy and financial system,” he said. The yuan’s exchange rate, which the U.S. claims is undervalued, is “just one part” of a broader agenda Chinese leaders are pursuing, he said.
On the International Monetary Fund’s role in helping resolve the European debt crisis, Geithner said, “I think you’ll see the world willing to see the IMF play a supportive role. It’s done so already and it’s what the IMF exists to do. But it can only be effective in that context in support of a stronger European commitment to make sure they have in place a monetary union that can work.”
Japan, the world’s second biggest importer of Iran’s crude after China, bought 1.09 million kiloliters, or about 6.85 million barrels, in November, or 6.4 percent of the country’s total purchases for the month, according to trade ministry data.
“Any price spike would lead to a worsening of Japan’s trade terms,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “If the price increase gets passed on to consumers, that diminishes their disposable income; if it doesn’t get passed on to consumers then it hurts corporate earnings.”
European Union foreign ministers are scheduled to decide at a Jan. 23 meeting in Brussels whether to impose and how to phase in an embargo on Iranian oil, which is designed to force Iran back to the negotiating table over its nuclear program.
Iran has begun enriching uranium to as much as 20 percent U-235 at the underground Fordo site near the city of Qom, the International Atomic Energy Agency said in a Jan. 9 announcement. The site is monitored by IAEA inspectors to detect any attempt to enrich uranium to the 90 percent level necessary for a nuclear bomb.
Strait of Hormuz
Iranian Vice President Mohammad Reza Rahimi said Dec. 27 that his nation would block oil shipments through the Strait of Hormuz if sanctions are imposed, the Islamic Republic News Agency said. The Strait is a transit point for one-fifth of oil traded worldwide.
Refiners in Asia, the destination for 65 percent of Iran’s oil exports, are seeking alternative sources in the event of a supply disruption from the world’s fourth-largest producer.
Even as China rebuffed American pressure, Premier Wen Jiabao is planning a trip to alternative oil providers. Wen will visit Saudi Arabia, the United Arab Emirates and Qatar from Jan. 14 to Jan. 19 and attend an international meeting on energy, the foreign ministry said two days ago.
“Iran is one of China’s biggest petroleum suppliers,” Vice Foreign Minister Zhai Jun told reporters in Beijing yesterday. “China hopes that petroleum imports won’t be affected as petroleum is needed for China’s development and for ensuring the needs of its people.”
China stands to be the biggest beneficiary of U.S. and European plans for sanctions by taking advantage of the mounting pressure to demand better terms on Iranian crude, analysts said.
“The sanctions against Iran strengthen the Chinese hand at the negotiating table,” said Michael Wittner, head of oil- market research for Societe Generale SA in New York.
At the same time, the U.S. is bearing most of the cost of patrols and surveillance in the Strait of Hormuz, through which 17 million barrels a day of crude are transported. China, the No. 2 importer of oil after the U.S., enjoys protection for the shipping lanes for free, retired Admiral Dennis Blair, a former U.S. Director of National Intelligence, said in an interview.
South Korea, Asia’s fourth-largest economy, announced Dec. 16 that it would expand sanctions against Iran and cautioned companies against importing petrochemicals. Crude oil shipments weren’t affected. The country added 99 Iranian groups and six individuals to a list of people and organizations banned from foreign-exchange transactions without central bank approval.
Iran is South Korea’s fifth-largest supplier of crude, with a 9.4 percent share in 2011.
“Ten percent is not a small number — it is important to diversify” toward other providers, Vice Finance Minister Shin Je Yoon said in a Bloomberg Television interview today. South Korea is working with counterparts abroad, and “it’s too early to say” what the specific approach will be on Iran imports, he said.
–With assistance from Tsuyoshi Inajima, Jacob Adelman, Takashi Hirokawa and Anna Mukai in Tokyo, Eunkyung Seo in Seoul, Susan Li in Hong Kong, Daniel Ten Kate in Bangkok and Gopal Ratnam, Ian Katz, Kevin Costelloe and Indira A.R. Lakshmanan in Washington. Editors: Lily Nonomiya, Christopher Wellisz