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Japan’s diplomatic overtures to Iran

June 13, 2019 | Expert Insights

BACKGROUND

Japan's foreign policy and investments in Iran have historically been dominated by the desire to secure reliable energy supplies. At the time of the first oil shock in 1973, Japan was importing 70% of its crude from Iran. Iran is Japan's third-largest oil supplier after Saudi Arabia and the United Arab Emirates. In 2018, Japan imported 88 percent oil from the Middle East, of which 4 percent came from Iran. The imports were dwarfed by purchases from Saudi, UAE, Qatar and Kuwait.

In 1983, Japan's then Foreign Minister Shintaro Abe, travelled to Tehran to try and broker peace between Iran and neighbouring Iraq when those two countries were locked in an existential war. It maintained its ties with Tehran through the Iran-Iraq war, despite US disapproval.

The balance of trade between the two countries favours Iran, with Japan exporting automobiles and electrical products and importing petroleum and petrochemical products. As of 2010, Japan cooperates with Iran on several major projects; and the annual trade volume of the two countries exceeds $11 billion.

ANALYSIS

Iran is engaged in a dispute with the United States that is crippling its economy. After pulling out of an international nuclear deal last year, US President Donald Trump reimposed sanctions on Iran that prevent it from exporting oil to some of its biggest customers. The loss of Iranian crude oil could hurt Japan's economy.

"​Japan imports almost all its oil and, historically, Iran has been an important and stable supplier​", said Sachi Sakanashi, a senior research fellow at Japan's JIME Center of The Institute of Energy Economics. "​Although it is not clear what PM Abe can accomplish in his Iran trip yet, making a visit itself is already a valuable step in the current situation,”​ she said.

This is the first visit by a Japanese prime minister to Iran in four decades. Abe is scheduled to include meetings with Iranian Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani. Abe will have to strike a delicate balance between Japan's geopolitical priorities and economic needs.

Prime Minister Abe said "​Amid concerns over growing tension in the Middle East and with the attention of the international community on the issue, Japan wishes to do its best towards peace and stability in the region. Based on traditional friendly ties between Japan and Iran, I would like to have candid exchanges of opinions with President Rouhani and supreme leader Khamenei towards easing tensions.​”

The US sanction has pressured its allies to stop purchasing Iranian oil. The US allowed a six-month waiver on the sanctions for eight regions, including Japan, but those waivers expired on April 22. Since May 2, the US has been applying severe penalties to any company or individual country that breaches the sanction. In addition to the renewed sanctions against Iran, the US announced a plan to move 1,500 troops to the region in response to attacks on oil tankers off the coast of the UAE which the US has blamed on Iran's Revolutionary Guards.

ASSESSMENT

Our assessment is that in 1953 when Iran was under a British blockade for nationalising Iranian oil, Japan began to directly import oil from Iran, ignoring the British blockade. We feel that in the case of US, Tokyo is dependent on US for security against Beijing’s expansion in the South China Sea as well as the East China Sea where the two countries have overlapping territorial claims. As a result, Japan has closely aligned itself with US objectives in the Middle East.

We feel that while Japan has access to alternative sources of supply, the cheaper price of Iranian crude is attractive for Japanese companies. We also observed that when the US exited from the Joint Comprehensive Plan of Action in 2018, the Japanese business community sought assurances from PM Abe that they would not be cut off from the Iranian market.

In 2015, Japan announced an activist Middle East policy, engaging on a host of issues ranging from humanitarian assistance and development to security. The initiative did not succeed, as the Japanese preferred to be more circumspect. We believe that it is unlikely for Japan to enter into any future US led regional military deployments that would disrupt delicate relationships with Japan’s regional trading partners.