TOKYO (majirox news) — Japan has found itself in a tight spot as the United States and Europe try to coerce Japan to go along with the expected oil embargo against Iran. Japan relies on Iran for approximately 10 percent of its crude oil imports, and although Japan is looking for alternative supplies, going into the spot market will be costly and will impinge on Japan’s already fragile economy.
The EU is expected to announce a ban on oil imports from Iran sometime this month. US President Obama has already signed into law strict sanctions against banks doing business with Iran’s Central Bank. This move places Japanese banks dealing with Iran in a difficult position.
Japanese banks are heavily invested in the United States and are vulnerable to American pressure, and in some cases they are directly subject to American law. For example, Union Bank NA, which is the 18th largest bank in the United States and the 3rd largest bank in California, is a wholly owned subsidiary of Japan’s Tokyo Mitsubishi UFJ Bank. Unless Japan halts oil imports from Iran, Japanese banks could be subject to stiff American penalties within as little as 60 days from now.
Prime Minister Yoshihiko Noda is expected to ask U.S. Treasury Secretary Timothy Geithner to exempt Japanese banks when Geithner visits Japan on Jan. 12, 2012.
Nevertheless, he has already indicated that chances of agreement are very slim. According to the Voice of America, Geithner has said he would “seek Chinese and Japanese help in imposing financial measures against Iran, including the Central Bank of Iran.”
According to knowledgeable oil traders, Japanese purchases of Iranian oil are down about 30 percent from a year ago due, at least in part, to the slowing Japanese economy. However, Iran remains a major supplier of oil to Japan. There is visible concern in the Japanese business community that if Japan is forced to turn to other countries for oil supplies, oil prices in Japan could skyrocket, further damaging the Japanese economy.