Japan’s imports of crude oil from Iran are under threat after the freezing of Iranian assets at the Bank of Tokyo-Mitsubishi UFJ, which handles most of Japan’s trade settlements with Iran.
The bank has complied with a New York district court order to freeze the assets, although it lodged an appeal on May 16 disputing the court’s authority to stop Japan-based accounts.
With court arguments expected to continue even if the appeal is accepted, oil industry observers say the order could seriously affect Japan's oil business with Iran.
“Vessels already on their way to Japan with crude oil (from Iran) will arrive without disruption,” said Koichiro Tanaka, director of the Japanese Institute of Middle Eastern Economies Center at the Institute of Energy Economics. “But shipments in the future will not be possible.”
Although Japan has scaled back crude oil imports from Iran by 40 percent over the past five years, Iran was still supplying 8.1 percent of Japan’s demand as of fiscal 2011.
The district court order threatens that supply, because Japanese companies will not be able to settle crude oil deals with Iran.
Japan received a special exemption from a U.S. sanctions law enacted last year aimed at forcing Iran to drop its nuclear program. That law targets foreign financial institutions doing petroleum-related business with Iran’s central bank and can stop them doing business in the United States. Japan got its waiver after promising to reduce its crude oil imports from Iran in stages.
But the district court judgment, dated on May 2, is related to a separate issue. It was issued in connection with a U.S. demand for $2.6 billion (about 200 billion yen) compensation from Iran for Iran’s alleged involvement in a lethal terrorist attack in Lebanon in 1983. Iran has not paid the money, and the court ordered the freezing of deposits by the Iranian government and its central bank in the Japanese bank’s accounts in Japan, the United States and elsewhere.
Distributors say eliminating Iranian oil from Japan’s supply chain will be very difficult in the short term, partly because some oil plants are equipped with refining facilities specifically designed to handle crude oil from Iran.
The Bank of Tokyo-Mitsubishi UFJ is contesting the U.S. court’s jurisdiction over Japan-based accounts. A lawyer at one U.S. law firm said the bank is not legally obliged to follow the court order, but the court battle looks likely to hurt supplies.
“If the plaintiffs in the suit take additional legal action, the court battle will go on even if the bank’s appeal was accepted,” one government source said.
The Bank of Tokyo-Mitsubishi UFJ is not the only Japanese financial institution with Iranian accounts. The other two megabanks--Sumitomo Mitsui Banking Corp. and Mizuho Bank--would offer alternative conduits, and Japanese government and banking industry officials are understood to be exploring the possibility of using those alternative routes.
However, such an effort could backfire because beginning new trade deals with Iran would raise the risk for Japanese banks of being seen in the United States as financial institutions with close ties with Iran. That could make them targets of a new round of sanctions.
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