The Importance of Japan in Iran's Oil and Gas Sector

In recent days, a Japanese delegation led by Daishiro Yamagiwa, the Deputy Minister of Economy, visited Iran and met with Iran's Minister of Oil and other energy officials. Japan, the third-largest economy in the world, not only possesses advanced technologies but is also the second-largest country in terms of foreign direct investment after the United States. Last year, Japan invested $119 billion and about $135 billion in foreign direct investments in 2013, with total direct investments exceeding $1.2 trillion, while Iran's share of this amount is only $5 million. According to official statistics from Japan's Foreign Trade Organization, Japan invested $406 million in Saudi Arabia last year and approximately $491 million in the first quarter of 2015. In the UAE, Japan made nearly $120 million in direct investments from early 2014 to the first quarter of 2015. Unlike Western companies that had a relatively strong presence in Iran before sanctions, Japan's major experience in Iran's energy sector relates to two relatively large contracts: the development of the Azadegan oil field and the development of a high-density polyethylene unit in Ilam petrochemicals, both signed in 2004 before Mahmoud Ahmadinejad's presidency. In the massive Yadavaran oil field, which has 6 billion barrels recoverable, Japan's Inpex Corporation committed to provide 75% of the necessary investment and develop the field, but after Ahmadinejad's presidency and rising tensions, Iran reduced Inpex's share to 10% due to what it called 'delays in drilling activities,' and ultimately, in 2010, due to U.S. sanctions against Iran, the Japanese company exited without developing the field. However, in the petrochemical sector, Mitsui Engineering and Shipbuilding completed its $280 million contract for the development of the heavy polyethylene unit in Ilam in 2010, and currently, Iran produces 300,000 tons of product from this unit annually. The Japanese delegation also included several other energy companies that could join Mitsui and Inpex in Iranian projects. Iran will need $185 billion in investment for oil and gas production over the next five years and $70 billion for petrochemicals over the next decade, which Japanese companies have both the necessary technology and sufficient capital for. Another topic discussed during the meetings between Iranian and Japanese officials was increasing Iran's oil exports to Japan. Before the sanctions, Japan was a customer of 350,000 barrels of Iranian crude oil per day, while this figure dropped to about 173,000 barrels per day in the first half of this year. Mohsen Qamsari, the executive director of international affairs at the National Iranian Oil Company, announced on Sunday that Iran is ready to increase oil exports to Japan. In recent months, Japan has slightly increased its oil imports from Iran, unlike China, India, and South Korea. According to a Reuters analysis, Iran's oil exports to these four countries dropped by about 13% in the first half of 2015, with only Japan showing a slight increase in imports. In the non-oil sector, bilateral trade between Iran and Japan has improved over the past four months. According to customs reports, Iran's non-oil exports to Japan increased by about 15% from March to the end of July, reaching over $11 million, while during the same period, Japan's exports to Iran nearly doubled, exceeding $82 million.