Japan is preparing to suspend its crude oil imports from Iran to comply with U.S. demands that are reinforced with threats of sanctions against companies that don't adhere to them. As a result, Japan's Iranian oil imports are expected to plunge to zero as soon as October.
The United States has threatened to impose penalties on companies continuing to trade with Iran and told Japanese oil distributors such as JXTG Holdings and Idemitsu Kosan to cease imports of Iranian condensate and crude by November 4th, when sanctions on Tehran plan to be resumed.
MUFG Bank notified oil distributors it will cease to settle Iran-related transactions as of this summer if no progress in government negotiations is made. This leaves oil distributors without bank guarantees for payments of purchases, making it extremely difficult to complete a transaction. Mizuho Bank is currently considering a similar policy.
Similarly Japanese maritime shippers are informing their clients that in all probability they will not continue transporting Iranian crude beyond September.
There remains slight hope that Washington could consider exempting Japan from sanctions for importing Iranian crude, as U.S. Secretary of State Mike Pompeo said this could be a possibility for certain countries. However Japan's oil distributors are currently acting with the assumption that an exemption will not be granted.
An official from the Ministry of Economy, Trade and Industry has said it is likely that Japan will be forced to stop Iranian shipments.
"All we can do is talk with the U.S. and convince it to exempt us," says a more optimistic Japanese Foreign Ministry official.
Japanese oil distributors will start negotiations with possible alternative suppliers, Saudi Arabia and the United Arab Emirates, in August and do not predict any disruptions to occur to the oil supply. Some distributors, however, have not yet received the full amount of Iranian crude they paid for under full-year contracts and plan to ask the Japanese government to assist them with making up for their losses.
United States' decision to withdraw from the Iran nuclear deal and reinforce sanctions is already bringing up prices for crude, which according to JXTG, easily can be processed into profitable products like kerosene and gasoline. A further increase in gasoline prices in Japan could ensue as a result of a switch in crude supplies.
About 90% of Japan's crude imports come from the Middle East, with Iran being its sixth-biggest supplier and making up around 5% of total imports. As part of its campaign to diversify its crude supply and strengthen its energy security, Iran has been on good terms with Iran.
Iran relies on Asia, including Japan and China, for about 60% of their crude exports.
The United States' demands for an embargo continue to affect the global energy business. French oil giant Total has announced that unless it is exempted from American sanctions, it will pull out of a multibillion-dollar natural gas development project in Iran.