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Japan Seeks Delay to Adjust to Europe’s Iran Sanctions

The Wall Street Journal
13th June 2012



BERLIN—Japan, looking to secure a steady energy supply, is pressing the European Union to loosen pending sanctions that would prohibit European firms from insuring its imports of Iranian oil, according to people familiar with the effort.

After significant reductions of purchases, Japan still gets about 3% of its crude from Iran, and 90% of such tanker voyages are reinsured by companies based in the EU.

Those insurance contracts come to a halt on July 1, when EU sanctions go into effect prohibiting EU-based companies from insuring or reinsuring ships carrying Iranian oil. The sanctions also include a ban on imports of Iranian oil to Europe.

Though the Japanese government has introduced legislation that would allow it to cover tankers carrying Iranian crude in the case of an accident, Japanese officials said such a law probably wouldn't be passed in time to come into effect by July 1.

Cutbacks in Iranian oil purchases have earned Japan—and most other major buyers of Iranian crude—exemptions from new U.S. sanctions intended to limit Iran's oil exports. Japan's efforts to seek relief from Europe, though, are likely to face a diplomatic challenge.

A spokesman for the Japanese Embassy to Germany declined to comment.

Approval of any exemption to the new sanctions would require a unanimous vote by representatives of the 27 EU nations. Senior officials from two major European countries said that while they were sympathetic to Japan's energy needs, they worried an exemption would send the wrong message to Iran.

"If I had to decide today, I would say no," said one of the senior officials, whose government has yet to formally decide.

In a Berlin meeting with Japan's ambassador earlier this month, German deputy foreign minister Michael Link said that if any exemption were granted, it shouldn't extend beyond the end of 2012, so as not to undermine the sanctions, a person familiar with the meeting said. A spokeswoman for the German foreign ministry declined to comment on discussions with Japan.

The EU sanctions are part of an international effort to pressure Iran to curtail its nuclear program.

Negotiations with Iran resume in Moscow next week, after the last round ended with an agreement only on when and where to meet again.

The U.S. and its European allies fear Iran is developing technology required for a nuclear weapon, though Iran insists its nuclear aims are peaceful. The International Atomic Energy Agency says Iran's lack of cooperation prevents it from determining whether Iran's nuclear program is civilian or military in nature.

Japan has already sharply reduced its dependence on Iranian oil, turning instead to countries such as Kuwait. In April, Japan imported 118,450 barrels of Iranian crude per day, down 65.5% a year earlier. U.S. and European officials say such shifts in countries' oil imports are evidence the sanctions are working.

In recent months, Japanese officials have been pressing Germany, the U.K. and other EU countries to support an exemption at least until October, so that Japan has time to pass a law enabling government insurance coverage, diplomats say.

The U.K. foreign ministry didn't respond to a request for comment.

The diplomats said Japan risks disruptions to its energy supply after last year's earthquake and tsunami led to the shutdown of its nuclear power plants.

Refineries tooled to refine Iranian crude oil can't be quickly altered to handle a different grade of oil, one diplomat said.

The Obama administration this week renewed its assessment that global oil supplies are capable of meeting demand even without Iran's contribution.

Last week, Japan's economics minister, Yukio Edano, said the government was discussing "how to deal with the [insurance] issue," but declined to discuss details.

Germany-based Munich Re, MUV2.XE +0.39% the world's largest reinsurer, will stop reinsurance for ships carrying Iranian oil exports on July 1, a spokeswoman said.

"Munich Re will of course continue to monitor future international developments regarding sanctions against Iran and comply with all applicable sanction regulations," she said.

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