Just Say No

 The latest round of economic sanctions is supposed to put pressure on Iran, but they may be putting just as much pressure on America’s key Asian allies, Japan and South Korea, both of whom are dependent on Middle East for the vast bulk of their petroleum imports.

In the past, under pressure from Washington, Tokyo and Seoul have reluctantly fallen in line and cut back on doing business with Iran. Just a little more than one year ago, Japan ended its last major investment in Iran. Now Washington is back with more demands, and both countries are balking.

After meeting with U.S. Secretary of State Timothy Geithner earlier this month, Japan’s finance minister, Jun Azumi said Japan would reduce petroleum imports from Iran in line with the American policy. He was almost immediately slapped down by Prime Minister Yoshihiko Noda, who he said he was speaking for himself. The government has not formulated a position.

An American delegation arrived in Tokyo Jan. 17 for further talks, which were said to be inconclusive so far. The two sides are haggling over how far Tokyo has to go in meeting demands to receive an exemption from the main enforcing mechanism, a ban on Japanese banks working in the U.S. that do business with Iran’s central bank.

Robert Einhorn, U.S State Department special advisor on arms control, was in Seoul trying to convince South Korea to cut its petroleum imports and unwind their business dealings with the Central Bank of Iran . No immediate agreement was made. Deputy foreign minister Kim Jae shin said many Koreans worry that reducing oil imports will harm the economy.

South Korea, the world’s fifth largest oil importer, buys roughly 10 percent of its petroleum needs from Iran, or about 200,000 barrels of crude per day. Seoul is currently dealing with Iran’s Central Band to clear payments. Indeed, it has said it would actually increase imports slightly in 2012

Both countries have been down this road before. Azumi noted that Japan once imported about 40 percent of its petroleum supplies from Iran. It is now down to roughly ten percent, or about 260,000 b/d, with the likely hood that, in time, it will be reduced even more.

A little more than a year ago, Japanese oil explorer Inpex, under severe pressure from Washington and from Tokyo, totally divested its minority interest in the huge, new Azadegan oil field in Iran at a considerable loss. It was the cornerstone of Japan’s “hinomaru (rising son flag) oil” policy of securing energy supplies by investing in Japanese owned -energy deposits in the Middle East.

At one time Inpex owned 75 percent of the Azadegan field; it cut its stake to 10 percent in 2006. Company officials argued that their minority stake was a passive investment, not a case of “doing business” with Iran and sought an exemption, but their pleas fell on deaf ears.

The pressure on Japan concerning Iran tends to wax and wane depending on how much Washington values Japan’s symbolic support of its Middle East military adventures. It eased up when Japan sent a symbolic battalion of troops to Iraq during the height of the Iraq War and naval oilers to refuel allied ships in the Indian Ocean.

But Washington has hardened its stance in recent years, especially after Mahmoud Ahmadinejan was elected president in 2005. At the same time, it has not needed Japanese cooperation in Middle East adventures. The one battalion was withdrawn a few years ago and refueling operating ended by the new government in 2009.

The latest pressure comes just as Japan is trying to recover from the “triple disaster” of the March 11 Earthquake, tsunami and multiple nuclear power meltdowns. The later naturally spawned  concerns over safety that have shuttered all but a handful of the country’s nuclear power plants that used to supply more than a quarter of electric power.

This has necessitated some increased petroleum imports, although the main replacement fuel for power generation has been natural gas. Hardly surprising that the affected ministries, especially Economy, Trade and Industry, worried over impact of fuel prices on the economy immediately urged Azumi to move cautiously as they assess Washington’s intentions and explore avenues for replacements imports.

Both Japan and South Korea go to great pains to support the abstract goal of pressuring pressure Tehran into seriously negotiating over its suspected nuclear weapons program. However, it is fair to say they do not have the visceral concern over Iran that seems to animate Washington. The concerns really come down to several issues of realpolitik.

How far can Japan go in opposing pressure from Washington without damaging relations with the country on whom they depend for ultimate defense? What would be the damage to the economy by reducing oil imports weighed against the damage to banking interests if the country’s banks are locked out of the U.S.? “If the law is implemented the effect on Japan’s banks would be quite severe,” says Azumi

And of course, looming in the background is the remote chance that the that the current shadow war now being waged against Iran might explode into open war fare, which would obviously hurt countries so dependent on steady and secure Middle East supplies.

Given stakes involved neither country can afford to just say no to the American pressure. But it is equally clear that neither is going to easily bend to Washington’s demands. The negotiations will go on for some extended period. In the end they will probably reduce imports to some extent. Washington will declare it satisfied and grant the necessary waivers.