TOKYO Japan is close to agreement with Washington on the size of cuts refiners must make in imports of Iranian crude oil to win waivers from U.S. sanctions, two ministers said Tuesday after a media report the two sides would settle on an 11 percent cut.
The Yomiuri newspaper, citing unidentified sources, said Japan and the United States reached an agreement at talks last week about the size of cuts to crude imports from Iran, with a formal deal expected by the end of this month.
Avoiding sanctions is essential to protect the Japanese financial sector's operations abroad, but cutting oil imports could pose a risk to Japan's economy.
Reliance on oil imports has grown since a 2011 earthquake and tsunami triggered the Fukushima radiation crisis, leading to most nuclear reactors at Japanese power plants being shut down.
"We are closely negotiating with the United States and are moving forward toward mutual understanding, but it is not the case that we have reached a conclusion," Trade Minister Yukio Edano told reporters.
Washington is pushing ahead with sanctions because it fears Iran might use its nuclear program to develop nuclear weapons.
The European Union has imposed its own embargo on oil imports from Iran, to start from July 1. In response, Iran ordered a halt of oil sales to Britain and France Sunday in a move symbolic of Tehran's anger with the West.
Iran, the biggest producer in OPEC after Saudi Arabia, denies Western suspicions that its nuclear program has military goals, saying it is for purely peaceful purposes.
NEEDS MORE IMPORTS AFTER FUKUSHIMA DISASTER
The United States says it will punish financial institutions that deal with Iran's central bank, the main clearing house for oil revenues, by shutting them out of U.S. markets. A country can earn a waiver from the sanctions if it significantly reduces trade with Iran.
"Many countries have approached us to discuss their efforts to reduce purchases of Iranian crude which, by statute, could except them from sanctions," a senior official in President Barack Obama's administration said.
"We are discussing specific cases with specific countries. It would be premature to discuss any of them at this time."
Japan's Foreign Minister Koichiro Gemba also said no agreement has been reached yet. Japan is offering to continue cutting Iranian oil imports but talks are ongoing, a foreign ministry official said earlier.
One reason Japan may be reluctant to support publicly a reduction in Iranian oil imports with the same vigor as Europe is that Tokyo is worried about damaging close diplomatic ties it has had with Tehran in the past.
Japan needs to import more oil to make up for declining use of nuclear power after the Fukushima disaster last March triggered the worst nuclear crisis since Chernobyl 25 years ago.
Public safety fears have prevented the restart of reactors halted for routine checks, and only two of the nation's 54 reactors are still operating. The last of those is due to be shut down by late April.
Japan is the third-biggest customer for Iranian oil, although its imports of Iranian crude fell 11.7 percent last year to 313,000 barrels per day (bpd), accounting for 8.8 percent of total oil imports. They have declined by more than half from 683,000 bpd in 2003, partly because Iranian oil is more expensive than other Middle Eastern crude.
If Japan cut Iranian oil imports by 11 percent from last year's level, as the Yomiuri reported, that would amount to a reduction of 34,430 bpd.
Cosmo Oil Co has already lowered its Iran crude imports to a little below 30,000 bpd from about 40,000 bpd since January, industry sources say.
Other refiners' imports are seen steady so far this year, but imports are likely to be down further from April, when most annual contracts are renewed. Japanese refiners have been awaiting instructions from the government before launching talks with Iran on annual contracts.
Although refiners need to replace Iran crude with oil from other sources, buying less Iranian oil could turn out to be beneficial because the threat of sanctions has pushed up the cost of settlements, tanker chartering and insurance.
Some Japanese refiners are negotiating with top exporter Saudi Arabia to make up for any shortfall.
Japan's top refiner, JX Nippon Oil & Energy Corp, a unit of JX Holdings, said it has not received any instruction from the government on Iranian oil, including the reported 11 percent cut, and whether Japan will win waivers. Two other refiners had also heard nothing, industry sources said.
"We are worried because the government is not good at planning ahead," one source at a Japanese buyer of Iranian crude said.
By contrast, China and South Korea, the two other big Asian buyers of crude, increased imports from Iran last year.
(Additional reporting by Kiyoshi Takenaka in TOKYO and Alister Bull in WASHINGTON; Writing by Stanley White; Editing by Michael Watson and Paul Tait)