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 on Tuesday after a media report the two sides would settle on an 11% 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.
Washington is pushing ahead with sanctions because it fears Iran might use its nuclear programme 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 on 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 programme has military goals, saying it is for purely peaceful purposes.
MORE IMPORTS AFTER FUKUSHIMA
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.
Japan's Foreign Minister Koichiro Gemba said no agreement has been reached yet. Japan is offering to continue cutting Iranian oil imports but talks are ongoing.
One reason Japan may be reluctant to support publicly a reduction in Iranian oil imports with the same vigour 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% last year to 313,000 bpd, accounting for 8.8% 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% from last year's level, as the Yomiuri reported, that would amount to a reduction of 34,430 bpd.
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.
By contrast, China and South Korea, the two other big Asian buyers of crude, increased imports from Iran last year.
