Newsletter No. 676
News-Analysis
July 14, 2007

 

YEN FOR OIL -- DOLLARS NOT ACCEPTED BY TEHRAN

The story about Tehran’s wish to be paid in yen rather than dollars when Japan purchases Iranian oil has taken an interesting turn.

In review of this story, recall that in March it emerged that Tehran made a request to Japanese companies to start paying their oil bills in Japanese yen, not US dollars. The initial reaction from the Japanese business world seemed to indicate that they would be willing to comply. (Shingetsu Newsletter No. 564)

However, this story seemed to disappear for a while until the Financial Times reported in June that banks such as the Bank of Tokyo Mitsubishi UFJ, Mizuho, and Sumitomo Mitsui were cutting some of their links with Iran, and apparently were told by the Japanese government not to accede to Tehran’s request for payment in yen. (Shingetsu Newsletter No. 661)

If the FT report was substantially correct, then today’s story may be seen as Tehran’s counterstrike.

It is said that a letter has been sent to Japanese refiners, dated July 10th and signed by Ali A. Arshi, general manager of crude oil marketing and exports of the National Iranian Oil Company. In this letter, Arshi says that “effective immediately” Iran is demanding yen-based transactions “for any and all of your forthcoming Iranian crude oil liftings.”

Megumi Yamanaka of Bloomberg quoted Hirofumi Kawachi, an analyst at Mizuho Investors Securities Company in Tokyo, as follows: “What else can Japan do but to accept the request, once the oil producer sent its wish?... The tensions between the US and Iran are escalating, and it's Iran's measure to hedge risk.”

Iran is Japan’s third-largest supplier of crude oil after Saudi Arabia and the UAE.

We may have just witnessed another round of swordplay between the Bush administration and Iran, played out on the field of Japanese policy. For the moment at least, this round seems to be going to Tehran.

Of course, one may legitimately ask why the game should have to be played at all. Both the United States and Iran share many common political interests in spite of their history of mutual antipathy.