By Mari Iwata

Source:

October 8, 2010

TOKYO – The relatively high price of Iran’s crude oil may be a reason for reduced sales in Japan, and volumes could fall even further if Japanese banks reduce credit lines for companies doing business with Iran, a senior Japanese refining company official said Friday.

“What we are worried about is Japanese banks’ possible scaling down of credit lines,” Masayoshi Ishino, an executive officer at Cosmo Oil Co. (5007.TO), said.

If that happened, Japanese oil companies could access to only limited amounts of yen for Iranian transactions, which could result in lower imports from Iran, he said in a speech on crude-oil market trends delivered at a Petroleum Association of Japan event.

However, Cosmo Oil isn’t currently aware of any changes by banks on credit availability for business with Iran, Ishino said.

Since 2007, and at the request of Iran, Japanese oil refiners and trading companies have paid for crude oil imported from Iran in yen rather than U.S. dollars.

Japan’s government adopted new sanctions against Iran on Sept. 3, which include Japanese banks being required to suspend agency arrangements with 15 Iranian banks, and Japanese firms and individuals being prohibited from making any fresh oil and gas-related investments in Iran.

But these sanctions don’t include restrictions on crude oil imports, due to government concerns about the country’s energy security–Japan imports almost all the oil it uses.

Japan’s moves follow the ramping-up of U.S. and European sanctions against Iran in response to its nuclear development program, and growing pressure by Washington on companies worldwide to disengage from Iran.

Iran’s crude oil is expensive relative to similar grades produced by Saudi Arabia and other Middle Eastern countries, and this could be a reason for a recent fall in the amount of crude imported by Japan, the Cosmo official said.

If Japan, and neighboring South Korea, no longer had access to Iranian crude for whatever reason, other suppliers have ample spare capacity and comparable crude grades are available in spot markets, he said.

Most of Japan’s imports from Iran are Iranian Light and Iranian Heavy grades, and possible substitutes include Omani and Qatari crude and Iraq’s Basra crude, the Cosmo official said.

Japanese refiners and trading companies imported about 289,000 barrels a day of Iranian crude in August, down 37% from July, although overall crude imports were fractionally higher, Ministry of Economy, Trade and Industry data show. Imports from Iran increased slightly in July.

Cosmo is Japan’s fourth-largest oil refiner. It has a daily crude oil throughput capacity of 555,000 barrels a day.