Quietly, but nevertheless significantly, Japan’s oil diplomacy is entering one of its most crucial stages ever. Success or failure could determine the future of the nation’s energy security — and even that of its economy as a whole.

A flood of important deadlines are inked in on the Japanese oil-diplomacy calendar for the remainder of the year, beginning with a planned visit to Tokyo early next month by Kuwaiti Oil Minister Adel Khaled Subeih.

When Takeo Hiranuma, minister of economy, trade and industry, visited Kuwait in early July, he and Subeih reached a basic agreement on extending the operations of Japan’s Arabian Oil Co. in the Kuwaiti-controlled portion of the Khafji oil field beyond the current contract deadline of January 2003.

Following the signing of the agreement, the two countries have held full-scale negotiations on the details of a new contract in the hopes of signing it during the Kuwaiti minister’s visit to Tokyo.

Unlike the current contract, the new contract will only grant Arabian Oil — the largest Japanese oil developer and strongly backed by the government — the right to operate in the Kuwaiti-controlled portion of the Khafji field. Arabian Oil will receive commissions in exchange for the labor and facilities it provides.

The prospect of drilling rights being extended in the Kuwaiti portion of the Khafji field has been a lifeline for the already cash-strapped Arabian Oil.

Arabian Oil suffered a particularly serious setback when it lost oil-drilling rights in the Saudi portion of the same oil field in February 2000. Hectic negotiations between Tokyo and Riyadh on extending the firm’s drilling rights collapsed after Tokyo rejected a Saudi demand that it finance a huge railway project.

The Khafji oil filed is located in what used to be the neutral zone between Kuwait and Saudi Arabia. Japan relies on the Middle East for more than 85 percent of its oil. Currently, about 3 percent of Japan’s total oil imports come from the Kuwaiti side of the Khafji oil field.

But when Hiranuma visited Saudi Arabia in early July, he asked Second Deputy Prime Minister Prince Sultan to reopen negotiations on the lost drilling rights for Arabian Oil. Sultan replied simply that he would convey the request to those concerned.

Japan now hopes the kingdom will grant Arabian Oil the right to continue operations on the Saudi side of the field under a new contract similar to the one to be signed with Kuwait as early as next month.

According to government sources, Sultan, the kingdom’s No. 3 man after the king and crown prince, had planned to visit Tokyo early next month, but Saudi Arabia informed Japan recently that the trip would be delayed due to domestic scheduling difficulties.

The Japanese government will attempt to reschedule the visit for some time later this year or early next year in a bid to strengthen bilateral relations in economic and other areas. Sultan concurrently serves as defense minister and civil aviation minister.

Japan also faces a deadline of the end of the year for concluding negotiations with Iran on winning the rights to develop the Azadegan oil field in southwest Iran, one of the country’s largest oil fields.

When Iranian President Mohammad Khatami made his first visit to Tokyo as a state guest last autumn, Tehran agreed to grant Japanese firms preferential negotiating rights for the development of the Azadegan field.

When Hiranuma visited Tehran in early July as part of a Middle East tour, he agreed with Khatami and other Iranian leaders to seek a conclusion of the negotiations by the end of this year.

Royal Dutch/Shell Group will join a Japanese-led international consortium to develop the Azadegan oil field. Actual oil production is expected in 2005 at the earliest.

The biggest cause of concern for Tokyo may be the U.S. Iran-Libya Sanctions Act, which punishes non-American firms investing more than $20 million in the Iranian energy sector.

The U.S. Congress voted late last month to extend the ILSA for five years, despite a request from the Republican administration of President George W. Bush that the law be extended for only two years. Earlier this month, Bush signed the ILSA-extension bill into law.

The U.S. and Iran have been bitter enemies since the 1979 Islamic Revolution in Iran. The U.S. has accused Iran of producing nuclear and other weapons of mass destruction, sabotaging the Middle East peace process, sponsoring terrorism and violating human rights. Tehran vehemently denies all the charges.

“We are not sure if the U.S. administration will apply the ILSA to Japan’s development of the Azadegan oil filed,” a government official said. “But we remain opposed to taking a sanctions policy toward Iran. We are pursuing favorable changes in Iran through dialogue and contacts.

“If the U.S. punishes Japanese firms under the ILSA, Japan may consider filing a complaint with the World Trade Organization against the U.S. measure,” the official said, requesting anonymity.

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