U.S. Envoy Einhorn Says Japan Agrees on Need to Increase Pressure on Iran

A senior U.S. official said Japan agrees on the need to increase pressure on Iran to prevent the Mideast nation from developing nuclear weapons, and sought to ease concerns that doing so will drive up oil prices.

“Increasing pressure could give the Iranians stronger incentive to get to the negotiating table,” Robert Einhorn, the State Department’s special adviser for nonproliferation and arms control, told reporters today in Tokyo after meeting with Japanese officials. “I think there is agreement on that. And my government believes in stepping up pressure against Iran while maintaining stability in the international oil markets.”

Japanese Prime Minister Yoshihiko Noda’s government has signaled support for U.S. efforts to cut imports of Iranian oil while expressing concern about the economic impact. Japan and South Korea, Einhorn’s stop yesterday, each count on Iran for about 10 percent of their oil, and switching to alternative sources risks stoking import costs as the two export-reliant economies cope with a dimming outlook for global growth.

“We’re urging all of our partners to help us, to work with us in putting pressure on the government of Iran to get it to negotiate seriously” on its nuclear program, Einhorn said in his meeting with South Korean deputy foreign minister Kim Jae Shin yesterday. While the U.S. asked for a 50 percent cut, South Korea is seeking a 30 percent reduction, the Dong-A Ilbo newspaper said, citing a South Korean official.

U.S. Treasury Secretary Timothy F. Geithner visited Tokyo and Beijing last week, with talks focused on Iran. The visits follow President Barack Obama’s signing of legislation last month that tightens sanctions on Iran.

Cutting Off Income

The Obama administration’s efforts are aimed at cutting off Iran’s main source of income to force the regime to abandon its nuclear development program. Iran is already under four rounds of United Nations sanctions as well as additional U.S. and European Union financial restrictions.

Oil sales earned Iran $73 billion in 2010 and supplied more than 50 percent of the national budget, according to the U.S. Energy Department and the International Monetary Fund. The second-largest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, Iran exported an average of 2.58 million barrels a day in 2010.

Iran’s Vice President Mohammad Reza Rahimi said on Dec. 27 that his nation may close the Strait of Hormuz, the passageway for about a fifth of globally-traded oil, if the U.S. and its allies impose stricter economic sanctions.

Oil traded near the highest level in three days as Iran advised Saudi Arabia against replacing supplies in the event of sanctions. Crude for February delivery increased as much as 62 cents to $101.33 a barrel in electronic trading on the New York Mercantile Exchange.

U.S. Law

The American measure denies access to the U.S. financial system to any foreign bank that conducts business with the Central Bank of Iran, a step that would complicate the international purchases of Iran’s crude oil.

“It is an extraordinary period in the history of U.S. sanctions enforcement in view of the completely extraterritorial character of the proscribed conduct,” Clifford Chance LLP attorneys wrote in a note to clients this month.

Noda’s administration has given conflicting signals on its preparedness to cut Iranian oil imports. While Finance Minister Jun Azumi said in a joint press briefing with Geithner Jan. 12 that his country would take “concrete steps” to do so, Noda the next day said consultations were needed with business groups about the impact of reductions. Japan imports virtually all its petroleum.

Noda also said at a press briefing in Tokyo that he wants to discuss with the U.S. about how Japanese banks can avoid adverse effects from American sanctions.

Seeking Market Stability

Foreign Minister Koichiro Gemba today said that while Japan is considering cutting Iranian imports, keeping oil prices stable is critical.

“The important thing is the stability of markets,” he said at a press conference in Tokyo. “If crude oil prices rise as a result, the sanctions aren’t effective.”

U.K. Chancellor of the Exchequer George Osborne said after a meeting with Noda today in Tokyo that he doesn’t expect Japan to be able to immediately cut Iran oil shipments.

“It’s not easy to switch supplies overnight,” Osborne told reporters.

He and Azumi agreed that a peaceful solution to the situation is desirable, according to a Japanese government official who spoke to reporters in Tokyo today on condition of anonymity.

To contact the reporters on this story: Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net; Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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