Iran's simmering proxy conflict with Saudi Arabia is cropping up all over the place.
Riyadh helped crush an Arab Spring uprising in Shiite-majority Bahrain in 2011, and friction between the two countries has fueled civil wars in Syria and Yemen. Attempts to reignite oil prices earlier this year were thrown into disarray when Iran refused to attend an oil producers' meeting in Doha.
Now the Iran-Saudi cold war has made it to Japan.
A government-brokered shakeout of Japan's oversupplied oil refining industry is in jeopardy after the founding family of third-ranked Idemitsu Kosan voiced opposition to a planned tie-up with number-four Showa Shell, citing its Saudi links.
Showa Shell is "under direct control of Saudi Arabia," the family wrote in a statement. That may be a slightly hysterical characterization of state-owned Saudi Aramco's 15 percent shareholding and single seat on Showa Shell's 12-person board -- but it carries some weight thanks to the family's 34 percent stake in Idemitsu.
The objection isn't just shocking because it's threatening the creation of a company whose combined equity was valued at about 764 billion yen ($7.64 billion) prior to the family's intervention. It's also a departure for a Japanese refining sector whose import dependence has traditionally fostered a Marc Rich-style refusal to pick sides in the geopolitics of oil.
Idemitsu's association with Iran dates back to the 1950s, when it faced down legal threats from BP's predecessor company to buy one of the first cargoes of fuel from the country's newly nationalized oil industry. That sounds like a ancient blood-bond, but it's probably more accurate to think of Idemitsu's decision to deal with Iran as purely commercial. The company's buying decisions have usually been determined more by economics than politics. In recent years it's been one of Japan's smallest consumers of Iranian oil.
Showa Shell, for all its Saudi links, has been the biggest, accounting for about 41 percent of Japan's Iranian oil imports last year, according to Tsuyoshi Inajima and Emi Urabe of Bloomberg News.
The turn to more politicized decision-making shows how the lifting of nuclear sanctions on Iran earlier this year is shaking up Asia's energy industry.
Since sanctions were first imposed in 2006, Saudi Arabia's share of Japanese oil imports has risen to as high as 40 percent, while Iran's has occasionally dropped to zero. Tehran has been working flat out to make up for lost time since the prohibitions were lifted this year but has been hampered by a decade of under-investment in export infrastructure.
That's where Japan comes in. Its hunger for petroleum imports, combined with low financing costs and technological expertise, leave the nation perfectly positioned to help Tehran upgrade. Tokyo signed a $10 billion credit line to facilitate Iranian oil exports last week. The likes of trading house Mitsui & Co. and refinery-builder Chiyoda are already looking at investments in the sector.
That backdrop suggests a possible explanation for the Idemitsu family's otherwise-baffling lurch into the Middle East conflict. Exploration and production is a significant business for the company these days, accounting for almost half of operating income over the past five years and the majority of capital spending.
While Idemitsu hasn't announced any plans to invest in Iran yet, the country's planned $30 billion in project work represents an obvious new frontier for a company that already has upstream and downstream assets in the North Sea and Vietnam. That's quite a different business to the global trade in crude, where an indifference to political considerations is often a key advantage. Government tenders are inherently political, and competition against the likes of Total, Shell, and Lukoil is likely to be fierce.
If Idemitsu hopes to win one of Tehran's prized contracts in these times, it's probably not helpful to have Saudi Aramco as a major shareholder.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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