Japan and Iran Seal Ground-Breaking Oil Deal - International Law Office

Signature of the contract on the development of the Azadegan oilfield, worth $2.8 billion and with an estimated capacity of 36 billion barrels, will guarantee the energy security of Japan for 20 years. The deal is so important that it would have been proper for Japanese Prime Minister Junichiro Koizumi to participate in the signing ceremonies himself. However, as a result of US pressures, the Japanese government eventually dispatched the director of energy and natural resources affiliated to Japan's Ministry of Industries to Tehran to participate in the signing ceremonies at the same time as security forces were sent to Iraq.

The ceremonies were also attended by the Japanese ambassador to Iran, together with most high-ranking officials of the Iranian Ministry of Oil. The contract was viewed as a giant step in the development of Iran's oil, gas and petrochemical industry.

The contract will be executed by Japanese contractors (75%) and by Naftiran Intertrade Co Ltd, an affiliate of the National Iranian Oil Co (25%). Production will reach 260,000 barrels per day (b/d) within the next 92 months. Fifty-one per cent of the contract price will be spent on capital investments from Iranian domestic sources. This will inject about $1 billion into the Iranian economy in the coming years. Further, 1% of the contract price will be spent on training Iranian personnel and on technology transfers. The plans in this regard had already been agreed prior to the signing of the contract.

The initial output of Azadegan oilfield will be 50,000 b/d, starting in 2007. This volume will increase to 150,000 b/d in 2008 and will reach 200,000 b/d by 2012. All products of the field will be exported to Japan. Japan's oil imports in 2003 stood at 4.48 million b/d, and oil from the Azadegan oilfield will eventually provide some 6% of Japan's total oil imports.

The contract has a duration of 16 years, unlike previous buy-back contracts which lasted for seven to eight years. The contract is the second of its type executed in recent months: the first was signed by the National Iranian Oil Co and a consortium of Japanese companies, headed by Toyo, for the South Pars oilfield.

The Azadegan oilfield is located some 80 kilometres to the west of Ahwaz in Dasht-e-Azadegan.

The project is the largest inland upstream crude project of Iran since the Islamic Revolution.

For further information on this topic please contact Behrooz Akhlaghi at International Law Office Dr Behrooz Akhlaghi and Associates by telephone (+98 21 873 21 38) or by fax (+98 21 873 41 29) or by email (bakhlaghi@kanoon.net).