Iran sanctions will hurt Japan

Iran has refused to comply with the international community's demands that the country prove that it is not developing nuclear weapons.

It is unavoidable for other nations to pressure Iran to reconsider its stance by strengthening sanctions.

However, if sanctions are introduced incorrectly, they could have a negative impact on other countries, including Japan, which imports oil from Iran.

We should carefully and thoroughly study the impact of the new United States sanctions on Iran, which were recently approved by Congress. The sanctions, which were included in an annual US defence authorisation bill, limit dollar-based transactions between US financial institutions and those in foreign countries, including Japan, which engage in transactions with the Central Bank of Iran. The sanctions will come into effect six months after US President Barack Obama signs the bill into law.

The Central Bank of Iran is in charge of settling accounts for the nation's oil trade. Therefore, it plays a crucial economic role, as oil accounts for about 80 per cent of the country's exports. If foreign banks stop doing business with the central bank to avoid being targeted by US sanctions, it will be difficult for Iran to export oil.

This is the aim of the United States - to prevent funds accrued from oil exports from being used to develop nuclear weapons.

However, if Iranian oil supplies decline due to the US sanctions, international oil prices are likely to jump. The sanctions will be meaningless if the oil price increase benefits Iran or cools down the world economy.

What is more disconcerting is the influence sanctions could have on Japan, which is Iran's second-largest oil export partner after China. About 10 per cent of Japan's total oil imports come from Iran. Among US allies, the sanctions are likely to affect Japan the most.

If sanctions are imposed, Japan could be doubly hit by difficulty in procuring oil and high oil prices. This would hinder rebuilding the nation from the aftermath of the March 11 earthquake, tsunami and nuclear disaster. The Japanese economy also may slow down.

According to reports, some exemptions are permitted, such as removing foreign financial institutions from the sanctions list if they meet certain conditions. The US president also is authorised to refrain from imposing sanctions for security reasons.

The government must closely liaise with the US administration and draw up measures to avoid Japan's oil imports being affected by the US sanctions.

Other countries share similar concerns, such as South Korea - which imports about 10 per cent of its oil imports from Iran - Greece, Italy, Spain and other European countries. The Obama administration needs to implement the sanctions carefully.

We also need to keep an eye on Beijing's moves in relation to the US sanctions, as China is the largest importer of Iranian oil. China has been critical of imposing any sanctions on Iran. If the US-China relationship becomes strained because of the new sanctions, it will become more difficult to form an international coalition against Iran.

Iran is expanding its uranium enrichment activities after ignoring four United Nations Security Council resolutions imposing sanctions on that country. The United States, China and other permanent members of the Security Council should double their diplomatic efforts to prevent Iran from possessing nuclear weapons.