Japan, Iran Ink Major Oil Deal

A Japanese (searchconsortium will develop an Iranian (searchoil field with reserves of up to 26 billion barrels in a deal announced Thursday by Japan but opposed by the United States because of fears the money could go to nuclear proliferation.

The estimated $2 billion deal with Iran grants the government-backed consortium development rights in the Azadegan (searchoil field, believed to be one of the largest in the Middle East.

It could offer a key source of energy for resource-poor Japan, which is also pursuing similar arrangements in Russia and other countries.

"We welcome the signing of the contract on the exploitation of the Azadegan Oilfield," the Foreign Ministry said in a statement.

The deal drew sharp criticism from the United States that the estimated $2 billion investment in Iran could be used for nuclear weapons development and terrorist activities.

"Our policy has been, with respect to Iran, to oppose petroleum investment there," State Department spokesman Richard Boucher told reporters in Washington on Wednesday. "We remain deeply concerned about deals such as this."

U.S. officials had been informed of the expected agreement earlier in the week.

Japan said, however, that the agreement did not condone nuclear proliferation by Iran.

"It is not just the United States, but Japan is also concerned. Iran is responding to suspicions and concerns now," Prime Minister Junichiro Koizumi told reporters.

The government's top spokesman, Yasuo Fukuda, said Tokyo would seek to address Washington's concerns, but added that the deal was a major coup for energy-hungry Japan.

"Such independent development holds great significance," for Japan's energy policy, Fukuda told reporters. "It would be a very good thing if it leads to a stable energy supply."

The agreement gives the Japanese consortium a 75 percent stake and Iran's national oil company the remaining 25 percent in the project, the Ministry of Economy, Trade and Industry, which conducted the negotiations, said in a statement.

Iran uses a "buyback" arrangement in which foreign companies participating in energy projects are repaid for their investment in oil or gas revenues. The Iranian constitution prohibits foreign companies from taking an equity stake in Iran's energy sector.

Under the format, Japan expects to recoup its investment in about six years, the trade ministry's statement said.

The field, estimated to hold 26 billion barrels, should start pumping oil in 40 months at 50,000 barrels a day and produce a maximum of 260,000 barrels per day when fully operational, it said.