Japan: A Delicate Balance

For most of the past century or so, Japan has enjoyed remarkable popularity within the Muslim world. In stark contrast to European countries or the United States, Japan has no burdensome history of colonial-style intervention in the region's affairs (with the possible exception of Tokyo's brief wartime occupations of Malaysia and Indonesia). And if there was ever a time when Japan needed to maintain that good will, it's now, when spiking oil prices are threatening to undermine its economic recovery.

Japan needs lots of oil--it's the world's second largest importer of petroleum. But much of the increasingly costly commodity--which hit a high of $75 a barrel last week--comes from countries that have poor relations with America, which just happens to be Japan's foreign-policy mentor, protector and chief ally. That's creating problems for Tokyo, which may soon find itself forced to decide which is more important--its energy security or its relationship with the United States. "Until now, Japan's energy diplomacy has never been independent of U.S. policy," says Koichi Iwama, a professor and energy policy expert at Wako University. But it may become so as Japan seeks to adapt to an era of tight energy supplies--especially at a time when archrival China is cutting deals with resource-rich countries around the world, no matter what their political orientation may be.

Iran is a prime example of the dilemma facing Tokyo. For years Japan has been doing its best to shore up relations with the mullahs in Tehran, even though policymakers know that Washington disapproves of its overtures. Iran provides 15 percent of Japan's oil, making it the country's third largest supplier (behind Saudi Arabia and the United Arab Emirates). Two years ago, as part of an increasing effort to secure ownership of reserves rather than simply buying oil on the open market, Tokyo decided to make a strategic investment in the vast Azadegan field along Iran's border with Iraq. The Japanese oil major Inpex is investing $2 billion to develop the field, the biggest onshore production project in Iran since the 1979 Islamic Revolution.

Critics warned that Iran's burgeoning nuclear ambitions could complicate the deal--a prediction that now appears to be coming true. In March a Japanese newspaper reported that U.S. Deputy Secretary of State Robert Zoellick had "informally" asked Tokyo to write off its investment in Azadegan. Both sides quickly denied the report. But the sense of anxiety is palpable. One Japanese businessman in Iran tells NEWSWEEK that "we're now getting worried about what would happen if the situation escalates."

If Japan refrains from making deals in politically sensitive countries, it will almost certainly pay more for oil in the years ahead. Japan spent about $80 billion last year on oil imports, compared to $56 billion the year before, and the price tag this year could be even higher.

Japanese diplomats are trying to avert such a scenario. They've launched a PR offensive to woo opinion-makers throughout the Islamic world, and the Foreign Ministry has been touting plans to forge a free-trade agreement with Persian Gulf countries. What's more, Japan is revving up its diplomatic outreach to the oil-rich Muslim republics of the former Soviet Union. Azerbaijan's president, Ilham Aliyev, was warmly received when he traveled to Tokyo in March--a trip motivated, perhaps, by the huge investments recently made in his country's oil industry by Japanese companies.

Certainly Japan would prefer to strengthen its relationship with U.S. allies like Saudi Arabia, which has the world's largest oil reserves. Relations between the two nations got chilly around the turn of the century, after an investment dispute resulted in Japan losing its share in the massive Khafji oil field. But the split now seems forgotten. The Saudis need outside investment to further exploit their oil and gas reserves, and Japan is eager to participate. That Japan is a key ally of the United States, which is very close to the Saudi royal family, certainly helps. Sumitomo Chemical recently signed a $10 billion deal with a Saudi counterpart to develop a huge new refinery project on the Red Sea coast. Japan is now the largest foreign investor in Saudi Arabia . Saudi Arabia's Crown Prince Sultan Bin Abdulaziz Al-Saud was in Tokyo earlier this month for an official visit (including lunch with Emperor Akihito and his wife).

Other Muslim nations may not be so comfortable with Japan's U.S. ties. After the 9/11 terrorist attack, Koizumi's government leaped to the defense of the United States and soon Japanese naval forces were in the Indian Ocean supporting coalition operations in Afghanistan. In 2003, when President George W. Bush was preparing to go to war with Iraq, Tokyo declared its willingness to send in ground troops to support the reconstruction effort. (There are rumors that the 550 Japanese troops in the southern Iraqi city of Samawa may be withdrawn sometime soon.) That sense of solidarity went down well with the Bush administration but had the opposite effect on al Qaeda and other extremists. There have been two recent cases--one in Indonesia, one in Japan itself--that suggest terror organizations may be targeting the Japanese.

Michael Penn, executive director of the Shingetsu Institute, which follows Japan's relations with the Islamic world, notes that the deployment of Japanese troops to Iraq "was motivated more by Japan's insecurity toward China and North Korea than by Japan's policy toward Muslim nations. Because of Japan's feeling of insecurity in East Asia, they felt that it was necessary to align more closely with U.S. policy in the Islamic world."