Japan may store Abu Dhabi oil

Abu Dhabi is in talks to store its oil in Japan, the biggest importer of the emirate's crude. The deal, which would allow the Abu Dhabi National Oil Company (ADNOC) to establish a crude reserve on Japanese territory, is the latest in a series of steps the emirate and the Asia-Pacific countries that buy most of its oil have been taking to strengthen their political and trade ties, particularly regarding energy.

It could also provide the UAE and Japan with an insurance policy against short-term disruptions to shipping through the Strait of Hormuz. The project has been under discussion since March and is expected to start this autumn, with stocks of oil from ADNOC being stored in a reserve base of Nippon Oil in Kagoshima, southern Japan, the Japanese trade ministry said. Japan would have the pre-emptive right to buy the crude during times of emergency, it added.

The ministry did not provide details of the volume that Japan was expected to receive from ADNOC. The agreement "would contribute to enhancing Abu Dhabi's relationship with Asian markets generally and Japan particularly, and guarantee the flow of crude oil supplies to these market in emergencies", according to WAM, the government news agency. Abu Dhabi has long harboured concerns about the potential for geopolitical turmoil or maritime accidents to disrupt its oil exports by closing the Gulf choke-point through which 40 per cent of the world's seaborne oil shipments pass. The Government has charged the state-owned International Petroleum Investment Company (IPIC) with building a strategic pipeline from the emirate's biggest onshore oilfields, at Habshan, to an export terminal in Fujairah, on the Arabian Sea.

The Government's concern with safeguarding both its major revenue stream and the continuity of oil supplies to its key customers may have increased with the rise of political tension in Iran, after the controversial presidential election. In a sign that Iranian unrest could spill over into the oil sector, Tehran this week removed a senior oil official, Akbar Torkan, from the position of deputy oil minister for planning. Mr Torkan, a former defence and transport minister, has close political ties with Ali Akbar Hashemi Rafsanjani, the powerful cleric who has broken ranks with the Iranian supreme leader, Ayatollah Ali Khamenei.

According to Robin Mills, an energy economist based in Dubai, Saudi Arabia, the biggest OPEC oil exporter, previously tried unsuccessfully to negotiate a deal to establish a strategic oil reserve in the US. "It would have remained Saudi oil, but in a safe place," he said. The UAE has a long-standing relationship with Japan dating back to the 1960s. It is the second-biggest supplier of crude to Japan, after Saudi Arabia. Japan imports more than 800,000 barrels a day of crude from the Emirates, mainly from Abu Dhabi.

In January, Abu Dhabi granted a 20-year extension of an offshore oil concession to a Japanese consortium led by Cosmo Oil, a refining company in which IPIC holds a 20 per cent stake. In the same month, the UAE and Japan signed an agreement for peaceful nuclear co-operation. @Email:[e-mail]