Let's hear it for Japan's Nippon Oil. Finally, someone found the guts to stand up to one of the OPEC bullies. Nippon, Japan's largest oil refiner, doesn't trust Iran to honor its commitments should the world refuse to cave to the theocracy's nuclear aspirations. (Imagine that -- Iran's credibility is being questioned. Haven't Iran and the other OPEC suppliers always been totally reliable over the years?) So, rather than waiting for a crisis to erupt and, as one example, supplies being cut off if the United Nations imposes sanctions to force Tehran to halt its nuclear program, Nippon unilaterally decided to impose its own sanction. It has cut back on its purchases of Iranian crude oil by 15 percent. Japan, which is Iran's biggest customer, buys one of every four barrels Iran produces, importing some 580,000 barrels a day. Other Japanese refiners are under corporate pressure to follow Nippon's lead as the nuclear impasse continues and the political risks become more ominous.
For now, consumers elsewhere will probably pick up the slack created by Nippon's decision, so Iran won't feel any immediate pain. No matter. Perceptions are shifting, and customers are rattled. And finally someone has not only raised a red flag, but taken action. And even if no other Iranian oil consumer defects, it's still a hopeful sign, and an utterly refreshing turn of events, to come across a customer that dares to express its displeasure with an OPEC tormentor, and then to follow up with real action in the marketplace. Since 1986, when then-Vice President George H. W. Bush gave Saudi Arabia and its OPEC brethren free rein to manipulate oil prices, "More? Sir" has been the standard response to the oil monopoly's machinations (see my blog "Taxing Oil Monopoly Profits", March 15, 2006). Now Nippon has said, in effect, "enough." It will look elsewhere to assure that it does not become a victim of an Iranian government run amok.
Suppose other importers of Iranian oil, say Italy, France, Spain, India and South Korea, among others each importers of at least 100,000 barrels/day were to announce that they too were curtailing their imports of Iranian oil, because Iran just couldn't be trusted to keep pumping an uninterrupted supply of crude. And suppose the Bush Administration let it be known that oil from the 700 million barrels languishing underground in the U.S. Strategic Petroleum Reserve would be released as needed to the marketpace. And then imagine the ramifications if the International Energy Agency would join the United States and together opened their spigot of a combined 4.1 billion barrels of government and commercial stockpiles to the market should any shortfall of supply occur that could not be made up by other producers. How long do you think it would take before the Iranians --cried uncle? Iran's economy, which is almost wholly dependent on oil revenues, would collapse within a year, taking the current nuke-rattling government down with it.
If Nippon Oil's pullback from Iran does nothing else, it should at least remind us that we are not without weapons to fight back against the OPEC oil extortionists.
We may not as yet have the resolve to confront OPEC, but should that day come, Japan has shown us the way.