Japan, Iran Enter Into Investment Treaty, $10 Billion Debt Guarantee

Japan and Iran have entered into a bilateral investment treaty and an agreement for a $10 billion debt guarantee for Iran. The move could create an enormous inflow of Japanese investment in the Middle Eastern nation. The Japanese Ministry of Economy, Trade, and Industry and Japan’s Minister for Foreign Affairs, Fumio Kishida, approved the agreement.

These officials welcomed the signing of the investment treaty, and feel the $10 billion debt guarantee will allow Japanese companies to invest without significant risk.

Japan and Iran have entered into a bilateral investment treaty and an agreement for a $10 billion debt guarantee for Iran. The move could create an enormous inflow of Japanese investment in the Middle Eastern nation. The Japanese Ministry of Economy, Trade, and Industry and Japan’s Minister for Foreign Affairs, Fumio Kishida, approved the agreement.

These officials welcomed the signing of the investment treaty, and feel the $10 billion debt guarantee will allow Japanese companies to invest without significant risk.

The two nations signed the treaty after reaching a “substantial agreement” to its terms in October. Japan lifted key sanctions against Iran, along with a number of other nations around the world when Iran reached agreements with the international community regarding discontinuing its nuclear development programs.

Japan lifted its ban on allowing Japanese companies to invest in Iran’s oil and gas sector. Petroleum and other energy sector companies will likely be a key target of Japanese investment, according to Platts.

While the treaty allows for greater investment opportunities, a separately executed agreement will create a framework under which Iran will guarantee up to $10 billion in investments by Japanese companies. It will accomplish this using export credits by Nippon Export and Investment Insurance or via special loans arranged by the Japan Bank for International Cooperation.

The framework would allow Japanese companies to secure up to approximately 1.2 trillion yen in financing. This, in turn, should provide the means and motivation for Japanese companies to invest in Iran. In exchange for this investment potential, Iran will grant Japan large export credits and provide financing in Japanese yen. The use of Japanese yen could be very important to facilitating investments, as the use of U.S. dollars are still banned in Iran, even after the lifting of the international sanctions against the Middle Eastern nation.

The U.S. dollar serves as the international base currency for many international trade arrangements such as this one, so failing the use of the dollar, trading in Japanese yen should make the process of negotiating and arranging payment more agreeable to potential investors.

Despite these allowances, Japanese companies remain cautious about considering investments in Iran. Much of the concern stems from Iran’s unpredictable behavior in the past and its often-contentious relations with foreign powers. Worse yet, low global oil prices have removed much of the incentive for short-term investments.