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Japan makes first oil payment to Iran in a year-sources

TOKYO - Japan this week became the first ofIran's oil buyers to make a payment for crude imports under aninterim nuclear deal, sources told Reuters on Wednesday, as theWest eased a year-long stranglehold on revenues that hascrippled the Iranian economy. Tough international sanctions over the past two years havecut Iran's oil exports in half. U.S. measures imposed a year ago
stopped the remaining importers of Iranian oil from transferringcash to Tehran, starving the OPEC member of its principal sourceof hard currency and forcing Iran to the negotiating table overits disputed nuclear programme. Tokyo's role in sending the first funds may be a boon forJapanese firms jostling for position with international rivalsto invest in Iran's oil and gas sector, should a furtheragreement end Tehran's international isolation.
It is unclear why Japan was the first of Iran's oil buyersto pay. China, India and South Korea also buy crude from Iran
and all have billions of dollars of cash held in Iranianaccounts pending transfer. The Iranian funds were released earlier this week from anaccount held by the Bank of Japan, three sources told Reutersspeaking on condition of anonymity because of the sensitivity ofthe issue. One of the sources confirmed the amount was for $550million, while another said it was likely further releases ofIranian funds would be made by Japan as they come due. A substantial portion of frozen Iranian funds are held atthe Bank of Japan, one of the sources said. The funds were transferred to an Iranian Central Bankaccount in Switzerland, a U.S. Treasury spokeswoman said earlierthis week. Under a Nov. 24 agreement with six major powers, Tehran getslimited sanctions relief in exchange for steps to curb itsnuclear programme. The interim agreement gives Iran access to $4.2 billion ofits oil revenues frozen abroad if it carries out its part of thedeal, while parties continue negotiations for a final agreementwithin a year. The next round of talks starts on Feb. 18. The West suspects Iran was using the nuclear programme todevelop nuclear weapons. Iran says the programme was to generateelectricity and for medical isotopes. Some payments under the six-month deal, which officiallybegan on Jan. 20, depend on Iran fulfilling its commitment todilute half of its 20 percent enriched uranium to no more than 5percent enriched uranium. SANCTIONS PAIN Until the interim deal, Iran's importers had been steadilyreducing purchases to avoid falling foul of U.S. and EuropeanUnion sanctions. The four Asian buyers together cut oil imports from Iran by15 percent on the year to an average of 935,862 barrels per day(bpd) in 2013, government and industry data showed. The decades-long U.S. campaign to isolate Iran has chokedforeign investment and barred access to the latest technology toexploit the country's vast oil and gas reserves. Iranian President Hassan Rouhani said last month that Iranwas seeking a comprehensive agreement so it can develop itsbattered economy, inviting Western companies to seizeopportunities now and promising oil executives a new, attractiveinvestment model for oil contracts by September. Oil and other companies from France and Russia have alreadyresponded. Iran welcomed a senior French trade delegation to thecountry on Monday, telling more than 100 executives that thefar-sighted among them stood to win the race for businessfollowing an easing of some economic sanctions. A source close to the delegation told Reuters it was themost senior group of executives and financiers to visit Iransince the 1979 revolution. Japanese banks and other companies have been cautious aboutapproaching Iran because of the fear of running afoul of U.S.sanctions if the current opening falters, bankers and officialssaid. Japan's Mitsubishi UFJ Financial Group paid a $9million fine in 2012 to U.S. regulators to settle charges thatit had violated U.S. sanctions with payments to Iran that datedback to 2007. It will take some time before investment materialises andoil flows return to their pre-sanction levels. Iran cannot get its next instalment of $450 million on March1 unless the International Atomic Energy Agency confirms Tehranhas done half the necessary dilution of its enriched uranium,according to a Treasury fact sheet. The following is a table outlining the payments totalling$4.2 billion and their conditions to Iran following the Novemberagreement between Tehran and the five powers. Feb 1 $550 mln Paid, transferred from Bank of Japan Mar 1 $450 mln Contingent on confirmation of dilution of half of Iran's stockpile of near-20% enriched uranium it is required to dilute Mar 7 $550 mln Apr 10 $550 mln Apr 15 $450 mln Contingent on confirmation dilution of the rest of Iran's stockpile of near-20% enriched uranium it is required to dilute May 14 $550 mln Jun 17 $550 mln Jul 20 $550 mln Contingent on confirmation Iran has fulfilled all of its commitments