Iran, Japan near oil agreement

The Japanese companies won priority negotiating rights on the field in 2000. In return, Japan agreed to lend Iran US$3 billion, of which a second US$1 billion installment was paid last year, according to the US Department of Energy Web site.

Iran wants to boost its oil capacity by a quarter to 5 million barrels a day by 2006 or 2007, Zanganeh said earlier this month. He hoped accords over Azadegan and two other fields -- Bangestan and oil deposits at the South Pars natural-gas field -- would be reached this year.

Talks between the Japanese companies and Iran are already behind schedule. Zanganeh in October said Iran planned to finish the negotiations before last April.

Shell has an agreement in principle with the Japanese companies to advise on the project, and has yet to make a final decision on whether to participate, said Justin Everard, a spokesman for Shell in London. Shell isn't involved in the current talks between the Japanese companies and Iran, he said.

Japan, which relies on oil for about half of its energy needs, imported 4.17 million barrels of oil a day in the year ended last March, according to the Ministry of Economy, Trade and Industry. Of that, imports from Iran made up 14 percent.

The deal between one of the US' staunchest allies and its political foe has, however, raised hackles in Washington.

US National Security Adviser Condoleezza Rice has contacted senior government officials in Tokyo on the matter while Secretary of State Colin Powell has raised the issue with Yoriko Kawaguchi, his Japanese counterpart, the FT said.

Pressure from Washington to scrap the agreement, possibly the first example of direct US intervention to block an individual deal with Iran, is part of a broader policy to persuade the country to abandon its suspected nuclear weapons program, the newspaper said.

Japanese executives were trying to resist Washington's intervention and may delay signing any contracts until at least September when the International Atomic Energy Agency is expected to learn more about Iran's nuclear program, the report said.