Iran Sanctions and Japanese Industry – What You Need to Know

Dark green Mitsubishi car with its doors open on the road in the field
Dark green Mitsubishi car with its doors open on the road in the field
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What Are These Sanctions About?

On August 6th, a new wave of the American government sanctions against Iran has come into the effect. The sanctions were initiated by president Donald Trump’s administration in an effort to force governmental changes in Iran. The coercive measures are designed to negatively impact Iran’s economy by crippling its still crawling global trade. However, rather than going after Iran itself, the goal of the American government is to dissuade Iran’s key economic partners to do trade with Tehran.

The sanctions will come in two stages. The one that has just been implemented covers financial transactions, gold and precious metals as well as the automotive industry. The second wave, set to come into effect on November 4th, will affect the trade of oil, gas, and petrochemicals as well as shipping.

How Will the Sanctions Affect Japan?

The sanctions are already affecting the trade and economic relations between Iran and Japan. As of October 2017, 33 Japanese companies were doing business in the Islamic republic. One of the industries that will likely be affected the most is the Japanese car manufacturing business.

Iran is one of the fastest-growing automotive markets in the world and, currently, the 10th largest in the world. Between the years 2015 and 2017, car sales in Iran rose from 1.1 million to 1.6 million. Japanese car manufacturers have been fully aware of the potential of the Iranian market. In 2017 alone, Japan exported 20,000 vehicles there, according to the Japan Automobile Manufacturers Association. Mitsubishi, one of Japan’s most prominent car makers, has even opened car dealerships there and exported to Iran hundreds of vehicles a year on a regular basis.

One of the industries that will likely be affected the most is the Japanese car manufacturing business.

No Waivers

Now, all of this trade will apparently have to come to an end for at least two reasons. First, maintaining trade with Iran despite the sanction would entail the risk of retaliation from the U.S. Previously, many Japanese companies and business hoped for a possibility of obtaining a waiver from American government allowing them to continue the trade. However, it seems that the U.S. will not grant any waivers – neither to Japan nor to other countries that intend to keep trading with Iran. In June, one of the officials from the U.S. Department of State said that the sanctions on Tehran were one of the Trump administration’s “top national security priorities” and that the “predisposition would be no, we’re not granting waivers”.

Japanese Banks Follow Suit

The second reason for the Japanese automotive industry to play along and respect the sanctions is related to a recent decision taken by some of the key Japanese banks such as Mitsubishi UFJ Financial Group Inc (MUFG) or Mizuho Financial Group Inc. These decided to comply with the sanctions and halt all Iran-related transactions.

Future Uncertain

Hiroshige Seko, the chief of Japan’s Ministry of Economy, Trade and Industry, has recently said that the ministry was “carefully analyzing the impact” the sanctions might have on the Japanese economy and companies. He also added that the government was holding talks “with relevant countries, including the U.S., on the impact on Japanese companies.”

Today’s “otsumami” – a bite size snack:

U.S. sanctions against Tehran will likely negatively affect the Japanese automotive industry due to projected fewer car exports to Iran

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Written by Marcin Milosierny

Marcin loves writing about all things Japan. She has an interesting in Japanese Accounting and tax.

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