Japan’s Idemitsu Kosan and Showa Shell said Tuesday that the refiners in
March began joint crude procurements as part of a plan to optimize operations
under their alliance introduced a year ago.

The move is the latest in a series of efforts under the alliance agreed
last May aimed at strengthening the companies and helping them to compete in a
market facing a drop in demand for oil products.

The business alliance came after Idemitsu Kosan’s acquisition of 31.3% of
Shell’s stake in Showa Shell in December 2016, following the green light from
the Japan Fair Trade Commission for the consolidation between Idemitsu Kosan
and Showa Shell.

Speaking at an earnings press conference in Tokyo, senior Idemitsu Kosan
officials said Tuesday that the company was not overly concerned about the
potential impact from the recent US decision on sanctions against Tehran as
its Iranian crude imports are negligible.

“At the moment, we are not concerned because our [Iranian crude]
procurement volumes are extremely small,” according to Noriaki Sakai, general
manager of the company’s treasury department.

Koji Tokumitsu, general manager of Idemitsu Kosan’s Investor Relations
Office, said Idemitsu’s Iranian crude imports account for less than 1% of its
procurements, adding that it will consider how to deal with Iranian crude
under its joint procurement arrangement with Showa Shell.

“We are already jointly procuring crude oil [with Showa Shell],”
Tokumitsu said. “Based on the latest situation, we will consider in detail how
we will deal with Iranian crude procurements.”

Showa Shell declined to comment Tuesday on its current level of Iranian
crude imports. But a senior National Iranian Oil Company official told S&P
Global Platts last year that Showa Shell was the only Asian company NIOC would
directly discuss prices with.

US President Donald Trump decided last week to withdraw from the Iran
nuclear deal and re-impose sanctions that have been frozen since January 2016
as part of the Joint Comprehensive Plan of Action.

International buyers of Iranian oil have until November 4 to wind down
contracts before the US re-imposes sanctions on the oil, energy, shipping and
insurance sectors, according to a US Treasury Department fact sheet.

The US will also consider allowing countries to continue importing
Iranian crude as long as they demonstrate that they are significantly reducing
those volumes every 180 days, the fact sheet showed.

— Takeo Kumagai, takeo.kumagai@spglobal.com

— Gawoon Philip Vahn, Philip.Vahn@spglobal.com

— Edited by James Leech, james.leech@spglobal.com

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