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Last Updated: Sunday, 3 September 2006, 11:57 GMT 12:57 UK
Iran and Japan close to oil deal
Oil well
Iran's nuclear row with the West has caused global oil prices to rise
Iran and Japanese firm Inpex say they are close to finalising a joint project to develop a big new Iranian oil field.

Both sides say they are less than two weeks away from final agreement over the Azadegan field, which is one of the world's largest untapped oil reserves.

Any deal will no doubt raise eyebrows in the US which wants sanctions against Iran due to Tehran's nuclear ambitions.

While Japan is totally reliant upon oil imports, Iran is the world's fourth largest crude producer.

Extensive oil reserves

The Iranian government and Inpex first signed an outline agreement over the Azadegan field in 2004, but they subsequently failed to reach a final agreement due to a dispute over the exact financial structure of the deal.

This impasse now appears to have finally been broken.

"An understanding has been reached and we can almost say that no dispute has remained on pricing," said Iran's representative to global oil producers group Opec, Hossein Kazempour Ardebili.

Analysts expect it will take $2bn (1bn) to bring the field on stream.

Located in the south west of Iran, Azadegan is estimated to have reserves of 26 billion barrels of crude, and production could start in 2008.

The Japanese government is a major shareholder in Inpex.

Iran's ongoing dispute with the West over its nuclear ambitions have been a main factor in high global oil prices this year.

While Iran insists its simply wishes to develop nuclear power stations, the US and other nations fear Tehran wishes to build nuclear weapons.

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