Japan pledges loans to Iraq amid Iran squeeze

Japan is to offer $530 million in loans to Iraq, in part to help rebuild oil refineries, an official said Friday, as Tokyo seeks to diversify fuel supplies after the tightening of sanctions on Iran.

Loans totalling 42.5 billion yen have been pledged to Baghdad to aid the war-ravaged country with four infrastructure projects, including a refinery in the southern city of Basra and another in the northern city of Baiji, a foreign ministry spokesman said.

A hospital and telecommunications system will also benefit.

"The total value of the projects will amount to 160 billion yen and the main contractors will be Japanese companies," said the official in charge of Middle East issues.

The loans come as Washington continues to press Tokyo to decrease its dependence on Iranian oil, amid a growing Western-led sanctions campaign targeting Tehran's alleged nuclear weapons programme.

The United States is trying to ramp up pressure over the programme, which Tehran insists is peaceful, threatening to cut off financial institutions that deal with the country's central bank, which would squeeze Iran's vital oil export business.

Japan last month initially appeared willing to fall into line with US demands to reduce Iranian oil imports, only to backtrack and insist the issue needed further study.

Iranian crude now makes up around a tenth of resource-poor Japan's oil imports, while crude from Iraq accounts for about three percent.

Japan has eagerly sought to strengthen its ties with Iraq by offering reconstruction support in the aftermath of the conflict there. The world's third-largest economy relies heavily on the Middle East for its oil needs.

Tokyo has been forced to boost its imports of fossil fuels over the last 12 months to make up for the energy shortfall caused by the shuttering of all but two of the country's nuclear reactors in the wake of the crisis at Fukushima.