Japan: A Delicate Balance; With the price of oil skyrocketing, Tokyo may have to make friends with some of Washington's enemies.

Byline: Christian Caryl (With Akiko Kashiwagi)

For most of the past century or so, Japan has enjoyed remarkable popularity within the Muslim world. In stark contrast to European countries or the United States, Japan has no burdensome history of colonial-style intervention in the region's affairs (with the possible exception of Tokyo's brief wartime occupations of Malaysia and Indonesia). And if there was ever a time when Japan needed to maintain that good will, it's now, when spiking oil prices are threatening to undermine its economic recovery.

Japan needs lots of oil--it's the world's second largest importer of petroleum. But much of the increasingly costly commodity--which hit a high of $75 a barrel last week--comes from countries that have poor relations with America, which just happens to be Japan's foreign-policy mentor, protector and chief ally. That's creating problems for Tokyo, which may soon find itself forced to decide which is more important--its energy security or its relationship with the United States. "Until now, Japan's energy diplomacy has never been independent of U.S. policy," says Koichi Iwama, a professor and energy policy expert at Wako University. But it may become so as Japan seeks to adapt to an era of tight energy supplies--especially at a time when archrival China is cutting deals with resource-rich countries around the world, no matter what their political orientation may be.

Iran is a prime example of the dilemma facing Tokyo. For years Japan has been doing its best to shore up relations with the mullahs in Tehran, even though policymakers know that Washington disapproves of its overtures. Iran provides 15 percent of Japan's oil, making it the country's third largest supplier (behind Saudi Arabia and the United Arab Emirates). Two years ago, as part of an increasing effort to secure ownership of reserves rather than simply buying oil on the open market, Tokyo decided to make a strategic investment in the vast Azadegan field along Iran's border with Iraq. The Japanese oil major Inpex is investing $2 billion to develop the field, the biggest onshore production project in Iran since the 1979 Islamic Revolution.

Critics warned that Iran's burgeoning nuclear ambitions could complicate the deal--a prediction that now appears to be coming true. In March a Japanese newspaper reported that U.S. Deputy Secretary of State Robert Zoellick had "informally" asked Tokyo to write off its investment in Azadegan. Both sides quickly denied the report. But the sense of anxiety is palpable. One Japanese businessman in Iran tells NEWSWEEK that "we're now getting worried about what would happen if the situation escalates."

If Japan refrains from making deals in politically sensitive countries, it will almost certainly pay more for oil in the years ahead. Japan spent about $80 billion last year on oil imports, compared to $56 ...