The two sides signed an agreement after months of negotiations and repeated warnings from Washington that it was unhappy with the prospects of such an accord. 

Japan, which imports nearly all of its oil needs, has developed its own diplomacy with key oil producers in the Middle East, often finding itself at odds with the United States, especially over Iran, dubbed part of an 'axis of evil' by President George W Bush.

"We signed the final deal early this morning Japan Time," a Japanese trade ministry official told a news briefing in Tokyo, adding it was designed to help Japan secure a stable source of crude oil supplies. 

The National Iranian Oil Company (NIOC), Inpex Corp of Japan and a NIOC unit, Naftiran Intertrade Co Ltd (NICO), said they "signed the contract for the integrated appraisal and development operations of Azadegan field." 

12-year contract

Inpex will hold 75 percent and NICO 25 percent of the project, with initial production set at 50,000 barrels per day (bpd) within 40 months, rising to 150,000 bpd after 52 months and 260,000 bpd in eight years.

The contract lasts 12-and-a-half years, with Inpex expected to recover its investment in six-and-a-half years. 

Inpex, an oil exploration company held by the government's Japan National Oil Corp and many private-sector companies, leads a consortium which includes trading house Tomen Corp and another affiliate of the national oil corporation, Japan Petroleum Exploration Co Ltd.

"We remain deeply concerned about deals such as this and are disappointed that these things might go forward"

Richard Boucher,
US State Department spokesman

Tetsuhiro Hosono, chief of the natural resources and fuel department at the ministry's Resources and Energy Agency, said it was "possible" that US and European major petroleum companies would join the project. 

Chief Cabinet Secretary Yasuo Fukuda said Tokyo welcomed the deal and that the government hoped it would lead to stable energy supply and promote Japan-Iran friendship.

While the Japanese media said Japan went ahead with the deal after the United States recently softened its stance on Iran, the reaction in Washington appeared unforgiving.

US view

"We remain deeply concerned about deals such as this and disappointed that these things might go forward," US State Department spokesman Richard Boucher said in response to questions about the deal.

He said the United States had consistently expressed its views on the subject and the government of Japan "is quite aware of our views on this." 

Azadegan, with estimated reserves of 26 billion barrels, is the second largest oil field found since the 1980s after the huge oil reserves in the central Asian republic of Kazakhstan.

It was discovered in 1999 and Japan and Iran agreed in 2000 to start negotiations over its development.