EU nations hoping to reach a deal to slap an oil embargo on Iran by the end of the month are seeking alternative supplies for European nations dependent on imports from Tehran, diplomats said Friday.

"The entire EU is working with the US and others to find alternatives, a lot of groundwork was completed during the Christmas break," said an EU diplomat on condition of anonymity.

A senior EU official, who also asked to remain anonymous, said exploratory contacts were under way "notably with Saudi Arabia to examine whether it could increase production to offset the loss of Iranian crude."

While European Union governments have reached an agreement in principle on an embargo, nations are divided on when to phase out existing contracts -- particularly for the likes of Greece, Spain and Italy that import Iranian crude.

"The main issue at talks on the oil embargo is when to halt current contracts," said another EU diplomat. "We haven't reached agreement yet, but we will have a deal by the end of January."

In 2010, oil from Iran amounted to 5.8 percent of total EU imports, making Tehran the bloc's fifth-largest supplier after Russia, Norway, Libya and Saudi Arabia, according to EU statistics.

It represented 14.6 percent of Spain's total oil imports, 14.0 percent of Greece's and 13.1 percent of Italy's.

"Some countries are asking for a longer term transition to phase out pre-existing contracts, others are pushing for quick action," said one of the diplomats.

"There are several proposals on the table, reaching from one to three months, up to one year," said a third diplomatic source.

Debt-laden Greece was quoted as wanting up to 12 months to sign off on contracts, while Italy's new premier Mario Monti this week called for a gradual step-by-step suspension of deliveries and for the embargo to exclude a billion-euro debt contracted by Iran with national oil firm ENI.

Japan considering alternative oil supplies
Tokyo (AFP) Jan 6, 2012 - Imminent international sanctions on Iranian oil exports aimed at pushing Tehran into giving up its nuclear programme have left resource-poor Japan searching for alternative supplies, officials said Friday.

With virtually no fossil fuels of its own, energy-hungry Japan is heavily dependent on the Middle East, with Iranian oil accounting for nearly nine percent of its power needs in the first 11 months of last year.

Unlike its major allies, Tokyo has maintained a working relationship with Tehran, but the EU and the US are now stepping up efforts to squeeze Iran over what they believe is a nuclear weapons programme under the guise of a civilian power project.

That has led to pressure on Japan to look elsewhere for its oil -- with Tokyo's largest supplier, Saudi Arabia an obvious choice.

An official at JX Nippon Oil & Energy, Japan's biggest petroleum refiner, said it would cope with a ban on Iranian crude oil by "switching to imports from other Middle East countries and other regions including West Africa."

"We are talking with Saudi Arabia and other oil producing countries about measures in the event of a problem arising in Iranian supplies," the official told AFP. "But we cannot give you details on what we are discussing."

Japan's industry minister Yukio Edano said the world's third biggest economy was prepared to "make efforts to minimise the impact (of such an oil embargo) on our country and the world economy."

"We are not at a stage where we should answer a hypothetical question," the minister of economy, trade and industry told a regular news conference. "But, as a matter of course, we are making preparations by taking every possibility into consideration."

Foreign Minister Koichiro Gemba on Thursday left for an eight-day trip to Turkey, Saudi Arabia, Qatar and the United Arab Emirates for talks expected to focus on the Iranian oil problem.

The pressure from Washington and the European Union to boycott Iranian crude comes at a time when Japan must make greater use of thermal power plants after a massive earthquake and tsunami sparked a nuclear power crisis last March.

The vast bulk of Japan's 54 nuclear reactors are now shut down, amid public distrust of the technology and increased safety calls.

US Treasury Secretary Tim Geithner, due to visit Tokyo next Thursday after a trip to Beijing, is expected to press the point further when he meets Prime Minister Yoshihiko Noda and Finance Minister Jun Azumi.

President Barack Obama signed a bill into law at the end of December empowering US authorities to impose penalties on foreign banks dealing with the Central Bank of Iran to settle oil imports.

The central bank has accounts at some major Japanese banks for oil trade settlements, Kyodo news agency said. For Iran, Japan is the third biggest buyer of its oil after China and India.

If US sanctions are implemented, the Japanese government may have to freeze those accounts. That means Japan's oil imports from Iran would "completely stop," Kyodo said, quoting a finance ministry official.

Finance Minister Azumi is expected to call for the exemption of Japanese banks from penalties in the United States. Such an exemption might come in exchange for the government's agreement to significantly cut Japan's oil imports from Iran, Kyodo said.

Kurt Campbell, the US State Department's top East Asia official said Friday Washington was aware of the predicament that Tokyo found itself in.

"The Japanese government has raised some concerns about this legislation. We understand some of the difficulties," said Campbell, who is in Tokyo.

"But I think we all share an interest in making sure that Iran is dissuaded from steps that lead toward unacceptable nuclear options."

Saudi Arabia, which accounted for 30.8 percent of Japan's oil imports in the first 11 months of 2011, is seen as the only oil exporter able to boost production substantially to make up for a crunch in the global oil market.

"Saudi Arabia has ability to produce more and I think we can make do if we have months to spare," JX Nippon Oil & Energy president Yasushi Kimura said in a recent interview with the SankeiBiz digital news.

"We have sounded out Saudi Arabia on what can be done" if the ban is implemented, he said. "If we don't have time to spare, we may discuss the release of state (oil) reserves."

Japan has reserves of 50.2 million kilolitres in crude oil and petroleum products, enough to fuel the country for 116 days.