(Reuters) - Japan may cut Iranian crude oil imports by a more-than-expected 20 percent as it seeks a waiver from U.S. sanctions, a newspaper reported on Thursday, a move which would spare its banks from a major blow but also boost its rising fuel import bill. Japan, the world's third biggest oil importer, last year bought almost 9 percent of its crude from Iran and its dependence on fuel imports has increased because almost all its power-generating nuclear reactors have been shut after the Fukushima nuclear disaster a year ago. In a report datelined Washington, and which did not cite any sources, the Nikkei business daily newspaper said Japan and the United States would reach a basic agreement by the end of February on how Japan would reduce its dependence on Iranian oil without incurring financial sanctions. Government spokesman Osamu Fujimura confirmed Japan and the United States were likely to reach an agreement in February but declined to say if Tokyo had set a specific target for cuts. Deputy Prime Minister Katsuya Okada later told Reuters Japan would probably be able to cope with less Iranian oil, but acknowledged prices were a concern. "Japan does have strategic reserves, so we hope we can manage this situation without much disruption," Okada said. But he added: "There is no mistaking that this could impact not only Japan but also the United States by pushing up oil prices." China, India and Japan, the top three buyers of Iranian oil, together buy about 45 percent of Iran's crude exports and all of them are planning cuts of at least 10 percent. The United States is pushing ahead with sanctions because it fears Iran might use its nuclear program to develop nuclear weapons. Sanctions for non-petroleum transactions with the Iranian central bank go into effect on February 29 and those for oil-related transactions start on June 28. A waiver would protect Japan's big banks -- Mitsubishi UFJ Financial Group (8306.T), Mizuho Financial Group (8411.T) and Sumitomo Mitsui Financial Group (8316.T) -- from being punished for handling payments to Iran. Shifting suppliers, however, could force Japan to pay more for alternatives to Iranian crude as Iran's rising tension with the West has helped drive benchmark Brent crude prices to a nine-month high this week. "How far a 20 percent cut in volume will affect Japan's economy depends on how such measures push up oil prices," said Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute. "But chances are, given a recovery trend of the global economy and loosening policy in emerging markets, U.S. crude would rise to as much as $120, up from $105 now." Japan's reliance on imported fuel has grown since a massive 2011 earthquake and tsunami triggered the Fukushima radiation crisis. All but two of its 54 reactors are off-line and those will be shut for checks by late April. Japan imported 313,480 barrels per day (bpd) of Iranian crude oil in 2011. If it cuts purchases by more than 20 percent this year, imports would stand at 251,000 bpd. The United States has said it will punish financial institutions that deal with Iran's central bank by shutting them out of U.S. markets. A country can earn a waiver from the sanctions if it significantly reduces trade with Iran. Iran, the biggest producer in OPEC after Saudi Arabia, insists its nuclear program is for peaceful purposes.
