Japan defied the United States, its closest ally, in 2004 by signing the two billion-dollar project in Azadegan, one of the world's largest untapped oil reserves.

Mehdi Bazargan, managing director of Petroleum Engineering and Development Co., a subsidiary of the state-run National Iranian Oil Co., said the deal called for significant work by this September, barring which "the contract will be terminated automatically."

"Extending the deadline is not written in the contract. We haven't thought of it," Bazargan told Japan's Kyodo News in Tehran.

Asked if Iran could turn instead to China or another country, Bazargan said, "What is available in the market, we will use of course."

Azadegan's production is slated to begin in 2007 with output rising to 260,000 barrels a day five years later, providing a crucial flow to Iran whose crude supply is almost entirely imported.

Japan has maintained close relations with Iran both before and after the 1979 Islamic revolution which toppled the Western-friendly shah.

Japan has urged Iran to suspend its uranium enrichment program, which the United States believes is for military purposes, but said repeatedly it will continue the oil investment.

However, Japan's largest oil refiner, Nippon Oil Corp, plans to cut imports from Iran by 15 percent this year as an apparent precaution in case the nuclear standoff escalates and puts the oil industry at risk.

John Bolton, the hawkish US ambassador to the United Nations, appears frequently in the press here charging that Iran is manipulating Japan.

China, which has recently had tense relations with Japan, has increasingly turned for oil to areas shunned by the West, notably Sudan.

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