The Iran petrochemical project (IJPC) — the venture it could not leave (1976)

A structure with no way out, and the courage to withdraw

The core of this decision is that, ahead of any misfortune such as revolution or war, the business had been designed from the outset as a structure with no way out. Once the concession rights and the petrochemical business were bundled into a single transaction, and the fifty-fifty agreement was signed while the premises of the feasibility study were still shaky, the exit had already been narrowed. When those involved say that “the profitability outlook was dark even without the war” and that “the business would have run aground even without the revolution,” it is because they locate the cause of defeat in the design at the entrance to the business, not in the external environment.

When the oil shock swelled the investment and the economics broke down, there were arguments inside the company both for freezing the project and for pulling out. President Ikeda Yoshizo dismissed them in the name of “resolve not to turn back” — a judgment that was at once strength of will to see through what had been begun and rigidity in not questioning the premises after the environment had changed. Courage to change direction when circumstances shift is harder than courage to begin: the thirteen years of IJPC show that difficulty concretely. The experience of a state-tinged public-private joint venture, in which equal partnership in operations bred inefficiency, fed into the lesson for overseas business that “the lowest risk for a Japanese company is to take no equity and stick to contracting.”

Even so, Mitsui did not retreat from upstream resource investment itself after this failure. Resource projects seeded over decades are inseparable from a readiness to accept short-term swings in the market, and IJPC is the pain at the origin of that readiness. In inscribing the questions of the courage to withdraw and of risk management, together with the largest tuition fee in the company’s hundred-year history, this decision is rich in implication.