Forbes.com: Japan Assents To Russia … For Now

Oxford Analytica
02.16.07, 6:00 AM ET

This article is part of Oxford Analytica’s Daily Brief Service.

Russia may spend over $20 billion to build the Eastern pipeline from Taishet to Nakhodka on the Pacific Coast, it was reported on Feb. 13. In early February, Japan’s Osaka Gas signed a preliminary agreement with Russia’s Sakhalin Energy consortium on long-term deliveries of liquefied natural gas. The deal in many ways symbolizes current Russo-Japanese relations.

Russia has sought to take the lead in relations with Japan since 2003, when Russia’s President Vladimir Putin and former Japanese Prime Minister Junichiro Koizumi met in Moscow and agreed on an action plan based on six main areas. However, Russia is happy in practice to let economic considerations–above all, energy sales–dominate the relationship.

Widely held suspicions about Russia’s reliability help explain why Japan accounts for less than 1% of foreign investment in Russia. Moreover, the Sakhalin Energy deal on Feb. 8 was something of a face-saving expedient after Japan’s Mitsubishi and Mitsui, in December, were forced to halve their involvement in the Sakhalin-2 liquefied natural gas (LNG) project. Yet the deal also marks a growing commercial relationship.

Tokyo is increasingly concerned about its energy security. Another concern is growing rivalry with China over the East China Sea’s fields. Japan’s New National Energy Strategy places emphasis on “resource diplomacy” to deepen relations with energy-supplying nations. A key issue is the Eastern pipeline, over which Moscow has played Beijing against Tokyo since 2003. The question was whether a pipeline from the Siberian Angarsk oil fields would end at Skovorodino, close to the Chinese city of Daqing, or the coast near Nakhodka, allowing transhipment to Japan.

In November 2005, Moscow indicated a preference to extend the pipeline to the Pacific, after which Tokyo backed its bid to enter the World Trade Organization. Nonetheless, Moscow has yet to determine the proportion of Angarsk oil to be diverted to China. There is no doubt that Russia wants to grow its sales to Japan, but at the same time, it is eager to use oil as an opportunity to extract concessions and assert its strength in the relationship.

Moscow’s use of the issue of energy supplies to pressure Tokyo is part of wider Russian assertiveness toward Japan. For example, this has been evident in the increased tempo and aggressiveness of Russian espionage operations in Japan, and a hardening of Moscow’s position over the disputed Kuril islands.

Moscow’s growing confidence reflects a belief that Tokyo needs its friendship more than vice versa. In addition to the energy issue, Russia is aware that Japan is looking to it to provide a counterweight to China. Tokyo largely has accepted Russia’s rhetoric calmly and sought to create a “strategic relationship” as a basis for mutual cooperation but without constraints on its longer-term policy.

For the moment, Japan appears willing to accept a relationship conducted largely on Russia’s terms. However, this is mainly a matter of form, and Tokyo will not make any substantial compromises over the Kurils. The Japanese are happy to trade with the Russians, but they consider Moscow to be an essentially unreliable partner. With a diversification of its energy supplies, a reduction in demand and a parallel “strategic dialog” with Beijing, Tokyo hopes to be able to deal with Moscow on a more equal footing within the next five years. Yet there is little evidence to suggest that Moscow fully understands this strategy.

Moscow regards itself as the dominant partner in its relationship with Japan. However, it risks overplaying its hand or mistaking what may be a temporary advantage for a permanent shift in the balance of power between them.

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