Operating beyond the constraints of Article 9 of its pacifist constitution, Japan has recently introduced structural defence reforms that have overhauled its security strategy. Against the backdrop of the conflict in Ukraine, it has also been in news for supporting the Western sanction regime and forging deeper ties with European actors like the United Kingdom, Italy, France, Germany, the European Union and even the Baltics.
As the Russia-Ukraine war enters its second year, the G7 will meet in Hiroshima, Japan, for its 2023 annual summit. A significant part of the agenda will involve brainstorming more economic sanctions on Russia and tightening the loopholes of the existing sanctions regime in light of the protracted war that has been wreaking havoc on the global economy.
Does that mean all is well within the allies’ universe?
Under the above convergent trends resides an aberration in Japan’s policies on Russian energy, which might lead to cracks within the allies’ unity if the war continues and costs keep rising.
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Abe’s legacy and Kishida’s change
When Fumio Kishida became Japan’s prime minister, it was expected that he would carry forward the legacy of his mentor, the late PM Shinzo Abe.
While that holds true in how Japan has postured itself with pronounced military capabilities, Kishida’s real departure from the Abe-era has been on the question of Russia. Abe’s legacy rested on cooperating with Russia for energy, managing China and resolving the long-standing Kuril Islands dispute.
Fumio Kishida, however, has rewritten his mentor Abe’s rules of engagement with Russia in his own indelible ink. Kishida’s decision to impose sanctions against Russian President Vladimir Putin himself has been considered a landmark political decision in Japan’s history. Tokyo has also provided millions of dollars in humanitarian aid to Ukraine.
However, the Japanese leadership does hesitate to isolate Moscow on the sensitive question of key energy projects in Sakhalin 1 and 2.
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Japan’s quest for energy security
Energy cooperation with Russia is the core tenet of Japan’s long-term goal of energy security. Tokyo is trying to diversify from its heavy dependence on crude oil from the Middle East. Imports from the region account for 90 per cent of Japan’s oil and 20 per cent of its gas. Learning from the perils of dependency in today’s uncertain world, Japan has been quick to identify actors that can plug the gaps.
Therefore, in an attempt to bolster its energy security, Japan has been looking at co-developing oil and gas facilities from Russia’s Sakhalin. Owing to geographical proximity that enables the shipments to arrive in about three days, efficiently procured fossil fuels from Sakhalin are crucial for Japan. Trade data for 2021 shows that Japan has already started importing 3.6 per cent of its crude oil and nearly 9 per cent of its Liquefied Natural Gas (LNG) from Russia.
However, Kremlin’s retaliatory sanctions have landed Japan in a vulnerable spot.
Sakhalin 2 was the first to suffer Putin’s retaliation against Western sanctions. By the summer of 2022, he had seized the project and evicted a major stakeholder, the British firm Shell, which held a 27.5 per cent stake. He then moved the project under a new Russian company, forcing the existing stakeholders to buy new shares in the new company. As expected, Shell exited the project soon.
Sakhalin 2 is primarily an LNG project that supplies most of its gas to Japan. Therefore, Japanese firms Mitsui and Mitsubishi, which own a combined 22.5 per cent stake in the project, decided to stay on. Russia’s State-owned energy company, Gazprom, remains the largest stakeholder in Sakhalin 2.
Putin’s next onslaught, as expected, came a few months later, this time targeting the Sakhalin 1 oil and gas projects.
Before the war, Japanese firms, together as a consortium under the name Sakhalin Oil and Gas Development Co (SODEC), held about 30 per cent stake in the project, formerly operated by the US-based company Exxon Mobil. India’s ONGC Videsh Ltd, the foreign arm of the Oil and Natural Gas Corporation, with a 20 per cent share and Russia’s Rosneft, also with a 20 per cent stake, have been the other major shareholders.
After the war, and to retaliate against the sanctions, Putin passed a decree that ‘unilaterally terminated’ Exxon’s contract without due compensation to the American firm and established a new operator for Sakhalin-1. This abrupt change also authorised Kremlin to decide whether foreign stakeholders could retain their stakes in the project. As was in the case of Sakhalin-2, the Japanese consortium chose to remain with the new operator, this time joined by India’s ONGC while Exxon left.
With American and British firms’ respective withdrawals from these projects, the risk of China stepping in to buy the stake runs high. With such mega stakes at China’s disposal, Sakhalin 1 and 2 are indeed a complicated bet for the West, with their core ally Japan caught in the middle of counter-retaliatory measures. What makes this apprehension even more worrisome for the West is that Japan sought exemptions for the Sakhalin projects as the G7 introduced a price cap on Russian oil, which came into effect from 5 December onwards. Apparently, Tokyo is not preparing to move away from Sakhalin.
According to reports, Chinese firms are in talks to buy Shell’s stakes in Sakhalin 2. As for India, there is little room to manoeuvre. As much as New Delhi would like to be wary of Beijing becoming a disproportionately high stakeholder in crucial energy projects, its priorities will be to straddle the divergences between the West and Russia and get the production running, even at the cost of China joining.
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Impact on Japan-Europe relations
While Europe is struggling to wriggle free of its energy dependence on Russia, Japan, its core ally, is doing the opposite.
This is a cleavage among the G7 that Russia can exploit later. So far, Japan’s foremost ally, the US, has been mindful of Tokyo’s energy security aspirations and has supported its decision to remain in the projects. But the protracted nature of the war will pave the way for Europe to cut down dependence on Russian gas and gain more elbow to impose yet another tranche of energy-related sanctions in 2023. This move could create pressure on Japan to re-think its Sakhalin policy. Therefore, the fault lines could be yet more vulnerable to deepening.
While the fate of Japanese firms does remain a tad uncertain as far as the energy projects are concerned, Japan is simultaneously deepening its relations with several European players in an attempt to compensate for the divergence on Sakhalin.
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Kishida’s ‘indivisible security’ push for Europe
On the surface, this could be a balancing act by Kishida. However, on a deeper level, Japan’s pivot to Europe hinges on its reiteration of ‘indivisible security’ for Europe and the Indo-Pacific region. But what does it tell us about the nature of East-West solidarity and its future?
In what is referred to as the ‘issue linkage strategy’, Japan, under Kishida, has been furthering the Abe era’s strategy of linking security challenges in Europe and East Asia to make the Europeans act upon them. This push is evident in the burgeoning defence cooperation with primary European actors. Japan has recently inked an unprecedented defence pact with the UK. It has joined Italy and UK to develop the most advanced AI-enabled ‘Tempest’ aircraft, touted to outdo America’s F-35s. Japan’s joining has provided a global outreach and outlook to an essentially European aircraft programme.
While the world’s attention was on German Chancellor Olaf Scholz’s controversial visit to China on 4 November 2022, Berlin simultaneously vowed to deepen and expand its range of cooperation with Tokyo in all key sectors. Likewise, Japan’s defence cooperation with France has been deepening, with robust convergence on the Indo-Pacific. Not only France, but all major European actors, such as the UK, Germany and the EU, have been focusing on the Indo-Pacific. That makes operating on the idea of ‘indivisible security’ gain traction among all.
In this regard, if there is one Indo-Pacific player with the required economic heft and fast-developing strategic capabilities to truly champion the merging of the two security theatres in Europe and Indo-Pacific, it is Japan. What makes the case of Japan even more credible is the delicate balancing on the question of Sakhalin, a key ponderable for India’s strategic autonomy as well.
The writer is an Associate Fellow, Europe and Eurasia Center, at the Manohar Parrikar Institute for Defence Studies and Analyses. She tweets @swasrao. Views are personal.
(Edited by Zoya Bhatti)