Japan needs its own agenda to better trade ties with Russia

Japan needs its own agenda to better trade ties with Russia
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Recently, Russian Foreign Minister Sergey Lavrov concluded a visit to Tokyo to discuss possible cooperation between Russia and Japan on a range of economic and security issues, as well as lay the groundwork for a future state visit by President Vladimir Putin. However, the real purpose of the visit was to stress to Japan the increased value it would have to Russia if it pursued a more independent foreign policy.

Stagnant Russia-Japan economic relations

As has been well-documented, Russo-Japanese relations have never reached their full potential, because the Kuril Islands dispute between them precludes the neighbors from signing a formal WWII peace treaty. Japan’s decision to join its G7 partners and impose sanctions on Russia following its actions in Ukraine has only served to exacerbate these tensions. These resultant sanctions serve to keep economic relations between the two countries at a stagnant level.

Japanese investment is badly needed in a whole range of Russian sectors, including heavy machinery and pharmaceuticals. From the Russian perspective; however, it is most needed in the Russian Far East which is host to untold oil and gas resources. Additionally, this investment would serve to offset years of Russian neglect from both its public and private sectors in this region. The need for Japanese investment is also to be seen in Russia’s Arctic sphere.

A more balanced Russian “Asia pivot”

From a geopolitical perspective, a Japan that is more independent from U.S. foreign policy would be a more desirable partner in a range of areas. First and foremost, it would actually put some teeth into Russia’s “Asia Pivot”. Currently, Russia’s endeavors in this area have mostly resulted in a “China Pivot”, with subsequent enhanced security and economic relations the result.

However, Russia has sought relations with different Asia-Pacific powers, such as Vietnam, in order to wean itself from over-reliance on the Russia-China “Strategic Partnership”. Historically, Japan and China have always been the two strongest rivals in the Asia-Pacific and Russia is hoping to capitalize on that history. As it stands now, what forms an obstacle to these Russian desires is Japan’s position in the U.S.-Japan alliance. Due to current Russian-American tensions over Ukraine and Syria, Russia can only move so far in improving its Japanese relations which in turn would result in less investment risk from the Japanese perspective.

Power requires independence

Nonetheless, what was most revealing during Lavrov’s visit was his specific indication that Japan should “…occupy a more prominent position in international affairs.”  Japan has long been accused of playing an undersized role in global affairs given its economic heft.  This criticism has even been levied in the past by its ally, the U.S, during the Gulf War when Japan’s contributions were limited to “checkbook diplomacy”.

However, these remarks must be taken in conjunction with Japan’s desire for a permanent seat on the UN Security Council.  Like India, Japan seeks eventual Security Council reform, which would allow it to be more representative of the current, post-WWII international order. Like India, Japan’s bid is strongly opposed by China because of the latter’s regional hegemonic ambitions. Lavrov’s remarks stress, in effect, that Japan has no place on the Security Council as a permanent member unless it’s a truly independent pole in world politics.

Great powers serve their own interests

This case has precedent as the permanent Security Council membership is just the latest iteration of the Concert of Europe, formed after Napoleon’s eventual defeat two hundred years ago. At that time, Concert members (Russia, Prussia, Austria, the UK, and France) were all truly independent powers within the global security architecture. This independence was expected to lead to each state pursuing its own interests, eventually leading to a balance of power within the global system itself.

Here again, comparisons can be made with India, which is currently being wooed by the U.S to balance China. India, not a formal U.S treaty ally, always keeps its security options open. This was typified by India’s recent multi-billion dollar deal to purchase French-made fighter aircraft despite U.S Defense Secretary Ashton Carter’s recent visit to foster improved U.S-Indian defense ties.

In effect, Russia is saying that Japan is unworthy of membership in such a system because it is a reliant power, not a great power. Therefore, Japan has no true strategic autonomy. This statement is magnified for a global audience given that three of the original Concert powers are still permanent UN Security Council members. Lastly, Lavrov’s public statement was made for maximum local impact given the huge importance given to the concept of saving face in Japan.

What’s this mean for investors?

Japan currently finds itself in a quandary because it, like many nations, has to reconcile different concepts of ‘security’. Due to persistently poor U.S-Russia relations, it must seek a balancing act between prioritizing the benefits of continued military security provided by the U.S, and the potential future economic security offered by Russia. Ukraine, Syria, and subsequent events have thrown a new dynamic into this balancing act and have this made it even more unstable. Finally, Japan must decide which potential partner, the U.S or Russia, will enable it to better balance China in the long-term, given that all parties involved are still in an economic downturn.

Encouraging private investment is one of the goals of Abenomics: investment would be targeted to address various national priorities, such as Japan’s resource-dependency. This dependency ranges from minerals, like coal on which it is completely reliant, to oil and gas. Rather than continuing to place energy shipments from distant regions such as eastern Africa and the Middle East at risk from an assertive China in the South China Sea, Japan would prefer to source its energy as locally as possible.

Consequently, investment in Russia’s oil and gas sector would benefit Japan immensely. This is not only true in terms of resources in the Russian Far East, but in the Arctic as well.  This is explicitly why Russia assisted Japan in gaining observer status on the Arctic Council before the Ukraine Crisis.

Regrettably, the outlook for Japanese investment in these sectors is very poor as long as current U.S-Russian hostilities persist. Most likely, the scenario will not improve until this animosity decreases to a point where U.S sanctions are reduced or lifted. This would, in turn, once again encourage U.S investment in these sectors.

The situation is analogous to normalized Sino-Japanese relations only after normalized Sino-U.S ties in the wake of Nixon’s visit. Subsequently, the outlook for Japanese investment in the Russian oil and gas sectors in the near-term is very bleak indeed.

Categories: Asia Pacific, Security

About Author

Robert Shines

Robert Shines is an Expert | Geopolitical Intelligence with RANE, an information and advisory services company that connects business leaders to critical risk insights and expertise. With Bright Group Consulting, he provides confidential geopolitical forecasting services regarding various aspects of U.S.-China foreign policy. He is also a Senior Analyst and Editor with Global Risk Insights, a publication providing analysis on political risk & geopolitics. Additionally, he is a Writer for Geopoliticalmonitor Intelligence Corporation, an international intelligence publication which provides comprehensive geopolitical analysis. Having previously consulted in Ukraine, his area of focus is U.S.-Russia relations. He received his MBA from the Thunderbird School of Global Management with a focus on U.S.-China relations.