Russian Regional Development Minister Viktor Basargin on Feb. 1 submitted a list of investment projects on the Russian-administered southern Kuril Islands, known in Japan as the Northern Territories, to South Korean businessmen. Japan responded Feb. 2 with a statement objecting to the Russian move. The exchange is only the most recent example of Russia's efforts to display sovereignty over the islands and of Japan's negative response to such efforts. Japan and Russia have contested the southern Kuril Islands since Russia occupied them at the end of World War II. The return of the four islands is a strategic imperative in Japan and a major issue in domestic Japanese politics — interactions that have not, and will not, stop the two countries from cooperating in other areas. Even so, the Russian resurgence in the region is not something an already-insecure Japan welcomes. The previous year saw several key incidents in the two countries' quarrel over the Kurils.

• In January and February 2010, Russians fired at Japanese fishing vessels they claimed had crossed the line into Russian waters. A Russian border guard helicopter on Jan. 29 launched what may have been a flare bomb at two Japanese fishing boats off Kunashir Island. In February, a Russian border patrol helicopter fired on two Japanese fishing boats, leaving 20 bullet marks on the hulls, for allegedly violating a bilateral fishing accord and refusing to stop for inspection.
• In summer 2010, Russia held tactical exercises on Etorofu Island. The Chief of the Russian Armed Forces' General Staff, Nikolai Makarov, said Russia needs to deploy Mistral-class amphibious assault ships to protect the island. The Russians have begun deals with France to build the two ships with the possibility of two more down the road. The first of these vessels could be finished as early as 2014.
• In late summer 2010, the Japanese parliament passed a law reasserting Japan's sovereignty over the islands. The Russians on the island responded by refusing entry to a Japanese delegation that sought to travel to Etorofu as part of a visa-free travel program instituted in 1992, while the Russian parliament responded with several proposals to end the visa-free travel program, none of which have been passed yet.
• In October 2010, the Japanese tried to perform a series of land deals on the islands, but the Kremlin quickly repudiated these.
• In November 2010, Russia dramatically signaled its new emphasis on control of the islands when President Dmitri Medvedev became the first Russian leader to visit them. Four high-level Russian delegations have visited since, which have included First Deputy Prime Minister Igor Shuvalov, Deputy Minister of Defense Dmitri Bulgakov, Russian Defense Minister Anatoly Serdyukov, and, most recently, Basargin.

Russia has made no indication it is willing to return the islands since a 1956 agreement in which Moscow pledged to return the two smaller islands after the two states conclude a peace treaty and a 1993 agreement suggesting that the status of all four islands should be resolved. Recent statements from Moscow on the matter have emphasized Russia's indisputable control of the island, a position that appears to have hardened over the past year. This is due in large part to Russia's greater comfort in its strategic position in Europe and the Caucasus, allowing it to focus on re-entering the Pacific arena. Moscow will release development plans for its Far East in April. One part of the plans will detail how Moscow hopes to boost the population of the Kurils to around 30,000 from its present 19,000 and to invest 18 billion rubles ($604 million) to improve the islands' infrastructure, housing, quality of life and transportation and to develop industries there. Russia is seeking external investors to supplement the project, but foreign investment is not needed for the completion of the project. (click here to enlarge image) Russia had shown strong interest in courting Japanese investors, but the Japanese will not engage in business deals in the Kurils, as this could be seen as acquiescence to Russian control of the islands. Instead, Russia has presented a list of projects for the Kurils to South Korean investors. These deals are not likely to amount to much, however, as Korean ties with Japan are too important to jeopardize over the projects in the Kurils. Seoul knows the storm that would ensue in Japan if it were to participate in the Kurils project over Japanese objections. The United States would also probably urge against inflaming the situation in this way.

Russian-Japanese Cooperation Despite the Kurils

On Feb. 11, Japanese Foreign Minister Seiji Maehara will visit Moscow and meet with Russian counterpart Sergei Lavrov. They will discuss deeper economic cooperation, how to respond to recent provocations by North Korea and the Kurils. Despite the Kurils dispute, both sides claim they are ready to deepen economic cooperation. Moscow says it wants to attract Japanese investment for its ongoing privatization and modernization push, while Tokyo says it is rejuvenating its outward investment and international economic policy. Japan and Russia historically have had some degree of economic cooperation in the region regardless of the Kuril dispute, though each side views the other as deeply unreliable. In 2010, trade turnover between Russia and Japan totaled almost $29 billion. Japan imports 3 percent of its oil and 4.3 percent of its liquefied natural gas (LNG) from Russia. Japan has worked with Russia on the Sakhalin-I and Sakhalin-II projects, investing close to $5 billion in the two oil and natural gas development projects. The two also signed agreements in December for joint development in the newly planned LNG plant in Vladivostok, which should receive close to $1 billion in Japanese investment. Meanwhile, the Irkutsk Oil Co. has announced it will receive a $300 million investment from the Japan Oil, Gas and Metals Corp. for the development of three oil and natural gas fields in Russia's Irkutsk region by 2014. Separately, Russia and Japan signed an intergovernmental nuclear deal in 2009 for the exchange of information concerning nuclear security; cooperation in the development of uranium deposits; cooperation in the designing, construction and operation of light-water nuclear reactors; and cooperation in the disposal of nuclear waste. In the past year, Techsnabexport OJSC (a part of Rosatom) and Japanese nuclear operators have signed contracts for the supply of uranium to Japan.

Regional Geopolitical Assessment

Japan faces a host of internal problems including political indecision, economic stagnation, massive debt encumbrance, a shrinking population, and anxiety over the rise of China's economic and military power. Russia's growing activity in its Far East region is an unwelcome addition to these concerns. Moscow's plans to deploy additional, newer naval assets to its Far East and the revitalization of the Petropavlovsk submarine base on the Kamchatka Peninsula highlight Tokyo's present inability to mount a response. Japan, however, is not a non-player. Japan is a prominent U.S. ally and has the third-biggest economy in the world. Throughout its history, however, Japan has demonstrated the ability to change rapidly and pursue new policies with single-mindedness, meaning there is no reason it cannot regain position as a world power despite its recent decline. Russia, which fought two wars with Japan in the 20th century, knows this well. Russia's loss in the Russo-Japanese war of 1904-1905 came as a major jolt to Russia, while the seizure of Japanese territory by Russia after World War II further soured relations between the two countries. The Russians take the Japanese seriously, even if Tokyo is not immediately capable of mounting a vigorous response to an increasing Russian presence in the Pacific. Neither Russia nor Japan is heading toward conflict in the immediate term, but in the short term, Russia's desire to solidify its presence in the region will hasten regional reactions from Japan and China. For a Japan sensing its weakness as Russia re-emerges and China rises, the pressure for a change in posture to address these threats will continue to build.