Russia and Japan have a deeply contentious history, based mostly on territorial disputes. A chain of islands that runs between the Japanese mainland and Russia's Kamchatka Peninsula has been swapped back and forth over the past 128 years, since Tokyo and Moscow established diplomatic relations. In 1855, Sakhalin Island and the Kuril Islands were split between the two sides. The Treaty of St. Petersburg in 1875 gave Japan control of all of the Kuril Islands in exchange for control of Sakhalin, but after the Russo-Japanese war in 1904-1905, Japan took the southern half of Sakhalin Island. During World War II, the Soviets occupied the islands and at the Yalta Summit in 1945 were granted possession of them. The Japanese people on the islands were expelled in 1947 and sent back to Japan.
Because Japan sees Russia as occupying its Northern Territories, or the Southern Kurils, Moscow and Tokyo have never signed a formal peace treaty for the end of World War II. In addition, since the end of the war, Moscow has also recognized that Japan is part of the United States' alliance network. All of this has led to relatively poor relations between Russia and Japan. Despite their proximity and economic size, trade between the two has been relatively small. In 2012, Russo-Japanese trade was $32 billion compared to Russia's $82 billion in trade with China. The one exception of large-scale cooperation between the two is the Sakhalin-2 liquefied natural gas complex, which Tokyo justifies participating in because the complex is located on one of the islands it previously possessed.
Russia has already begun to shift its oil exports to Asia, increasing its output to the region from 3 percent to 15 percent of all exports in the past decade. The Russian government announced in January that it plans to further increase oil exports to Asia to 25 percent of all Russian oil exports by 2014. Russia has completed the infrastructure needed to handle 2.1 million barrels per day — nearly half of Russia's overall oil export level of 4.8 million barrels per day. Of the 716,000 barrels per day that Russia exported in 2012, only 141,000 went to Japan — though now Russia has the capacity to send much more.
With its oil supplies diverting to Asia, Russia is currently interested in shifting natural gas supplies as well. Russia has finally untangled the legal impediments on its East Siberia natural gas fields, and Russian natural gas company Gazprom has announced it will build a 2,500-kilometer (1,553-mile) pipeline to the Pacific for the new natural gas supplies that it says will be online by 2016. Russia is now considering a liquefied natural gas facility at Vladivostok to handle part of the 25 billion-50 billion cubic meters that Gazprom plans to produce out of East Siberia. East Asia already receives small amounts of natural gas from Russia's Sakhalin-2 project. Japan has increased its intake of Sakhalin-2 liquefied natural gas in recent years to 10 billion cubic meters annually compared to the 3 billion cubic meters it received before the Fukushima disaster.
With Japan needing more oil and natural gas and Russia looking to the Pacific region as a new major consumer, Japan and Russia finally have common ground. In recent months there has been a flurry of high-profile visits to Russia by Japanese officials. Former Japanese Prime Minister Yoshiro Mori, Abe's special envoy, met with Russian President Vladimir Putin in February; in April, foreign ministers Sergei Lavrov and Fumio Kishida met in London; and Gazprom CEO Alexei Miller visited Japan on April 18. Abe will also bring a large Japanese industry and business group with him to Moscow on April 28.
There are two large deals on the table. The first is the development of a possible Russo-Japanese investment bank — something Moscow is particularly interested in because it will be re-launching its campaign for the privatization of state assets, which Russia did not let Japan participate in previously. The second prospective deal is Japanese involvement in developing Russia's energy sector. While in Tokyo, Miller said Gazprom is discussing the possibility of Japanese companies, such as Mitsui, Mitsubishi and Japan Far East Gas Co., joining its plans for the East Siberia fields and the liquefied natural gas facility at Vladivostok. Mitsubishi and Mitsui are also in talks to join the Yamal Peninsula liquefied natural gas project along with Novatek and Total SA.
Such deals would be the first major investment deals between Tokyo and Moscow outside of Sakhalin-2. Because each country is so focused on shifting strategies at home — Japan's economic revitalization and Russia's energy export diversification — to plan for a more stable future, the previous impediment of the island issue seems to have been put to the side. Of course, the islands remain contentious for the Japanese public, but the current leaders have the advantage of having seen the previous administration try and fail to win back the islands, which gives them the opportunity to try a different approach to Russian relations. The Kuril Islands are still being discussed publicly, but any serious negotiation on settling the dispute is being ignored due to the countries' need to do business together. This does not mean that the island issue may not become relevant again in the future, but for now other needs have become more important.
