Rewritten: Japan-Russia tensions over Kuril Islands and energy ties

China and Japan have seen their trading and diplomatic ties tested as Moscow paused the 1998 agreement with Tokyo on harvesting marine life. Under the pact, Japanese fishermen could fish near the southern Kuril Islands within Moscow’s licensed quotas.

Spokesperson Maria Zakharova of the Russian Ministry of Foreign Affairs explained that Tokyo chose to suspend payments and halted the annual formal document that supports free technical assistance to the Sakhalin Region, a key factor in the region’s operation. The ministry stated that the intergovernmental framework rested on a balance of interests, and it will remain suspended until Japan meets its financial commitments.

The agreement previously allowed cooperation aimed at gathering living resources by Japanese vessels in a sea area defined by the coordinates around Iturup, Kunashir, Shikotan, and Habomai islands.

In April, Tokyo and Moscow reached a salmon quota arrangement for fiscal year 2022. The Fisheries Administration of Japan notes that Japan must transfer a payment to Russia ranging from 200 million to 313 million yen, based on catch volumes.

Sanctions by Japan

Japan had already imposed several sanctions on Russia in response to the Ukraine conflict. The measures target hundreds of Russian, Belarusian, LPR, and DPR individuals, along with dozens of Russian companies and organizations.

On June 7, Japan announced sanctions on two Russian banks and one Belarusian financial institution. The assets of Rosselkhozbank, Moscow Credit Bank, and the Belarusian Bank for Development and Reconstruction will be frozen, with permission needed from Japanese authorities for any payments or transactions. These restrictions took effect July 7. Earlier moves froze the assets of a broad set of banks including Otkritie Bank, Novikombank, Sovcombank, VTB, Rossiya Bank, Promsvyazbank, VEB.RF, Sberbank, and Alfa-Bank.

The export ban will extend to goods that could enhance industrial infrastructure, though specific items have not been named. The current list covers more than 300 items, including semiconductors, marine and aviation safety equipment, telecoms gear, military products, software, and oil refining equipment. Luxury goods, such as vehicles valued above 6 million yen, face restrictions on sale to Russia.

Since the conflict began, more than 70 Japanese firms out of 168 operating in Russia before the military operation exited the market. This withdrawal and ongoing sanctions have had consequences for the companies themselves; as of March 31, losses among major Japanese trading and investment houses reportedly surpassed two billion dollars due to sanctions and market withdrawal, according to a report by Sankei.

Ending the Dialogue

The chance for joint economic activities in the Kuril Islands has been blocked. The Kuril issue drew renewed attention as the military operation intensified, bringing new sanctions on Moscow.

Japan’s Foreign Ministry, in its annual diplomacy Blue Book, labeled the southern Kuril Islands as an illegal occupation. They emphasize that the core dispute over the northern Territories remains Japan’s most stubborn unresolved issue with Russia. The ministry notes that sovereignty lies with Japan, while the territory is currently occupied by Russia, and it pursues negotiations aimed at resolving the land question and signing a peace treaty.

In March, Moscow announced it would suspend peace treaty talks with Tokyo in response to Japanese sanctions. At the same time, Russia restricted visa-free travel for Japanese citizens to the Kuril Islands. Moscow also withdrew from dialogues on joint economic activities for the South Kuril Islands and from cooperation efforts with Japan within the Black Sea Economic Cooperation framework in sectoral talks.

Oil and Gas Projects Persist

Even in the face of sanctions, the Japanese government intends to keep national companies involved in Sakhalin-1 and Sakhalin-2 oil and gas ventures. These projects are viewed as strategically important for Japan’s energy security.

The White Paper on Energy, issued by the Japanese Cabinet, suggests that high energy prices may continue for an extended period. In light of this, maintaining access to LNG from Sakhalin-2 is seen as crucial, as it accounts for a portion of the country’s electricity production. The government argues that long-term contracts with Sakhalin help stabilize energy costs and supply.

On May 10, Koichi Hagiuda, Japan’s Minister of Economy, Trade and Industry, defended continued participation in these projects, noting the importance of securing affordable oil and LNG. He warned that withdrawal could allow a third country, implicitly China, to fill the gap left by Japanese firms in Sakhalin.

Sakhalin-1 remains one of the largest oil and gas ventures with foreign investment in Russia. Exxon Neftegaz, a unit of ExxonMobil, serves as operator, with Rosneft holding a 20 percent stake, Sodeco (Japan) at 30 percent, and ONGC Videsh (India) at 20 percent. Sakhalin-2, conducted under a production-sharing agreement, is largely controlled by Gazprom, with Mitsui and Mitsubishi from Japan owning stakes of 27.5 percent and 12.5 percent respectively, and Shell holding a further 27.5 percent. The LNG produced there is primarily exported to Japan.