Economy & Tech
Why Buy Russian Oil? Japan and India Have Their Reasons
Japan's recent decision to buy Russian oil at above $60 a barrel, and India's continuing purchases, underline some of the hard truths about energy security.
Russia's war in Ukraine has sent the global oil markets into a tizzy. In the aftermath of the Russian invasion of Ukraine, Western nations put a $60 cap/barrel on Russian oil imports. In the meantime, they are trying to delink themselves as much as possible from Russian energy imports.
However, this is easier said than done. For example, there is Japan's recent decision to buy Russian oil at above $60 a barrel. The decision marks a break with its Western allies. At the same time, it also underlines some hard truths about Japan's energy security.
Why is Japan Buying Russian Oil?
For one, Japan's reliance on nuclear power has declined sharply in the aftermath of the Great East Japan Earthquake and the Fukushima nuclear disaster of March 2011. As a result, a question mark still hangs over Japan's energy security. This is especially true in the light of the Western sanctions on energy-supplying countries like Russia and earlier in the case of Iran.
Second, this also means that Japan is caught between the devil and the deep blue sea. For example, PM Fumio Kishida recently visited Ukraine. At the same time, however, Japan is the only G7 country not to have supplied lethal weapons to Ukraine. (This is because of restrictions imposed by Japan's post World War II constitution.)
It is worth noting here that Japan is also the chair of the G7 this year and the G7 leaders' summit is going to be held in Hiroshima later this spring.
Third, this means that the United States and other partners are willing to make an exception for countries like Japan. This is even though it has been a very strong part of the Western-led alliance since the end of World War II.
Russian Oil for India
At the same time, India has also been buying Russian oil in huge amounts. And any disruption in its oil imports could put significant inflationary pressure on the Indian economy.
In addition, Russia is India's biggest weapons supplier. And any gaps in the supply lines could spell doom for India's national security. At a time, when India is facing threats from China and Pakistan, this is a threat that India simply cannot afford to ignore.
In addition, Pakistan has been trying to get close to Russia. On the day of the Russian invasion of Ukraine, the former Pakistani PM, Imran Khan, was in Moscow.
Oil from Russia accounted for around 40 per cent of India's total crude oil imports in February 2023. This made Russia India's largest supplier of crude for the fourth straight month.
Moscow is offering discounts on its oil, which has helped Indian refiners shore up their finances.
Japan's Energy Dilemma
In the last couple of years, public opinion in Japan has trended against the use of nuclear power. According to the IEA (International Energy Agency), fossil fuels accounted for 88% of Japan's total power generation in 2021.
It is important to note here that Japan imports foreign energy resources to meet over 96% of its current energy consumption needs. In addition, Tokyo has set a goal of carbon neutrality by 2050. In order to reach this ambitious target, it will have to significantly increase the share of renewable energy in its energy mix.
At the same time, thermal power plants account for around 40% of Japan's carbon emissions. Yet, they have taken a big hit on account of this decarbonization policy.
Sakhalin Oil and Gas Reserves
A consortium of Japanese companies hold a 30% stake in the Sakhalin Oil and Gas Development Company, or SODECO, in northeast Russia. Then, in October 2022, Russian President Vladimir Putin unilaterally announced a plan to establish a new operator for SODECO's Sakhalin 1 project previously led by Exxon-Mobil.
Despite the new Russian operator of the Sakhalin 1 oil and gas project, Tokyo decided to retain its stake. Relying solely on oil from the Middle East would be extremely risky for Japan. In addition, Japan's energy security would be at risk in the case of unforeseen tensions between Iran and the West.
In 2022, Russia accounted for 9% of Japan's total 74.32 million mt of LNG imports. Likewise, it was the source of 4% of Japan's total crude oil imports, as per data from the finance ministry. In addition, more than half of the 9.6 million mt/year LNG production capacity at the Sakhalin 2 project in the same region is committed to Japanese offtakers.
Tokyo's worries were compounded when early in July 2022, Russian President Vladimir Putin signed a decree to take over the Sakhalin 2 oil and gas project. Dutch conglomerate Shell held a 27.5% stake in the project at the time. And the Japanese firm Mitsui had a 12.5% stake in the project, while Mitsubishi had 10%.
The Road Ahead
There are some political compulsions too for Japan. Russia could be part of the solution when it comes to the North Korea imbroglio and hence Japan needs to keep its channels of communication with Russia intact. In addition, the increasing closeness between China and Russia is something that Tokyo would like to keep an eye on.
Things are not going to change overnight either in the case of the Russia-Ukraine war or in the case of Japan's and India's energy security. Hence, for both Japan and India, their dependence on energy imports from Russia is likely to continue for the foreseeable future.
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Author: Dr Rupakjyoti Borah
Dr Rupakjyoti Borah is a Senior Research Fellow with the Japan Forum for Strategic Studies, Tokyo. The views expressed here are personal. His upcoming book is Beyond the BRI: Can India, Japan and the US provide an Alternate Model of Connectivity (World Scientific, Singapore.)
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