In September this year, while addressing the Eastern Economic Forum virtually, Indian Prime Minister Narendra Modi expressed optimism that India and Russia together can bring stability in global energy market. Investments and close cooperation in the Russian Far East (RFE) are expected to be a major part of this optimism. The Indian government has emphasised on coordination with Japan and South Korea for developing infrastructure and bringing investments to help in realising the full potential of energy capacities in the Russian Far East.
Russia holds the world’s largest known reserves of natural gas. A majority of these reserves are present in Russia’s Far East region (RFE). This region is geographically connected with the Asia Pacific region. The RFE comprises of the Far Eastern Federal district- the easternmost territory of Russia sandwiched between eastern Siberia and the Pacific Ocean. It shares land borders with Mongolia, China and North Korea, and maritime borders with Japan to the southeast and with the US to its northeast, with South Korea in close vicinity. For all practical purposes, Russian Far East is an integral part of Northeast Asia. However, the region needs large-scale infrastructural development and investment for realising its energy potential.
Since 2006, the Russian government has made efforts to induce robust state-private cooperation in the RFE. Moscow has for long expressed the urgent need to pull foreign investments as a way to create and sustain the energy infrastructure which can secure both- Russian interests and the needs of the regional as well as European energy importers. This development has often been seen in light of Russia’s aim to project itself as a greater Asian power and regain its status as a leading global power. But Moscow’s inability to create necessary viable policy related conditions for investors and the desired basic infrastructural facilities in the region still concerns the prospective investors.
Russia’s Aspirations for the RFE
Russia’s concern and interest in developing the RFE has been longstanding. In 2002, Vladmir Popatov, the Deputy Secretary of the Russian Security Council had highlighted that RFE’s development is of utmost concern as the region is not only rich in diverse resources and massive energy resources and stands in geographical proximity to densely populated nations with massive energy needs, but it also runs the risk of depopulation, security risks and stagnation of internal communication systems in absence of development. The concern was reiterated in 2006 by President Vladimir Putin who warned that the socio-economic isolation of the RFE threatens Russia’s national security. In 2008, the then President Dmitry Medvedev had expressed concern that if Russia fails to develop the RFE, it could turn into a raw material base for more developed Asian countries and a neo-colonial pattern of energy trade can emerge. Despite several government programs and funding commitments the region did not witness considerable development and investor interest for long.
Russia’s 2035 Energy Strategy is geared at transitioning Russia towards resource-innovation. To do this, Russia wants to reorient its own as well as the regional energy demand and consumption, reduce isolation from the regional economies, and link the RFE and the Arctic to the Northeast Asian markets, which can be further integrated in the upcoming projects like the Northern Sea Route (providing a much shorter and faster connectivity with the European markets). Russia hopes to increase its LNG exports to rise from 6 to 30 percent by 2035, and also become the top player in the Hydrogen fuel energy. A major portion of this increase in export is expected to come out of the Northeast Asian region.
Chinese Dominance in the RFE
Since 2008, in the aftermath of the Global Financial crisis and Russia’s conflicts in the post-Soviet region, China has heavily invested in Russian energy sector. China proposed the ‘Loans for Oil’ program with Russia which the government agreed despite reservations and opened up the RFE for Chinese interests. Russia’s engagement with China increased more with its conflicts with Ukraine in 2014 and the resulting tilt away from the western investments and western markets. China has been the leading source of foreign direct investment as well as the leading exporter of finished goods in the region, especially in the districts closer to the Russia-China border. But even though Russia has supplied more than 10 percent of China’s crude oil needs through pipelines from Eastern Siberian region, China has looked to diversify its energy exports basket by investing in projects in Central Asia and Middle East.
Besides the skepticisms in Russian political circles related to Chinese increasing domination in the RFE, this factor has also led to a slowdown in Chinese investments in the RFE, forcing Moscow to look towards Seoul, New Delhi, and Tokyo. China has not been a major importer of LNG from Russia, however a greater synergy between Russia, South Korea and Japan can decrease Russia’s dependence on China for financial stability, which is bound to worry Beijing, given how China-Russia relations have been overwhelmingly asymmetrical in terms of their trade baskets.
Can India lead the way?
Japan and Russia have long expressed ‘strong hopes’ of engaging to resolve the Kurile islands dispute that has existed since the conclusion of the second World War. Any meaningful changes still elude the talks and political engagements that have taken place over the decades. It has been highlighted regularly that this issue has restricted the potential for Russo-Japanese collaboration in almost all spheres.
The Joint statement of the 10th Japan-India Energy Dialogue highlighted that India and Japan have been collaborating to develop several oil and gas projects in third countries beyond Russia- like UAE, Canada, Mozambique, and Sri Lanka. Both India and Japan stand to gain from developing LNG markets and associated emerging cleaner technologies like Hydrogen and Fuel cells. As Russia is expected to become a leading producer of Hydrogen fuel in coming years, India and Japan can benefit from close cooperation in the RFE. This trilateral cooperation will also provide a sort of strategic balance in the regional geopolitics where China’s rise has been unrestricted in the last two decades.
The first Trilateral Track II dialogue on India-Japan-Trilateral cooperation in the RFE was held in January this year. It noted the complementarities of capacities and convergence of interests among the three nations along with the inter-connected nature of regional development in the RFE.
Republic of Korea (South Korea) stands as one of the top economies in the world today. The nation has a diversified energy supply mix, and along with a strong nuclear industry it has become a pioneer in the LNG trade. South Korea relies heavily on oil imports from Middle East, but it has done well in terms of diversifying its imports of fossil fuels from Southeast Asia and Australia. With almost completely privatized oil and gas industry, South Korea has participated in a long list of oil and gas development projects, spanning across Southeast Asia, Gulf of Mexico, and Canada.
For long, Russia has seen it engagement with South Korea from the perspective of South Korea’s relations with the US and the North Korea-South Korea reconcilliation and Korean peninsula’s de-nuclearization. Way back in 2007, the ‘Six-party agreement’ took shape which would create the conditions needed to implement ‘a series of multilateral projects with the participation of both North Korea and Russia- including oil gas transit, electricity transfers, and the several other connectivity projects’. However, the collapse of this process resulted in diminished hopes of securing a Russia-led regional integration in Northeast Asia for energy infrastructure. While North Korea is today reeling under severe international sanctions due to its arms testing and projects to become a nuclear power, Russia has looked towards closer cooperation with South Korea in terms of investments and energy trade through the RFE region. South Korea’s ‘New Northern Policy’ places particular importance on Russia. With Russia not worried about South Korea establishing itself in the RFE (as has been stated constantly in case of China), Russo-Korean partnership can have a brighter future.
Seoul too has recently shown interest in re-engaging in implementation of trilateral cooperation projects in the Russia-South Korea-North Korea format, which includes Trans-Korea railroad and the Trans-Korea gas pipeline. India’s presence in the process can provide a robust framework for the optimal capacity creation and utilisation of the RFE.
With the weight of the global economy shifting eastward, Indo-pacific region is rising in importance exponentially. This has also increased the possibilities in adjacent areas like the Arctic, and the Northeast Asia. With Moscow’s emphasis on developing the Russian Far East to utilize the region on various fronts in coming years, it is an opportunity for India to step in and achieve multiple targets. By aiming well, India can not only establish a presence in the region and challenge China’s unquestioned dominance, but India can also utilise this as a way to collaborate with the likes of Japan and South Korea, which are two very vital economies in the Indo-Pacific region and want better terms with Russia and India as well. India can lead a new framework which can aim at providing global energy market stability through coordinating efforts in the RFE.
*Divyanshu Jindal is a Doctoral Scholar at the OP Jindal Global University, and Research Intern at the Manohar Parrikar Institute for Defence Studies and Analysis. He is associated with the Centre for Northeast Asian Studies at OP Jindal Global University as Research Assistant)