Watching The World: A cat among the pigeons

Kohei Nakanishi, managing director of Japan Bank for International Cooperation, recently said his country is expecting "very much" from Russian oil and gas suppliers.

Nakanishi named new developments on Sakhalin Island as the reason for his statement, saying that its location is the key element in his thinking.

"The distance between Sakhalin and Japan is one sixth of the distance between Japan and Middle East countries and nearly half the distance to Indonesia," he said. That means, "We can offer our clients a better price due to lower transportation costs."

All of that might have been true only a few weeks ago when Nakanishi made his remarks, but things have changed since—especially after Russian President Dmitri A. Medvedev visited one of the southern Kurile Islands.

The four southernmost Kurile Islands, called the Northern Territories by Japan, are home to just a handful of people, but possessing the territory means access to prize fisheries and, not least, some oil and gas fields.

Medvedev is the first Russian or Soviet leader to visit the islands, which his country seized from Japan toward the end of World War II. And, during his recent visit, Medvedev made clear that the islands will remain Russian.

"We want people to remain here," Medvedev said while visiting a family on Kunashir, one of the islands. "Development here is important. We will definitely be investing money here," he said.

But the Japanese government, which had earlier warned that any such visit would "severely hurt ties," objected right away. Foreign Minister Seiji Maehara said Medvedev's presence "injures the feelings of the population of Japan."

While the two sides determine the niceties of diplomatic exchanges, the visit by Medvedev may have tossed the cat among the pigeons when it comes to Russo-Japanese cooperation over oil and gas developments even farther afield. Indeed, the renewed territorial dispute between Japan and Russia threatens to overshadow a joint oil exploration project by Japan Oil, Gas & Metals National Corp. and Russia's Irkutsk Oil Co.

In October, the two firms told Russian authorities that they have discovered an estimated 15-50 million tons of oil in Severo-Mogdinsky field, about 1,100 km north of the Siberian city of Irkutsk.

Japan's Nikkei business daily underscored the significance of the discovery, saying, "Oil from Siberia will be easier to transport than crude from the Middle East and will allow Japan to diversify its sources of oil."

Sounds like Nakanishi, doesn't it? Yet as the Japanese newspaper noted, "It cannot be ruled out that recently chilled relations between Japan and Russia might compromise the Siberian oil project."

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