The Cost of Breaking Energy Ties With Russia

March 16, 2022|Energy Policy

While the U.S. and Europe announced major pullbacks from trade and investment in Russian energy, both on a national and corporate level, so far Japan resists this course of action.

Beyond geopolitical consequences, an unequivocal stand on Russian energy trade will incur major economic costs for Japan, which could possibly run into tens of billions of dollars. It may also unintentionally disrupt European allies’ efforts to reduce their own reliance on Russia for energy commodities.

PM Kishida’s administration seems unconvinced that a pullout from all energy projects in Russia and the termination of purchases of that country’s commodities would have a significant impact on President Putin – especially in terms of curtailing the war in Ukraine. Meanwhile, pressure from the U.S., EU or the G7 for Tokyo to take a hard line on Russian energy is not forthcoming due to issues closer to home.

Severe disruptions to the system of payments and global logistics could yet see Japan notably reduce Russian commodity imports. Yet, the concern in Tokyo is not only about the large cost to its own economy. Mid to long-term, this might strengthen China’s economy and energy security, creating a possible trigger for future disruptions.

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