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Indian involvement in Sakhalin 1 provides an implicit guarantee to Japan


Indian involvement in Sakhalin 1 provides an implicit guarantee to Japan
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As Exxon readies to exit Sakhalin 1, the Russians are not making any threatening noises on Sakhalin 1, unlike in Sakhalin 2. For Japanese companies in Sakhalin 1, certainly, Russia would not seek to destabilize the project because of Indian involvement

India’s relationship with Russia and its larger predecessor, the Union of Soviet Socialist Republics (USSR), dates back decades. Post-Independence Indian leaders were inclined to the USSR’s ideological rhetoric, especially after the Nixon-Kissinger administration sent the Seventh Fleet to the Bay of Bengal when India intervened successfully in 1971 to end the genocide in then-East Pakistan. That set back India’s relations with the US for decades until the more recent rapprochement during the leadership of Prime Ministers Manmohan Singh and Narendra Modi. Meanwhile, many in India conflate relations with the now disappeared USSR with Russia, although of course, they are entirely different countries with the USSR having been a communist nation or union of communist states, and Russia being an autocracy.

During the Cold War, India largely pursued a “non-aligned policy” which in practice only meant “not-aligned to the US, and rather tilted to the USSR” as indeed did over a hundred other newly independent nations, presumably because of the perception that the “global North” was a grouping of erstwhile colonial powers. The Russian Federation of today sees itself as the rump successor to the USSR. India-USSR trade boomed via the Rupee-Rouble Agreement that skirted the US dollar from 1953 till the collapse of USSR in 1991.

The cataclysmic battles between Russia and Ukraine are an unhinged tragedy. Every world leader worth his/her salt has called on the protagonists to stop fighting and negotiate, although in a clear failure of “global governance” there is no credible negotiating body in this respect given that Russia is a P-5 member of the UN.

Purely on the commercial oil and gas front, Sakhalin 1 and Sakhalin 2 are projects on and off the Russian island of Sakhalin, the southern portion of which was annexed by Russia in the dying days of World War II that was part of Imperial Japan from 1905 (when Japan defeated Russia) till 1945.

In the Sakhalin 1 oil and gas project, India’s ONGC Videsh has had a 20% equity stake since year 2001, which it took with an investment of $1.5 billion to $2 billion. The project lead was Exxon, which had a 30% stake, which has voluntarily announced its intention to depart the project, declaring a force majeure and booking a loss of $3.4 billion. Japanese private sector companies Itochu and Marubeni, and Japanese government entities Japan Petroleum Exploration Co, Japan National Oil Corp are also together 30% equity-holders, with the remaining 20% being owned by Rosneft affiliates. The Russians are not making any threatening noises on Sakhalin 1, unlike in Sakhalin 2. For Japanese companies in Sakhalin 1, even government companies, there appears to be an implicit insurance because of Indian involvement. Certainly, the Russian government would not seek to destabilize the Sakhalin 1 project by expropriation using any methodology.

(L-R) Location of Sakhalin Island and Location of Sakhalin I and II. (Picture courtesy: Nippon.com)



Sakhalin 2, one of the biggest integrated oil and liquefied natural gas (LNG) projects in the world, has both offshore and onshore facilities and is operated by Sakhalin Energy Investment Company, a joint venture between Russian state-owned firm Gazprom (50%), Shell (27.5%), Mitsui (12.5%) and Mitsubishi (10%). Shell has announced plans to leave, although it may take years to unwind its position. Apparently irked by Japan’s championing of a price cap on Russian oil that would sharply limit Russian revenue for its oil exports, if it were implemented faithfully, former Russian President Dmitry Medvedev (a surrogate for President Vladimir Putin) was trotted out to issue a direct warning to Japan that it would lose rights on Sakhalin 2 if it persisted with such endeavour. Further, President Putin signed a presidential decree to transfer rights to the Sakhalin 2 project to a new Russian company, without providing for any compensation to Mitsui and Mitsubishi. In Sakhalin 2 no Indian company is currently involved.

Large projects of hundreds of millions of dollars have been protected against expropriation through a multilateral bank’s insurance product covering just $50 million investment in each of those projects. If such projects were nationalised, it would trigger multiple measures by the multilateral bank that the host country might find financially unpalatable. In the Sakhalin 1 case, should anything untoward happen, while India would not retaliate against Russia, it is a sure recipe to lose India’s friendship that is seeking to relate to both sides amidst misunderstandings and angst from some of Ukraine’s partner nations.

Even pre-World War II, when Japan was under various sanctions and isolated from the League of Nations, it was the Indian trading community that managed to continue import/export of Japanese textiles and related raw materials. India’s Sindhi community emigrated to Japan for trading purposes as early as the 1870s in the Meiji period. Concentrated in the port cities of Yokohama and Kobe, they were particularly active in Japan’s exports of textiles, especially silk, to South-East Asia. In the late 1800s, large quantities of Indian raw cotton were being imported to Japan via the Kobe port due to the rapid development of the cotton spinning industry in Japan. In 1892, the import of Indian cotton to Japan exceeded that of Chinese cotton for quality and price reasons. During the American civil war, Indian cotton substituted for cotton from the Confederacy that had been blocked by the Union blockade that was needed in industrial mills in Britain.

The late Prime Minister Shinzo Abe used to emphasise the value of Japan and India working strategically and closely together in other countries. Japan, which has had an excellent relationship with India, devoid of rancour for over a thousand years, is benefiting from the protection afforded by India’s post-Independence relationships. Those are both by its leadership in the “Third World” as well as because the Indian diaspora including descendants of the indentured labour from India, that served extensively in the Caribbean, South Africa, Fiji and elsewhere, have created linkages with India that have been enduring in virtually every country. Japan’s capital-intensive diplomacy focused on infrastructure, and foreign assistance is complementary to that of India’s. India’s diplomacy, long a mystery to many, does have something to preen about.

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