Amicable talks lead to a range of trade and finance agreements, but a mutually beneficial “balance of power” based on territorial and security arrangements remains beyond reach.

The meeting between Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe, held in Japan on December 15-16, failed to resolve two fundamental bilateral issues held over from the Second World War: absence of a formal peace treaty and a territorial sovereignty dispute over the southern Kurile Islands (known as the Northern Territories in Japan). Instead, Putin turned the tables on Abe by signaling that a peace agreement will be negotiated on Russia’s terms (or not at all) and that the territorial sovereignty dispute was not up for discussion. In Putin’s realpolitik worldview, there is no territorial dispute since de facto sovereignty over the islands has been held by USSR, and subsequently by Russia, as a consequence of the Second World War and is therefore the rightful spoils of war.

Putin also reframed the negotiating sequence as a gradualist approach in contrast to Abe’s preference for a major breakthrough. Rather than striking a grand bargain, Putin has shifted the burden on Abe to first demonstrate that Japan can and will deliver on specific proposals. This incremental approach risks Japan being entrapped in irrevocable commitments while allowing Russia to control and manipulate the negotiation process. The summit revealed the significant disparity in relative bargaining strength as well as the low-level of trust between the two countries, despite the perceivably warm personal relations between the two leaders. As Putin stated during a joint press conference with Abe, Russia survived without close cooperation with Japan for seventy years (since the Second World War) and could live without Japan in the future, although this was not the preferred outcome.

Although negotiating from a disadvantaged position, Abe did not walk away empty handed. The two leaders agreed to resume bilateral “2-plus-2” talks between defense and foreign ministers (suspended since Russia invaded Ukraine in 2014). This is important to Abe and the first step toward closer security and defense cooperation that has been opposed by Washington. Putin and Abe also agreed to launch discussions on creating a special regime for joint economic cooperation of the disputed islands. While joint development carries its own set of risks, the initiative is a small step toward improving overall bilateral relations.

It was also announced that the Russian Direct Investment Fund and Japan Bank for International Cooperation would create a US$1 billion fund targeting equity investments in joint projects in Russia’s Far East, while some . progress was also made on the energy front, with several strategic cooperation agreements signed between Japanese companies and Rosneft, Gazprom, and Novatek.

An Elusive Bargain Ahead

Some of these specific initiatives and projects may be successfully implemented, however a grand bargain between Russia and Japan that finalizes a peace treaty, resolves the territorial disputes and facilitates a strategic partnership will remain beyond Tokyo’s reach. It is assumed that the conclusion of a peace treaty and a compromise over the Kuril Islands would be a mutually beneficial exchange that would lead to a strategic relationship. More likely, the actual benefits realized by each party from such a deal would fail to meet expectations.

First, the potential geopolitical and strategic implications of a grand bargain are greatly exaggerated and unlikely to have the intended effects. Conceivably, Moscow would leverage a deal to slowly pull Tokyo away from Washington and thereby weaken the U.S. hub-and-spoke alliance system in East Asia. For its part, Tokyo would leverage a deal to prevent Moscow from too closely aligning with Beijing against Japanese interests.

Putin likely understands that a truly strategic partnership been Moscow and Tokyo is not possible as long as Japan is a U.S. treaty ally. The main geopolitical and strategic driver behind Abe’s outreach to Putin is concern over China’s growing military and naval capabilities, increasingly assertive behavior in the East China and South China Seas, and perceived intention to revise the status-quo in East Asia. Even if Japan enhances security relations with Russia, the United States will remain Japan’s primary security partner and strategic ally.

Abe has little hope of orchestrating a Kissinger style “balance of power” strategy. Although the Sino-Russian historical relationship is a complex blend, if not contradiction, of strategic cooperation and distrust, it has proven to be a durable source of opposition to the U.S.-led international liberal order and will likely only grow stronger in the decade ahead. To be sure, Russia and Japan have a limited shared interest in balancing a rising China. Yet, each side has very different threat perceptions of China and diverging national interests in Asia that will constrain bilateral security cooperation and prevent the development of a truly strategic partnership.  

Second, the absence of a formal peace treaty and unresolved territorial disputes have not been the primary obstacles to Japanese investment in Russia. Whether or not Japanese companies decide to invest in Russia is a risked-based commercial assessment. Even where Japanese companies have expressed an interest in strategic investments in Russia, the Kremlin has preferred to partner with U.S. and European companies. In the energy sector, for example, it is only after the imposition of sanctions by the U.S. and EU that Russia turned to China as a primary source of investments and then later to India and Japan as alternatives.

Third, the immediate driver behind Putin’s willingness to hold talks on a peace treaty and the territorial dispute, despite having no intention of compromising over sovereignty, has been to leverage these issues as a means by which to pressure Abe to lift sanctions. This was reiterated by Putin just prior to his trip to Japan, stating that sanctions were an obstacle to improved relations. While Japanese government officials have clarified that Tokyo would not unilaterally break with the sanctions regime, this may soon become irrelevant. Although the EU just voted to extend sanctions for six more months, if President-elect Donald Trump lifts U.S. sanctions, then the EU and Japan will almost certainly follow Washington’s lead. The collapse of the sanctions regime would remove an important short-term driver of Russia’s eagerness to pursue peace talks with Japan, while simultaneously removing one of Japan’s bargaining chips with Russia.

The key takeaway from the summit is that a grand bargain between Russia and Japan that  results in a peace treaty, resolves the territorial dispute, and achieves a mutually beneficial “balance of power” is not within reach. Rather, any improvements in the bilateral relationship will likely move forward within an incremental and transactional framework that is primarily focused on trade and finance but with limited security and defense cooperation.

Jeremy Maxie is a Senior Advisor at Longview Global Advisors. He tweets at @jeremy_maxie.

The views expressed in this post reflect those of the author and not that of the EastWest Institute.​