“Nikkei-Owned Financial Times Begins to Crack on Sanctions”

A journalist contact who knows the ins and outs of the Financial Times exceedingly well pinged about a new article, Japan cannot survive without Russian oil, warns trading house chief, bleating about the oil and gas sanctions, and without saying so, the going-live-soon G7 oil price cap. Yes, Japan is a member of the G7.

The piece is noteworthy, as our alert colleague correctly noted, because the Financial Times has been a hardliner on Russia generally and the sanctions/economic war in particular.

His remarks:

Roula Khalaf was summoned to Tokyo to have this dictated to her…Khalaf is a careerist and there is no way she would have run this without being ordered to.

Consider additionally:

It is very unusual for the Japanese to make a stink like this. Using a venue like the Financial Times means they wanted the noisemaking to be noticed. The Japanese complain in public only after they’ve tried hard in private and gotten nowhere. This article looks to be the result of official Japan, which has sought and gotten some waivers from the oil and gas sanctions, believing it’s going to be in a very bad way without more relief.

Recall that the EU version of the oil sanctions, was set to add extreme provisions, like permanently barring any vessel that violated the price cap regime from ever getting any services from EU companies, like insurance or even one assumes, resupply at an EU port.

Remember further that Russia has said it simply won’t sell oil subject to a price cap regime. Experts anticipate that response would produce a big jump in oil prices. Japan is already in bad economic shape due to the yen being very weak at a time when commodity prices are high. The article points out that Japan gets 9% of its gas and 4% of its oil from Russia. Those levels may not seem like much, but as the cliche goes, you will be just as dead whether you drown in 6 inches or 6 feet of water.

Or Japan’s real concern may be that the imposition of non-leaky sanctions will lead to those aforementioned big oil price increases. Simon Watkins in a new OilPrice story contends:1

Oilprice.com sources: In the short term, Russia could secure at least three-quarters of the shipping needed to move its oil as usual to established buyers.

However, the imposition of the price cap regime is sure to produce near-term dislocations as the work arounds (and likely longer transit processes) are implemented, so the immediate shortfalls would be greater than the “three-quarters of the shipping” suggests. Would it be mere weeks, or more on the order of months for these new mechanisms to be working smoothly?

Or is the Japanese complaint more narrow, as in “We’ll cheat if we have to so don’t go looking too hard?” The interviewee is Masahiro Okafuji, the head of Itochu, long one of the smaller but sometimes particularly aggressive Japanese trading companies. Okafuji is also one of the few Japanese who has license to be candid.

Trading companies help preserve Japan’s cultural insularity by being major brokers of foreign trade transactions. They are still enormous in revenue terms with very small profit margins.

One could read Okafuji as effectively saying Japan needs foreign energy and the trading companies will get it, even if it infuriates the West. So he may be speaking from more of an institutional perspective. And given the fact that the US is escalating with China and Japan is America’s best military ally in the region, Okafuji and his confreres are likely counting on the US not being so self destructive as to cause a ruckus with Japan too by insisting on rigid compliance at a time when Japan simply can’t handle it.

Notice that Okafuji initially goes through the ritual of submission, that of course he and Japan will comply, then goes on to explain why this can’t and perhaps therefore won’t happen. This isn’t quite the Japanese “Very difficult!” with an inward hiss, which equals “no”, but it’s not terribly far from that either.

From the article:

In an interview with the Financial Times, Masahiro Okafuji, chief executive of Itochu, which has Warren Buffett as a major shareholder, said the country’s continuing use of Russian energy after the invasion of Ukraine would hinge on support from the US and Europe for Japan’s position.

“Unlike Europe or the US, Japan depends on overseas for almost all of its energy needs so it’s not possible to cut off ties with Russia because of the sanctions,” Okafuji said at the company’s head office in Tokyo. “In reality, we cannot survive unless we continue to import from Russia, even if the volumes are smaller.” 

Okafuji, who is among Japan’s most charismatic and aggressive business leaders, was also critical of the rising pressure on companies to prioritise geopolitics over commerce. The trend of “friendshoring”, where like-minded countries co-operate in supply chains to reduce geopolitical exposure, came with potential risk.

“It’s inevitable, but if such a trend continues, it will reduce the investment appetite of companies as well as their ability to innovate and compete, so it is negative for the global economy,” he said.

Japan has kept pace with western nations in imposing sanctions on Russia, but it has not withdrawn from large energy projects in the country since it relies on Russia for about 9 per cent of its liquefied natural gas and 4 per cent of its oil.

The Japanese government and Itochu, along with India’s state-backed ONGC Videsh, remain investors in the Sakhalin-1 oil project that ExxonMobil has quit. The prospects for the oil and gasfields project in Russia’s Far East region are even more uncertain after Russian president Vladimir Putin earlier this month signed a decree creating a new operating company that would be managed by state-run oil group Rosneft.

Even as Okafuji is trying to navigate Japan’s tricky position between the West and its energy supplies, some of those energy suppliers are getting noiser about not being on board with buyer attempts at price controls:

And India, which has repeatedly said no to siding against Russia and joining the G7 oil price cap bandwagon, is having to clear its throat yet again and say “No means no”:

I wish I had seen this exchange. High caste Indians have often perfected the art of looking perfectly pleasant and unruffled when they deliver hash messages. That makes it hard to honestly depict the bluntness as the result of ire, as opposed to trying to get through very thick heads.


1 Watkins has a bad case of Putin Derangement Syndrome and so accepts Western disinformation without question, which distorts his analysis.

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  1. Colonel Smithers

    Thank you, Yves.

    Readers may have also come across https://twitter.com/philippilk/status/1587050404981907456?cxt=HHwWgICx2en7qoYsAAAA with regard to FT columnist and BBC and CNN regular Rana Foroohar.

    Contacts on the banking desk at the FT say there are differences, including class, between the reporters and columnists and industry specialists and politics team. The latter in both cases are better paid and mix in elite circles, which are often echo chambers detached from the concerns of ordinary people and business professionals and, to be honest, many FT readers. This predates the war in Ukraine.

    NB the Japanese and Russian governments and business establishments are keen for Japanese firms to be part of oil and gas projects in the far east of Russia, including Sakhalin.

    One wonders what the German and Italian business establishments, no less keen on ending sanctions, are thinking and even plotting to make themselves heard.

  2. Altandmain

    At some point, there needs to be an honest admission that the sanctions have backfired and are hurting Europe more than they are hurting Russia. In fact, by driving prices for commodities up, they might actually be helping Russia.

    The Japanese are much wiser than the European countries about this one. They recognize that they need Russian energy supplies for their industry and for heating.

    As for the price cap, it is only going to accelerate the process of businesses leaving Europe.

    Industry is already shutting down in Europe. Recently, I heard the giant BASF plant is being reduced in terms of capacity. That will have huge implications because the German chemicals industry feeds so much else. That includes fertilizer for food as well.

    There’s no reason why the marine cargo insurance business has to be located in Europe. The same could be said about the ports – they’ll just buy pass Europe and a future Europe that has much fewer industry than before the sanctions will have even less reason for ships to visit.

    It will also be harmful to the European shipping industry as well. As mentioned on channels like the Duran, Greece, to give an example, is heavily reliant on shipping. Their industry would be devastated by such a ban.

    To me, the scariest part about this is how fast the Europeans are destroying themselves. This won’t even achieve what they are hoping to achieve, to Weaken Russia. The other is the actions of the neoconservatives. All they are doing is weakening the European Allies of the US and ensuring that the world’s economy will shift away from the Western world. Their actions are alienating not just Russia, but the rest of the world from the Western world.

    Japan has taken a much more practical approach than the Europeans, and frankly, I suspect that they would not even be sanctioning Russia were it not for enormous pressure from the US. It’s far more likely in that regard that Japan will emerge with at least some of its industry intact after this. I’m not holding my breath for when that honest admission from Europe that I mentioned at the start of my comment will come.

    Typically, Japanese tend to be very discreet, so this must be a huge deal for them to make sure their concerns are heard. I think that they understand the gravity of the situation and the consequences of the energy shortage. That’s more than the Europeans can say.

    1. Alan Roxdale

      At some point, there needs to be an honest admission

      The problem is that the Western political class has bought into its own propaganda and is now deadlocked by it. Only “goes-to-11” propaganda can explain going along with a policy as totally daft as the oil-price cap.

      The Japanese are much wiser than the European countries about this one.

      I think it’s more down to being less affected by anglo-centric media. In fact, I’m willing to bet that stances on Ukraine, Russia, oil caps, etc between governments could be statistically linked to the prevalence of Engligh language media in each country. Governments in Japan and India are affected, but much less so, by the mostly english language propaganda and hence are not as constrained by it. Europe by contrast is resembling a decaying authoritarian regime in how hamstrung its governments are on the most fundamental issues of security, energy, trade, employment.

      On a broader level, the thing about propaganda is: It costs a lot of money, time, effort, even if social media and the internet have brought that cost down. It especially begins to cost a lot more as people start complaining and counter-narratives emerge in the population. I guarantee you that whatever funds are being allocated, very little of that is going to the Japan and even India offices compared to Germany and domestic US/UK. Funding is probably secured for a while at existing levels, but if other countries or groups decide to unleash their own campaigns to try and escape the effects of sanctions — oh boy — it’ll be an election campaign come early!

      1. digi_owl

        More like the post-war political class in Europe has effectively sold out to DC and Wall Street, in particular after the USSR collapse and third way “leftism” no longer made a proper political left a credible threat.

        they place globalism (aka Wall Street hegemony) above national or even European concerns.

        As for Japan, they are likely still smarting from the boom-bust of the 80s and the Plaza accord. And thus are not going to play ball this time round.

  3. The Rev Kev

    I suppose that Japan thought at the beginning of the year that this was going to be their year. That after Russia got slammed with sanctions causing their collapse. that it would not be long before they would be able to take back the Kuril Islands, even if the US did stick a coupla military bases on them. I can’t say that I know much about the political setup in Japan but I bet that a lot of the power is being run behind the scenes out of sight and in the business community. And it is this power structure that has run the numbers and are saying Japan trying to do a Russian oil price cap amounts to national seppuku. So maybe, maybe the US has gotten wind of this and have already fired a shot across Japan’s bow. A coupla days ago the UK withdrew their entire F-15 fleet from japan – Okinawa actually – which has been there since 1979. So maybe this was the US telling Japan that if they do not toe the line, then they will pull all their forces out of Japan leaving them to deal with China alone. Yes, this could blow up in a Monty Python fiasco where Japan and China suddenly make nice but it is all a US bluff anyway. Like, when does the US pull their forces out of a country unless forced?


    1. Acacia

      US and Japan are bound to mutual defense by the ANPO treaty. The LDP has been pushing for Constitutional revision and a massive increase to the defense budget. It probably won’t be like Monty Python but the world is getting more weird by the day.

    2. Yves Smith Post author

      Japan would likely prefer to have a free hand re China and sit out any dustup. It’s been trying to play nice with both countries despite being a military protectorate of the US.

      But the US would never let them slip that leash….which means pulling out the F-15s just weakens the US position in the region.

  4. Michaelmas

    Another crack in the MSM’s adherence to the narrative in the NYT yesterday, too.The piece’s financially illiterate hed avoids the basic reality that Russia has a sovereign currency and is as near an autarky as any state on the planet; much spinning and putting a gauzy veil on the farcical policy failures, also.

    Yet the basics of reality start to appear through the haze, mostly in the accompanying graphics. Some of these — e.g. the chart of ‘Commodities for Which Russia Has Been A Leading Exporter’ — are so striking that the thought inevitably arises: Only completely incompetent, arrogant near-morons could ever have imagined this policy would work.


    How Russia Pays for War: International trade with Russia boomed this year, even acountries imposed sanctions after the Ukraine invasion. As restrictions take effect, Moscow’s alliances have been shifting.

    ‘Countries vowed to sever economic ties with Russia and imposed sanctions that were intended to cripple its economy after it invaded Ukraine. But as one of the world’s most important producers of oil, gas and raw materials, Russia has had longstanding and lucrative trade partnerships. Breaking those ties is not easy ….

    ‘That has led to a frustrating reality for Western officials who had hoped to undercut Russia’s war effort by punishing its economy: The value of its exports actually grew after it invaded Ukraine …. ‘

    Some of the spinning is comedy gold. The piece concludes —

    ‘ Developments in the war, where Russia has recently suffered a series of setbacks, could also influence economic relations. This weekend, it withdrew from a global agreement that would have allowed grain to be exported from Ukrainian ports. If Russia were to use nuclear weapons in Ukraine, for example, that could galvanize more global sanctions that could cut Russia off from trade with Asia, Mr. Gabuev said.

    ‘“We’re going to see probably a different picture next year​​,” Mr. Gabuev said. ‘

    Next year, lord, next year.

    1. Colonel Smithers

      Thank you, M.

      “Only completely incompetent, arrogant near-morons could ever have imagined this policy would work.” If one treats as gospel anything that comes out of Obama, e.g. Russia’s just a gas station” or “Russia’s a gas station with nukes”, what can one expect.

      I don’t know if you are (still) in Blighty, but last week the BBC’s home and world services kept comparing Ukraine to a periodic table and chemistry set and said Ukraine is a commodity superpower, which was news to me as I was keen on geography at school, work in (trade) finance and used to work in trade policy. There’s a lot of MSM, PMC and PTB cynicism, but equally a lot of MSM, PMC and PTB stupidity.

    2. KLG

      “Only completely incompetent, arrogant near-morons could ever have imagined this policy would work.”

      Michaelmas wins the internet for the day!

      When I mention to PMC peeps that Russia has all the food and energy its people need, indefinitely, all I get back is a bovine stare. Followed by, “But Putin is evil!”

    3. spud

      this should not surprise you. the same Only completely incompetent, arrogant near-morons could ever have imagined this policy would work, shipped all of our manufacturing and technology to china, then said its a win win.

  5. russell1200

    Japan and Russia are still arguing over the Kuril Islands occupied by the Soviets/Russia. The Japanese also tossed a diplomat in response to the Russians tossing one of their for espionage. What exactly is going on seems a bit foggy to me.

    One wonders if the FT story also has aspects of Japanese internal discussions going on?


      1. Polar Socialist

        Coincidentally the largest of the contested islands, Iturup, is mostly inhabited by ethnic Ukrainians, of all people.

        1. The Rev Kev

          I’ll be damned. Here is another snippet about that island from Wikipedia-

          ‘In 1968, Seaboard World Airlines Flight 253A was intercepted over the Kurils and forced to land at Burevestnik with 214 American troops bound for Vietnam.’

  6. phiw13

    The Japanese government (METI minister) has repeatedly said that oil and gas purchases will continue. In August, deals where finalised to keep the JPN stake in the Sakhalin gas fields, and I see that the Oil part has now been agreed to.

    On the bother hand, yesterday or so the government was talking about the need to economise on electricity this winter as supplies as “tight”. So yeah, bunch of actors in the energy sector are playing (word) games and spinning everything – hmm, I wonder, are they trying to get some discount from the US on their import of US LNG (there are largish long term contracts that have seen some uneven implementation on the US side of late).

  7. chuck roast

    Actually, FT’s enthusiasm for the entire Ukraine project was beginning to fade at summers end when they took the rabid Russiaphobe Max Seddon off the war beat. He typified Mary McCarthy’s famous “and” and “the” line. Since the Ukies have been on the offensive, Max has been resurrected to instruct readers on a daily basis that victory is at hand and defeat of the beastly Putinescas is a certainty. Max is a great barometer. We will know that the Ukie-pressure will be dipping to stormy when the pink paper sends the boy back to writing up meetings of the garden club.

  8. King

    “High caste Indians have often perfected the art of looking perfectly pleasant and unruffled when they deliver hash messages”
    In very poor taste. Even though the caste system is not as much of an issue in India compared to probably 200 years ago western media and commentators seem to be obsessed with it.
    some examples of caste not being a problem
    The President of India (Ms Murmur) is a Tribal
    PM of India Mr Modi is OBC–other backward class (OBC) and used to be a tea seller when young.
    K. R. Narayanan, 10th president of India (1997–2002) and 9th vice president of India (1992–1997).
    Ramnath Kovind, 14th President of India.
    Jagjivan Ram, Dalit leader, deputy prime minister of India 1979
    Damodaram Sanjivayya, 2nd Chief Minister of Andhra Pradesh in past
    Ram Sundar Das, Chief Minister, Bihar in past
    Bhola Paswan Shastri, Chief Minister of Bihar in past
    Jagannath Pahadia, Chief Minister of Rajasthan in past
    Mayawati, Chief Minister of UP in past
    Kanshi Ram, founder of the Bahujan Samaj Party, a Dalit leader and Bahujan Nayak of India
    Bangaru Laxman, President of Bharatiya Janta Party
    Kirpa Ram Punia, Dalit leader, former IAS officer, and politician
    B. Shyam Sunder, founder of Bharatiya Bhim Sena
    And there are a lot of others not as celebrated but equally in high positions across all fields in India
    In fact, as such in schools and colleges admission is not based on caste.
    Ram Vilas Paswan was richer than most brahmins or upper caste and wasn’t discriminated against and his son Chirag Paswan went to the best schools and whichever college he preferred.
    In fact in IIT or any other college, no one will ask fellow students about their caste. Everyone sits together in classrooms and canteens and study, play and eat together.
    Caste is just important for the West to demean India and also for some people who want to take political mileage nowadays.
    I think modern India doesn’t care about caste anymore and is happy to move on with times and make merit more important than caste
    please refrain from bringing caste into something which has nothing to do with it.

    1. lyman alpha blob

      I have never been to India and the anecdote I’m about to mention is 25 years old, so take with a grain of salt since things could very well have changed. But, in college my better half was pretty good friends with an upper class Indian guy who was shocked to find out that she and her friends did their own laundry. One was supposed to have servants for that type of thing according to him. He had a pretty privileged attitude overall.

      So if that is any guide, caste hasn’t completely gone away. Of course, you could probably find any number of wealthy USians who would make similar comments too.

      1. barefoot charley

        Back when going to college was a high-class affair in the early 20th century, it was normal for Americans to mail their laundry home to Mom for cleaning. She likely had a maid, or at least a ‘girl.’

    2. Karl

      please refrain from bringing caste into something which has nothing to do with it.

      While you are undoubtedly right that modern India has, politically, moved beyond caste, there are still mannerisms and behaviors that correlate with caste and class in India as in every country. So, if it is true that Puri is upper caste; and if it is true that upper caste people speak this way about sensitive topics, then it is by no means irrelevant.

      By the way, politically the USA likes to think of itself as “beyond race.” But as we all know, in almost every other respect, the USA is by no means beyond race. Or beyond class. I don’t know about India, but just listing a bunch of prominent Indians as you did proves nothing about attitudes that have embedded themselves in the culture over centuries and probably persist–just as in the USA and probably most countries. We continue to be products of our history, and blanket statements like yours seem oblivious to this.

      All the same, thanks for your perspective. I’m glad that India is moving on beyond caste.

      1. skk

        Yeah it jarred with me too. What does YS know about high caste Indians anyway. More important what does YS know about low caste Indians either – one needs to know both to make that implicit binary ( and far too broad) comparison. Now if YS had said Khatri…..
        Which is then just as rude :-)
        Still I’ll just think somebod lost it for a sec and I will just move on, having got my rant in.Yeah how low caste of me.

        1. Yves Smith Post author

          I have had many dealings with them, as have many of my Wall Street colleagues. McKinsey was full of Brahmins, for instance. And the point was praise of their social skills.

          It is perfectly acceptable to talk about British toffs and French graduates of the grand ecoles and legacy graduates of the Ivies. And those comments are nearly always derogaory.

          You are living in la la land if you think class does not exist and does not matter.

  9. Tokyognome

    “One could read Okafuji as effectively saying Japan needs foreign energy and the trading companies will get it, even if it infuriates the West. So he may be speaking from more of an institutional perspective.”

    In my view this characterization correctly describes the thinking of Japan’s government officials, who tend to be pragmatists and abhor identity politics. Okafuji and Japan’s officialdom are seeing eye to eye. Japan can ill-afford another jump in energy prices, which will only heighten voters’ misgivings over soaring electricity bills and further depress the Kishida administration’s already rock-bottom approval ratings. Okafuji, on the other hand, may be looking for (tacit) government assurance that his company has free reign in securing the energy supply the country needs.

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