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Dec 12, 2013 | 11:40 GMT

10 mins read

Moscow's New Focus on South Korea

Summary

Editor's Note: This is the second in a three-part series on Russia's intensifying focus on East Asia. Part 2 examines Russia's interests in Northeast Asia and its efforts to strengthen ties with South Korea. Part 1 examined Russia's strengthening ties with Vietnam. Part 3 will examine Russia's relationship with India, including the countries' shared interest in constraining China.  

As Europe diversifies its energy supplies away from Russia, Moscow has turned toward Asia's energy-hungry economies in search of markets for its hydrocarbon exports. Although Russia's main focus in Asia traditionally has been on the top economies of China and Japan, South Korea has also been an area of major interest. South Korea's healthy energy market and potential to invest in Russia's Far East make stronger ties with South Korea attractive to Russia. In November, Russia signed 25 bilateral agreements with South Korea and is also seeking rail and pipeline connectivity. Meanwhile, as Seoul and Washington's relationship is evolving into one that could mean less military support from the United States, South Korea could turn to Russia to pick up some of this slack.

Russia's Far East is an important asset for Moscow; it contains vast reserves of coal, oil and natural gas, as well as minerals such as gold, tin, iron and copper. These raw materials are essential for a nation whose economy relies primarily on energy exports. However, the area is distant from Moscow and from Russia's Muscovite core, located west of the Urals in Europe. The entire Asian territory is sparsely populated, with most of the population concentrated in urban centers and in steady decline (down an average of 14 percent since 1991). Development of the Far East involves serious economic and administrative difficulties, since it is so far from Russia's core territory.

Russian Oil Export Infrastructure To Asia

Russian Oil Export Infrastructure To Asia

Although it is far from the country's core, Russia's Far East has major geographical advantages. In addition to shared borders with Kazakhstan and Mongolia, it also has a long border with China (4,195 kilometers, or 2,607 miles), along with a 4,500-kilometer coastline on the Pacific, featuring the warm water port of Vladivostok on the Sea of Japan. To the south, it also possesses a 17-kilometer border with North Korea via a narrow strip of land along the Pacific.

Russia in Northeast Asia

These land and sea connections provide the Russian Far East with access to the large economies of Northeast Asia, which are potential sources for investment capital and revenue from energy exports. This region is home to the world's second- and third-largest economies — Japan and China — and to South Korea, the world's 15th-largest economy. Russia's eastward focus has centered on these three economies, with a strong interest in securing deals with China. Japan already imports 10 percent of its liquefied natural gas from Russia, and this percentage is expected to increase as Japan diversifies away from the Middle East. Russia's Rosneft and Gazprom are competing for Japan's involvement in their liquefied natural gas export facility at Vladivostok, and Japan's Mitsui and Mitsubishi hold a 22 percent stake in liquefied natural gas facilities at Sakhalin 2

Russian Oil Exports to Asia

Russian Oil Exports to Asia

But China, with its massive growth potential and appetite for energy, is Russia's primary target. In October, Russia's state-owned Rosneft and Novatek signed major energy deals with the state-owned China National Petroleum Corp. Rosneft will supply 200,000 barrels of oil per day over the coming decade, and Novatek will supply 4.5 billion cubic meters of liquefied natural gas per year after its terminal goes online in 2017. Russia also signed a deal for China National Petroleum Corp.'s involvement in the Novatek-led Yamal liquefied natural gas project, alongside France's Total. Russia is seeking customers. It is currently the world's largest exporter of natural gas (200 billion cubic meters per year, but only 14.8 billion cubic meters of liquefied natural gas, with most of the rest being piped gas to Europe). With six liquefied natural gas projects on the table, Russia is hoping to increase this by 100 billion cubic meters, with a more likely figure being 50 billion cubic meters by 2016-2018. Much of that could find a market in Asia. However, these natural gas deals remain tenuous, especially as Russia competes with Australia, which plans to become the world's largest natural gas exporter by 2020 with nearly all of its exports going to Asia.

Deals with Japan and China are necessary for Russia, but they come with risks because both countries pose a strategic threat to Moscow. China's long borders with both the Russian Far East and the Central Asian states, core areas of Russian influence, give it the ability to threaten Russian's imperative to anchor its southern border to the Tian Shan Mountains. Japan, meanwhile, possesses the ability to dominate the Pacific as it did following Russia's decisive defeat in the 1904-1905 Russo-Japanese War, which stifled Russian plans to extend influence eastward. Between 1905 and 1945, Japan dominated the Pacific and, following World War II, handed that mantle to Russia's Cold War rival, the United States. Moreover, Japan and Russia technically are still at war, and are still disputing territory — including Sakhalin.

Russia's Strategic Partnership with South Korea

Russia has an imperative to diversify its economic partnerships in Northeast Asia, and South Korea is a prime target. A Korean proverb describes the Korean Peninsula as a prawn between two whales: China and Japan. When either whale moves, the prawn can have its back broken, as happened during the Korean War. Because of its precarious geopolitical position, South Korea is inherently limited in its maneuvers in the region and its desires are often at odds with China and Japan's. Russia represents a potential ally for South Korea — it is neither Japan nor China and possesses a core far enough away so as to not directly threaten South Korean sovereignty. Similarly, Russia needs another power to play off of China and Japan.

Russia and the Korean Peninsula

Russia's border with North Korea along the Tulen River is the only non-Chinese land connection with the Korean Peninsula. It is located about 130 kilometers from Russia's port city of Vladivostok, south of a long strip of Russian territory that juts southward from the Russian landmass known as the Primorsky Krai. This approximately 300 kilometer-wide corridor provides access to the sea via Vladivostok, Russia's only warm-water port in the Pacific. The Primorsky Krai's economy is the largest in the Russian Far East.

Russia has a complex history of partnership in the Korean Peninsula dating back to the late 19th century — the height of Russian power in the Pacific. Following the defeat of China at the hands of France and Britain in the Second Opium War in 1860, Russia obtained an area of Chinese Outer Manchuria and established the port at Vladivostok. Russia established relations with Korea in 1884 and became influential in Korean politics, an arrangement that ended abruptly in 1905 with Russia's defeat in the Russo-Japanese War. After 1905, with a weakened China and a chastened Russia, Japan became the dominant Pacific power and the Korean Peninsula became a Japanese colony. This arrangement remained until 1945, when the United States took over Japan's role in patrolling the Pacific.

But during the period of flux following the end of World War II, Russia did manage to attain a toehold in the Pacific: North Korea. The Korean War, in which both Soviets and Chinese supported the north, resulted in a partitioned peninsula. This played into Soviet strategy by providing a buffer against U.S. power in the Pacific, much like the partitioned Germany in Europe. The Soviet Union continued supporting North Korea economically and militarily, becoming its primary trading partner and accounting for 60 percent of all bilateral trade with the tiny nation by 1988.

In spite of Soviet support for the north, South Korea sought to establish trade connections with the Soviet Union as early as 1979, when it signed agreements to trade with the Soviet Union through Finland. In 1985, after the economic stagnation of the Leonid Brezhnev years, Soviet leader Mikhail Gorbachev sought to revive the Soviet economy with an influx of foreign capital. One of Gorbachev's goals was to attract foreign investment from South Korea. In 1989, the two countries established trade offices in their respective capitals. After the fall of the Soviet Union in 1991, Russian President Boris Yeltsin paid the first visit by a Russian head of state and re-established diplomatic relations with South Korea in 1992.

Ties remained at the diplomatic level until 2001, when Russian President Vladimir Putin visited Seoul, followed by a 2004 visit by then-South Korean President Roh Moo Hyun to Moscow. These visits primarily focused on easing tensions between North and South Korea. During Putin's most recent visit, in November 2013, Moscow and Seoul signed 25 bilateral agreements.

Russia's Recent Moves in South Korea

South Korea represents a large customer for the energy resources concentrated in the Russian Far East. Because of its growing economy and lack of domestic reserves, South Korea is the 10th-largest importer of energy worldwide. It is the second-largest liquefied natural gas importer, after Japan, and it is the third-largest importer of coal worldwide. Fifty-four percent of South Korea's natural gas supply goes to residential, commercial and industrial consumers, and demand is growing — it has risen 125 percent since 2001.

Energy links between Russia and South Korea are already strong, but Russia is working to increase exports, which rose 22 percent between 2008 and 2012. In 2012, Russia exported $14 billion in energy to South Korea, most of which ($11 billion, or around 4.4 percent of South Korean imports) was in oil, coal and natural gas. A deal signed in 2005 has Russia's Sakhalin Energy supplying 2.04 billion cubic meters of liquefied natural gas each year to South Korea's state-owned Korea Gas Corp. Outside of the Middle East, Russia's primary competitors in the South Korean market are Indonesia and Australia.

Among the deals signed in November was a memorandum of understanding for South Korean company Daewoo Shipbuilding and Marine Engineering Co. to build 13 liquefied natural gas carriers for Russia meant to assist in shipping liquefied natural gas to South Korea. South Korea has been an essential investor in Russia's privatization and modernization of its ports and segments of its shipbuilding industry and one of the only Asian nations to participate, given Russia's continued wariness of Japan and China.

But Russia has one advantage that these other fuel exporters do not: a potential land link to Korea through the Primorsky Krai, which would allow it to export natural gas directly to South Korea via a cheap land route. In September, Russia reopened talks on the construction of a pipeline to South Korea down the Korean Peninsula, through North Korea. Putin's November visit also saw further dialogue on a rail link between South Korea and the Russian Far East, the first leg of which was completed to the North Korean port of Rason in September. Russia hopes to extend the link down to Busan in South Korea and would like South Korea to take on 34 percent of the project. This rail link would connect South Korea to Russia's Trans-Siberian Railway. Touted in the press as an alternative to sea routes for shipment from Asia to Europe, this linkage would most likely serve as a conduit for coal from the Russian Far East into South Korea. This would benefit Russia by providing more export revenue, South Korea by increasing access to energy and North Korea by allowing it to collect transit fees. South Korea has an added interest in bolstering the ailing economy of its northern neighbor: A North Korean collapse would be a major threat to South Korea. Both the pipeline and the railway would effectively tie South Korea to Russia and make Russian energy supplies more accessible than Australian, Indonesian and possibly Middle Eastern resources.

South Korea also represents a potential investor, which could shift Russia's economy away from dependence on energy exports. Already, South Korean companies have invested in the Russian Far East, with Hyundai Heavy Industries opening an electric transformer plant north of Vladivostok in January. During Putin's November visit, the two nations signed a visa-free travel agreement to facilitate connection and also established a $500 million joint investment fund. Since 2009, South Korean investment in Russia has fallen from $428 million to $103 million, and this renewed push seeks to boost it again.

Russia's economic and energy deals with South Korea are strategically significant for both Russia, which seeks a market for energy exports, and for South Korea, which seeks a regional economic partner. Northeast Asia is an essential area for Russia as it works to extend its influence eastward, and South Korea's location — and lack of an ability to threaten Russia's imperatives — makes it an attractive partner.

Next: How Russia sees India as a potential partner in containing China and as an export market for arms and possibly energy. 

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