Japan cannot survive without Russian oil, warns trading house chief

Japan’s near total dependence on imported energy means it cannot “survive” without continuing to buy oil and gas from Russia, said the head of one of the country’s big five trading houses.

In an interview with the Financial Times, Masahiro Okafuji, chief executive of Itochu, whose largest shareholder is Warren Buffett, 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Japan has kept pace with western nations in imposing sanctions on Russia, but it has not withdrawn from large energy projects in the country since it relies on Russia for about 9 per cent of its liquefied natural gas and 4 per cent of its oil.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.

Russia has been locked out of western markets since the invasion in February, but Okafuji said “there were all kinds of ways” that Moscow could continue to be an energy supplier, pointing to robust demand from countries such as China and India.

Including their interests in Russia, the trading houses have operations globally. They are the backbone of the Japanese economy, traditionally known for their role in securing commodities for a resource-poor country, but are increasingly keen to shed that image.

Berkshire Hathaway has been a major shareholder since 2020 in the five biggest — Mitsubishi, Mitsui, Itochu, Marubeni and Sumitomo — and since then their role has evolved significantly to include project finance and start-up investment.

They remain, in keeping with their history, consistently aggressive dealmakers, with a rapid turnover of both acquisitions and divestments dominating the workload of investment bankers and lawyers in Tokyo.

However, Okafuji said the plunging yen and the uncertain global economic outlook had forced Itochu — which has stakes in Chinese conglomerate Citic and Dole Food’s global packaged foods business — to take a cautious approach to investing in China and the US. 

“Even under these circumstances, we need to act aggressively if there is an opportunity. But we need to be very careful about our overseas investments and China is not an exception,” he said.

Some analysts have expressed concern about Itochu’s heavy exposure to China through its 10 per cent stake in Citic, but Okafuji stressed that its risks were lower since its investment was in a government-owned company.

“Currently, what they are doing in China is to move private assets from private companies to government-owned companies to reduce the gap between the rich and poor,” he said. “Our objective is to contribute to providing a prosperous lifestyle to the Chinese people, so I think the Chinese government welcomes that.”