Apart from hydrocarbons, which it imports from the Middle East, this is also the case for rare earths (RE), a group of metals that are essential inputs for the high-tech industry. For its supply, Japan relies on China, which holds a virtual monopoly over the production of these metals. This is a major problem for Tokyo, particularly due to its complicated relationship with its ascendant neighbor.

But things might be about to change. The discovery of what has been described as a “semi-infinite” rare earth deposits could dramatically change the geoeconomic situation, with notable strategic and diplomatic consequences. At the same time, the emergence of unconventional energy sources is providing Japan with new opportunities to diversify its supply and lessen reliance on a volatile Middle East. Such a combination of factors has the potential to dramatically change Japan’s geopolitical condition and solve many of the problems it is now facing, thus expanding its room for maneuver on the international scene.

BACKGROUND

Japan’s geopolitical position is not an easy one. For one, it’s located in close proximity to China and Korea. The former is a rising great power and competitor to the United States (Japan’s closest ally). Moreover, Sino-Japanese relations are burdened with historical grievances as well as diplomatic and economic rivalry. In this difficult geopolitical context, Japan depends on maritime trade both to export its products abroad and to import the resources to keep its economy running. Maintaining access to such raw materials (notably hydrocarbons and minerals like rare earths) and securing their inflow by protecting the sea lines of communication (SLOC) is therefore a primary strategic interest for Tokyo. Accomplishing this is no easy task: it’s complicated by the extreme length of the maritime trade routes, the presence of vulnerable chokepoints (as the Malacca Strait), various disputes over the South China Sea, and by Beijing’s mounting naval power.

In addition, Japan faces another problem with regard to China: the Middle Kingdom’s quasi-monopoly on rare earth minerals. These elements are essential for the Japanese economy, since they have important applications in practically all of the key advanced technology sectors, including renewable energy, telecommunications, computers, and even defense. Given that relations with Beijing are always at risk of new strains, Tokyo is left in a vulnerable position. China has already displayed a readiness to use rare earths as a foreign policy tool. In 2010, it blocked the export of rare earths to Japan in retaliation for the arrest of a Chinese trawler captain by the Japanese authorities in the waters surrounding the disputed Senkaku Islands (Diaoyu in Chinese), territory that is currently controlled by Tokyo but claimed by Beijing.

In its precious position, Japan has unsurprisingly been looking for alternative supply sources, including on the floor of the Pacific Ocean. Its first findings date back to 2011, but a recent discovery of immense rare earth deposits in the seabed mud around Minami-Tori-shima (a very small atoll 1,150 miles away from Tokyo) could be a strategic game-changer. A Japanese study published last month puts the newly discovered reserves at 16 million tons of rare earth oxides, describing them as “semi-infinite” and capable of supplying materials for literally hundreds of years. Moreover, in spite of the deep waters in which they are situated, the report is optimistic about the economic viability of extraction. Finally, the deposits are fully located in the Japanese Exclusive Economic Zone (EEZ) surrounding the islet, thus allowing Tokyo to rightfully claim them; the atoll’s isolation is geopolitically convenient because it is far from any immediate threat (notably from China).

Combined with Japan’s efforts to secure new energy sources like American shale gas and Russian oil, these discoveries have the potential to drastically change Tokyo’s strategic outlook and ease its longstanding vulnerabilities, thus opening new geopolitical options for the future.

IMPACT

Provided that the project proves to be viable in economic terms (as it is claimed), the first and most obvious consequence of extracting rare earths from the area around Minami-Tori-shima would be to reshape their global supply. Japan could become a new major producer and challenge China’s dominance of the market. In economic terms, this would allow Japan to greatly reduce its dependency on imports from the PRC all the while becoming an exporter itself, with positive effects on its current account balance. This would also contribute to the further development of the country’s already advanced high-tech industries and reduce the political risks linked to Beijing’s ability to cut supply in the (likely) event of a diplomatic dispute. But there are also major consequences on the geopolitical front: solving the problem of rare earth dependency on China would eliminate a notable constraining factor in Japan’s policy towards its neighbor, giving it more autonomy and possibly allowing it to adopt a firmer line. This, however, may have negative effects on bilateral relations over the long term.

A similar dynamic is unfolding in Tokyo’s efforts to access new sources of hydrocarbons. To diversify energy supply and reduce the dependency on the Middle East, the Japanese have been promoting energy cooperation with the US and Russia. American shale gas can be a valid supply alternative for Japan, and the same can be said about energy cooperation with Russia. The main factors making them favorable options for Japan are not so much economic but geopolitical. Importing energy from the US or Russia would have the double effect of reducing risks linked to instability and war in the Middle East and of decreasing the importance of the Indo-Pacific SLOC for energy supply (but maritime routes will still hold a major importance for “normal” trade with Europe). The SLOC chokepoint at the Straits of Malacca has become more pressing in recent years as China consolidates its forward presence in the South China Sea.

Similar considerations are also at play in Japan’s interest in the Arctic, a region that represents both an alternative source of energy supply and an alternative trade route to the Western Hemisphere.

But the most important consequence of this supply diversification is the multiplication of Japan’s diplomatic options by paving the way to closer cooperation with other powers. This is especially true in the case of the rare earth deposits around Minami-Tori-shima. Due to the strategic importance of such metals for the high-tech industry, many countries want to reduce their dependency on China, such as the US and EU member states. As in Japan’s case, this is due not only to purely economic considerations, but also to the fact that this gives the PRC considerable diplomatic leverage in other matters. Moreover, China’s own increasing domestic consumption of rare earth minerals raises concerns that overall supply on international markets will diminish, resulting in higher prices and negatively affecting the high-end technological sectors upon which the future economy will be based. As such, Japan will have no problem finding partners interested in developing new rare earth deposits like those next to Minami-Tori-shima. This also gives Tokyo an opportunity to boost international cooperation overall, with possible spillovers into the security dimension.

FORECAST

Given the economic potential coupled with strategic considerations and the possibility to foster collaboration with major international partners, it is practically certain that Japan will move to start exploiting the deposits around Minamitorishima as soon as possible. It is true that there are considerable challenges along this path: the minerals are buried in seabed mud in deep ocean waters, making their extraction a complex endeavor that raises environmental concerns. Still, undersea mining technology is developing, and the potential gains make the investment worthwhile. The strategic advantages for Japan and its partners are so substantial that the project will likely be supported in spite of any initial technical and financial difficulties. As other countries are acutely interested in accessing new rare earth deposits, Japan will not have difficulties finding potential partners to split the start-up costs. EU states will surely show interest in developing the Minami-Tori-shima deposits, along with the United States and other allies.

The rare earth discovery may also come to reinforce the “Quad alliance,” an informal grouping of Indo-Pacific countries based on the Quadrilateral Security Dialogue framework and composed of the US, Japan, Australia, and India, which is gradually becoming an Entente to balance China’s rise in the region.

For its part, China stands to lose from Japan’s exploitation of seabed rare earths. The new discovery represents a major threat to its monopoly, with detrimental consequences in both economic and geopolitical terms. As such, it is to be expected that Beijing will act to preserve its interests. First, it will probably exploit its monopoly to wage a price war against Japan by increasing the supply to cut prices on the international market and dissuade investors about the economic viability of extracting ore from Minami-Tori-shima. However, this strategy is not sustainable over the long term, first because it is economically contrary to China’s own interests as a monopolist and second because there is a limit to the possibility of lowering the price because domestic demand in the PRC is increasing. This building demand reduces the quantity of rare earths for export and undermines Beijing’s ability to increase supply in order to depress international prices. Being unable to act preventively to seize control of production of the Minami-Tori-shima deposits (since they are located in Japan’s EEZ, which gives it the legal right to stop China from performing extractive activities), Beijing will have few options left. One is to use media means to raise doubts over the viability of mining rare earths in the atoll’s seabed, the other is to seize control of mines abroad (as in Greenland’s case) and to seek out similar undersea deposits. Yet these are all time-intensive policies that do not guarantee per se that Japan won’t exploit the rare earth resources within its EEZ. Moreover, as cooperation between Tokyo and foreign capitals increases, it is also likely that this will contribute in making Beijing more assertive with negative results on bilateral relations, unless of course Japan allows China to participate in the project, which seems highly unlikely at this point.

Finally, the discovery could have consequences on a wider macroeconomic scale. If extractive activities in Minami-Tori-shima’s seabed are economically viable and actually begin, then an oceanic “rare earth rush” is likely to take place as other states search out similar deposits. The Pacific Ocean holds hundreds of atolls under which these precious minerals may lie in wait. New discoveries could radically change the global market and the geoeconomics of rare earths, potentially leading to new rivalries between great powers. If so, undersea mining could have on the mineral industry the same disruptive effects that fracking and horizontal drilling have had on the hydrocarbon industry. And whereas the US obtained great benefits from the “shale revolution,” this time it’s Japan that’s well-placed to thrive.