Britain's Sakhalin-2 licences give Japan and Korea time, not a substitute

On 1 October the British government issued two general trade licences, one for Japan and one for South Korea. They allow UK companies to keep providing shipping, insurance and related services for LNG cargoes from Russia's Sakhalin-2 project after the UK ban on such services covers long-term contracts from 1 January 2027. The licences run to 31 March 2028. They were published alongside a new sanctions package aimed partly at the tankers Russia is assembling to carry its Arctic LNG.

What London decided

The UK banned British involvement in the maritime transport of Russian LNG on 20 May 2026, and from 1 January 2027 that ban extends to long-term contracts concluded before 17 June 2025. The new licences carve out a narrow exception. According to the published texts, they apply only to imports from Sakhalin-2, under supply contracts concluded before 17 June 2025, between 1 January 2027 and 31 March 2028. They do not cover new contracts or dealings with designated persons, and users must notify the Office of Trade Sanctions Implementation and keep records. 'This is not a loosening of existing sanctions,' the government says, describing the licences as a way to protect the two countries' energy security 'while it reduces its reliance on Russian energy'.

The tightening came on the same day. The UK added 23 individuals and entities and eight vessels to its Russia sanctions list, Seoul Economic Daily and gCaptain report. Five of the ships are LNG carriers, among them three new Arc7 ice-class vessels intended for Russia's Arctic LNG trade, and the government says Russia is trying to build a new shadow fleet for gas. Britain says it has now sanctioned nearly 600 tankers. 'We are targeting both the revenues that help sustain Russia's aggression and perpetrators of horrendous crimes against Ukrainian civilians, including children,' said Lord Wood of Anfield, the minister for Europe. The package thus tightens pressure on Russia's newer LNG trade while sparing the older Sakhalin-2 contracts that Japan and Korea depend on.

Why Seoul and Tokyo asked

South Korea lobbied openly. On 11 September Yonhap reported that Trade Minister Park Jung-sung had asked Britain's Business Secretary Jonathan Reynolds for an exemption, warning that the ban could disrupt Korea Gas Corporation's long-term Sakhalin-2 contract, which runs to March 2028. The ministry said that shipments could also be disrupted if British insurers stopped providing reinsurance. The licence end date matches that contract exactly. For Korea, London has in effect allowed the existing deal to run its course.

Japan's exposure is larger. The Diplomat reports that Japan buys about 5 million tonnes of Russian LNG a year, about 9% of its LNG imports, and that LNG generates 30% of its electricity. Sakhalin cargoes reach Japan in two or three days, against about seven from Australia and 20–40 from the US Gulf Coast. In June the US Treasury extended Japan's waiver for Russian LNG purchases to the end of 2026, its fifth extension since 2022. Most of Japan's Sakhalin-2 contracts expire between 2028 and 2033. The British licence therefore covers only the first part of Japan's commitments, and Tokyo will need further waivers or replacement supply after March 2028.

Tokyo's political room is limited. The Diplomat reports that after President Vladimir Putin visited one of the disputed Kuril Islands in August, Prime Minister Sanae Takaichi called the visit 'absolutely unacceptable' and said the government was weighing countermeasures. According to government insiders cited by the magazine, energy concerns weighed heavily and any halt to Sakhalin-2 imports was ruled out. Japanese companies also hold equity stakes in Sakhalin-1 and Sakhalin-2, a legacy of earlier engagement with Moscow.

A market without Qatar

The timing explains the caution. Qatar shipped about 77–80 million tonnes of LNG a year before the war, around a fifth of global supply, EnterpriseAM reports, and Iranian strikes took two of Ras Laffan's 14 trains offline, removing about 12.8 million tonnes a year of capacity that could take three to five years to repair. Kpler data cited by The National show LNG transit through Hormuz from Qatar and the UAE rose in September to its highest since the war began, but was still about 80% below February levels. Qatar has extended force majeure on long-term deliveries to Asia to November. 'We don't expect Qatar LNG coming back to the market soon,' said Yukio Kani, chief executive of Japan's JERA, the world's largest LNG buyer, adding that spot prices are double their level a year ago.

Against that background, removing Sakhalin-2 volumes from Japan and Korea this winter would have pushed both countries further into a spot market where Europe is also bidding. The Diplomat cites an International Energy Agency forecast that Japanese electricity prices will rise 40% year on year in the second half of 2026.

Mismatched sanctions calendars

The licences also add to a growing gap between Western sanctions timetables. The EU wrote a Sakhalin-2 exemption for Japan and Korea into its 21st sanctions package in July, Yonhap reports. Insurance Business reports that the same package gives EU shipping and insurance firms a renewable 12-month window, to about July 2027, to keep handling Russian LNG bound for non-EU buyers under contracts that predate the 2022 invasion. Lloyd's has reportedly lobbied for a delay to the UK's January deadline for financial services. RUSI's Gonzalo Saiz Erausquin has warned that mismatched timelines risk a 'compliance nightmare' as business moves to the more permissive jurisdiction. The US waiver for Japan expires first, at the end of 2026.

What to watch

• Whether Washington renews Japan's Russian LNG waiver beyond December 2026, and on what terms.
• Whether Korea Gas Corporation seeks to extend or replace its Sakhalin-2 volumes before March 2028, and where Japanese buyers turn as their contracts expire.
• Whether the UK's sanctions on new Arc7 carriers slow Russian Arctic LNG deliveries to Asian buyers outside the licences.
• The pace of Qatar's return through Hormuz, which will determine how costly the eventual exit from Sakhalin-2 is.

Sources

• GOV.UK — General Trade Licence: Maritime Transportation of Liquefied Natural Gas (LNG) - South Korea
• GOV.UK — General Trade Licence: Maritime Transportation of Liquefied Natural Gas (LNG) - Japan
• gCaptain — UK hits eight Russian ships in new sanctions package
• Seoul Economic Daily — U.K. exempts Korea from Russian LNG sanctions until March 2028
• Yonhap News Agency — Trade minister seeks U.K. exemption from Russian LNG sanctions
• The Diplomat — Japan faces hard choices in weaning off Russian energy
• EnterpriseAM — Qatari LNG is trickling back through Hormuz, but the real divide now is who can afford to keep bidding for gas
• The National — World's top LNG buyer sees Qatar supply disruption persisting into winter
• Insurance Business — Lloyd's lobbies for delay as UK's ban on insuring Russian LNG tankers approaches