History of dispute:

• Japan and Russia first established diplomatic relations in 1855. In that same year, the Treaty of Commerce, Navigation and Delimitation (the Shimoda Treaty) which provides for an agreement on national boundaries, between the two was established.
• This treaty states a Japanese-Russian border shall lie between the islands of Iturup (Etorofu) and Urup.
• The whole of Etorofu shall belong to Japan, and the Kurile Islands lying to the north of and including Urup, shall belong to Russia. With regard to Sakhalin Island, rather than establishing a boundary, historical precedent was continued. Both countries had equal access to Sakhalin island.
• This treaty between Japan and Russia, reportedly, was concluded after peaceful negotiations and took into account all activities of the two nations in the vicinity of the Sakhalin and Kurile Islands prior to the time of the treaty's conclusion.
• In 1870s a treaty was signed on Sakhalin Island between both country where both sides agreed to exchange of Sakhalin island to Russia and  Kurile Islands for Japan.
• However, tensions between both countries persisted, In 1904, war broke out between both countries. Japan and Russia went to war over Manchuria and other regional interests. As a result of this war, the Portsmouth Peace Treaty was concluded, by which the southern half of Sakhalin Island was ceded by Russia to Japan upon its victory.
• After second world war allied Powers agreed that Japan proper would be under American occupation; Taiwan would fall under Chinese occupation; and that Sakhalin Island and the Kurile Islands would be occupied by the Soviet forces.
• The peace treaty between Japan and the Allied Powers including the United States and the United Kingdom, was signed in San Francisco in 1951. The Soviet Union participated in the conference, but did not sign the treaty.
• Russia didn’t signed the treaty because "Kuril Islands" that Japan renounced did not include Etorofu, Kunashir, Shikotan, or Habomai islands. Now, Japan wanted these islands back from Russia, because of their absence in treaty. (Kuril islands consist of 56 islands which are under Russian control)
• In principle, the issue of Habomai and Shikotan Islands has already been resolved by this Japan-Soviet Joint Declaration. Thus, it is considered that only the question of Etorofu and Kunashir Islands remain as an issue to be resolved in the peace treaty negotiations.

Importance of these islands:

• When Japan was evicted from the Southern Kuril Islands in 1945, 17,000 Japanese citizens were deported from the chain. Many of these people are still alive and reside in Hokkaido.This is also an emotional issue for Japanese along with territorial.
• The islands of Kunashir and Iturup are resource-rich and are believed to have an abundance of rare earth metals.
• The success of oil and gas projects off nearby Sakhalin Island has also spurred energy companies to survey the waters near the Kurils for hydrocarbon deposits.
• The islands, with their virgin forests, volcanoes and waterfalls, also hold immense potential for tourism.
• There is strategic importance of these islands to Russia. Russian military activity on the Southern Kurils is largely in anticipation of the opening of the Northern Sea Route, a shipping lane that connects the Kara Sea to the Pacific Ocean. 
• The route runs along the Russian Arctic Coast and would provide both military and economic advantages to the country. The route effectively makes Russia a major Asia-Pacific power.