Crown Prince Salman of Saudi Arabia headed to Japan on Tuesday, on the second leg of a four-country tour that took him first to Pakistan and will be followed by visits to India and the Maldives. While the three-day visit to Pakistan focused primarily on common interests in regional security and stability, the Japan leg will highlight the significance of energy security in creating mutual dependencies between some East Asian states and the Gulf. Those dependencies are diversifying bilateral relations and also contributing to deeper shifts in the structure of the global economy.
Japan is the top export market for Gulf oil producers. In common with its East Asian neighbors, South Korea and latterly China, the country is heavily reliant on energy imports to fuel its diversified economy. Moreover, almost all the energy Japan consumes is sourced from the Gulf. Research by French thinktank IFRI indicates that in 2010 the Gulf region supplied 81.5 percent of Japanese crude oil imports, with the Gulf Cooperation Council (GCC) states themselves making up 68.7 percent of the total. That year, the Japanese oil market was worth more to the GCC than the United States and the twenty-seven members of the European Union combined.
As the largest single provider of oil to Japan, Saudi Arabia is at the center of the heavy Japanese dependency on the region’s energy resources. Over the past decade large-scale investment by Japan in the Kingdom’s petrochemicals industry has reinforced the growing interdependencies. Joint ventures and technology transfers form the core of an investment relationship that makes Japan the largest foreign investor in Saudi Arabia. Similar trends are observable in Japan’s ties with other GCC states. Japanese investments and technological transfers were critical to the building and expansion of Qatar’s liquefied natural gas (LNG) infrastructure in the early-1990s, and Japan is also the largest importer of LNG from the United Arab Emirates.
More broadly, Gulf–Asian relations have moved beyond the hydrocarbons sector in recent years. An example is the substantial rise in Gulf–China capital investments and joint ventures over the past decade. Notably, the Saudi Basic Industries Corporation drew up a strategic “China plan” intended to create strong supply partnerships and joint ventures that could meet China’s rapidly growing demand. Under new President Xi Jinping, China is making the MENA region a strategic and commercial priority as it seeks greater political contact to complement China’s role as the world’s second-largest economy, and a revival of the China–GCC Strategic Dialogue is being planned for 2015.
Other burgeoning bilateral relationships included the proliferation of connections between the UAE and South Korea, with the awarding in 2009 of the construction of Abu Dhabi’s four civilian nuclear power reactors to the Korean Electric Power Corporation. Significantly, the nuclear deal was followed by a number of other strategic and commercial partnerships between the two countries. Examples included an oil storage agreement placing up to 6 million barrels of Abu Dhabi crude oil in Korea’s Strategic Petroleum Reserve, the provision of South Korean military training for UAE soldiers in counter-insurgency and counter-terrorism operations, and a lucrative oil exploration deal assigning two onshore and one offshore block (cumulatively covering 10 percent of Abu Dhabi’s territorial mass) to the Korea National Oil Corporation (KNOC). The Chief Operating Officer of KNOC, Seong Hoon-kim, declared: “We don’t have any natural resources but very modern high technology. If we combine together, it will be a very good combination for both countries.”
Region-wide, the GCC as a trading bloc also became more globalized and integrated during the 2000s oil-price boom, both in terms of level of capital outflows and inflows. Dubai in particular developed into a regional financial center against stiff competition from Qatar and Bahrain, leveraging its advantageous geographical location to enable it to cover the wide area between the European and East Asian exchanges. Economic diversification initiatives started to deliver accelerating growth in the non-oil sector and resulted in the private sector now accounting for nearly one-third of gross domestic product in Abu Dhabi alone. Dubai, Bahrain and Kuwait all looked toward and applied elements of the ‘East Asian model’ in their development plans during the 2000s. Officials in all three states expressed close interest in Singapore’s combination of state guidance and private initiative.
These are some of the broader issues that frame the Crown Prince’s visit to Tokyo. More specific issues for discussion might include the question of Iran, given recent Japanese involvement in easing the impact of tough international sanctions on the export of oil from Iran. This occurred in late January as Japan’s main private ship insurer, the Japan P&I Club, resumed normal coverage for tankers carrying Iranian oil. Japan’s oil buyers had been hardest hit by the sanctions on shipping insurance, and oil imports were temporarily suspended in July 2012 before resuming at a level 40 percent lower than the previous year. With the six-month duration of the interim nuclear deal agreed in Geneva in November 2013 approaching its halfway mark, Riyadh will be keen to coordinate policy with one of Iran’s six current oil customers.
This article was originally published in The Majalla.
All views expressed in this blog post are those of the author and do not necessarily represent the views of, and should not be attributed to, The Majalla magazine or Asharq Al-Awsat newspaper.