IEEJ：May ©IEEJ 2023
Special Bulletin
A Japanese Perspective on the International Energy Landscape (636)

May 12, 2023

Deepening World Division and Economic Security
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, JapanOne of the most important keywords for understanding today's international politics,
security and geopolitics is the division of the world. It is widely known that U.S.-China
confrontation as a real existing issue represents the most fundamental division. The United Statesstill maintains the position of a superpower or hegemon. However, its power has relatively
declined due to China’s rapid catch-up. With the second-largest gross domestic product in theworld, China has grown closer to the United States in economic size. Although its recent
economic deceleration makes its future development uncertain, there is a view that China is goingto surpass the United States in GDP. In line with its economic expansion, China has remarkably
increased its external presence. Its presence in and influence on diplomatic and security affairs has
expanded remarkably.
The United States had maintained a policy of engagement with China as a key
stakeholder, while seeing China’s rapid catch-up. In the face of China’s rapidly increasing
influence and presence, however, the United States has grown vigilant against China. In the firsthalf of the Trump administration period, the U.S.-China trade war attracted global attention. In thesecond half, the United States and China entered into full-blown confrontation and rivalry.
Disputes over Hong Kong, Taiwan, the Xinjiang Uyghur issue and China’s maritime expansion
were combined with criticisms against China’s response to the COVID-19 outbreak andsubsequent huge U.S. human and economic losses to lead the United States to become morecritical of China. More essentially, however, the United States’ perception of China as afull-fledged challenger to the U.S. global power position might have been the key to the escalationof U.S.-China confrontation.
While deepening confrontation with China, the United States attempted to collaborate
and cooperate with Japan, Europe, Australia, India and others to counter China. On the other hand,
China enhanced its cooperation with Russia. The division of the world thus escalated, focusing onU.S.-China confrontation. Then, Russia launched its military invasion of Ukraine. North America,Europe and Japan refused to admit Russia’s use of force to change the status quo and imposed
unprecedentedly tough sanctions on Russia. In this way, Russia’s confrontation with the Western
bloc deepened rapidly. To counter the Western bloc, Russia enhanced cooperation with China.
Structural confrontations between the Western and China-Russia blocs have thus taken root. At thesame time, the two blocs’ tug-of-war to woo major third-pole countries has become a central
global geopolitical issue. These countries include India, the members of the Association ofSoutheast Asian Nations and Middle Eastern oil-producing countries such as Saudi Arabia.
The escalating division of the world has exerted various deep impacts on international
politics, security and the world economy. One important impact is a growing interest in economic
security. Before the emergence and escalation of the division of the world, economic efficiency
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had been the most important principle to govern the world economy and international businessoperations. The international development of supply chains and logistics to maximize efficiency
and minimize costs had been the key to success and prosperity. Preconditions for the development
had included the maximum use of free trade and the international division of labor and the full
performance of market functions.
However, the escalating division of the world has turned around the situation. As amatter of course, the pursuit of efficiency and the minimization of costs are still important. In
today's world, economic security has been given greater priority. Countries now prioritize nationalsecurity and seek to promote domestic production or import from allies or strategic cooperation
partners for strategically important resources, materials, goods and technologies even if thepromotion runs counter to the maximization of efficiency or the minimization of costs. At least,
they seek to refrain from depending on potentially hostile countries for strategic material supplies,
reduce any such dependence and diversify supply sources for such materials. Such dependence
has been understood as a serious risk since Europe plunged into difficulties amid the Ukraine
crisis due to its heavy dependence on Russia for supply of energy as a strategically important
good.
From this viewpoint, Western countries’ attempt to phase out their dependence on
Russian energy supply by increasing energy self-sufficiency and diversifying energy sources andimport sources for traditional energy security can be seen as a response to the division of theworld. On the other hand, it is important that countries prioritize energy transition to structurally
reform energy supply and demand, and energy infrastructure and supply chains from the medium
to long-term perspective at a time when priority is given to striking a balance between theenhancement of energy security and decarbonization.
While energy sources and technologies are selected for the promotion of energy
transition in the future, the demand for the critical minerals to support the transition will beinfluenced by the selection. The promotion of renewable energy, electric vehicles and storage
batteries will have a great impact on critical mineral demand. The U.S. Geological Survey
designated 50 minerals as critical minerals in February 2022. Given that these minerals areexpected to support future energy transition, demand for such minerals will be influenced
variously depending on details and the speed of energy transition. (For future critical mineral
supply and demand, see “IEEJ Outlook 2023” (October 2022))
The problem is that these minerals include those for which the tighter supply-demandbalance and price spikes could come due to rapid demand expansion as early as 2030 (or earlier).
Another problem is that the world’s dependence on a limited range of supply sources is very highfor some critical minerals. For instance, the Democratic Republic of Congo accounted for 71% of
global cobalt production in 2021, Australia for 52% of global lithium production and China for
59% of global rare earth production. While the above are mineral production shares, China
commands dominant shares for refining and processing many minerals. Given the strategic
importance of critical minerals, initiatives will be promoted to expand supply capacity anddiversify supply sources in regard to mineral production and refining/processing. The
enhancement of recycling and the development of alternative technologies and materials will also
be given priority. The development of storage arrangements for critical minerals will attract
interest. Nevertheless, it will be unavoidable that a stable supply of critical minerals as strategic
materials and the security of their supply chains will become a matter of global concern.
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Given the division of the world, priority may naturally be placed on a stable supply ofcritical minerals and responses to relevant potential security risks. In this case, the selection andspeed of energy transition options will exert a decisive influence on the expansion of demand and thetighter supply-demand balance for critical minerals and dependence on their supply sources,
triggering new security problems accompanying the energy transition. In this way, countries will berequired to strategically consider the critical mineral issue as a new factor in designing energy
transition amid the division of the world.

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