IEEJ：August 2018○ｃIEEJ 2018
Special Bulletin
A Japanese Perspective on the International Energy Landscape (391)

August 27, 2018

At the 43rd Japan Cooperation Forum for the Middle East
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
On August 25 and 26, the 43rd Japan Cooperation Forum for the Middle East took place in
the Austrian capital of Vienna. The forum, sponsored by the Japan Cooperation Center for theMiddle East, is a conference with over-40 years’ history dealing with a wide range of Middle East
problems. More than 300 people participated in the forum, indicating that it was one of thelargest-scale Japanese meetings on the Middle East.
The conference began with an opening address by the center’s chairman Hiroaki Nakanishi,
followed by keynote speeches by Tadao Yanase, adviser to the Ministry of Economy, Trade andIndustry, Jitsuro Terashima, chairman of the Japan Research Institute, and Hiroshi Oka,
director-general of the Middle Eastern and African Affairs Bureau at the Ministry of Foreign Affairs,
and a speech by Richard Thompson from the Middle East Economic Digest. Three reporting anddiscussion sessions were implemented on trends of each Middle Eastern country, crude oil prices andthe United States’ withdrawal from the Iran nuclear deal. Reports were made by ambassadors orother senior Japanese diplomats stationed in Saudi Arabia, Iran, Turkey and Israel. A lecture wasgiven on the international financial situation and emerging economies. These were followed by vivid
questions and answers. I participated in the annual forum for the second straight year, serving as
moderator for the reporting and discussion session on crude oil prices.
The significance and key points of last year’s forum were described in “A Japanese
Perspective on the International Energy Landscape (339).” The latest Japan Cooperation Forum for
the Middle East was also timely and significant. This is because the Middle East is the linchpin ofstability in the international energy market and has population and economic growth potential
expected to expand energy and other business opportunities. It is also because geopolitical risks in
the Middle East have been more complicated and growing amid new international developments
while the region is tackling reform and innovation initiatives such as economic structure
diversification and development. Middle Eastern problems have grown even more important forJapan while interests in the region have been growing globally. In the following, I would like tosummarize impressive points particularly on the new developments discussed at the two-day forum.
First, the United States’ withdrawal from the Joint Comprehensive Plan for Action, known
as the Iran nuclear deal, has brought about the biggest issue regarding growing geopolitical risks.
Following its announcement to withdraw from the deal in May, the United States revived some of
the Iran economic sanctions including those related to automobiles in August and plans to resume
the key oil-related sanctions in November. This development has brought about a major change inthe recognition of Middle Eastern issues in the past year from the previous Japan Cooperation Forumfor the Middle East.
Iran has seen heightening inflation on its currency’s depreciation and sporadic domestic
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protest rallies. The future course of the Iranian economy is expected to become severe because oil
exports vital to the economy are destined to decline. While hopes are placed on the European Union,Russia and China that have vowed to retain the Iran nuclear deal, growing domestic discontent andcriticisms have increased geopolitical risks inside and outside Iran. Regarding oil problems, concerns
have grown about Iran’s blockade of straits serving as choke points for oil transportation, leading toa destabilization factor for the international energy situation.
While the United States’ unilateral withdrawal from the Iran nuclear deal has destabilized
the Middle East, the EU’s initiatives for stabilizing Iran and the Middle East have not necessarily
been seen as worthy of expectations. The presence and influence of the United States and Europe forthe stabilization of the Middle East have remarkably declined. In a manner to cover the decline,
Russia and China have increased their presence regarding Middle Eastern issues including the Iranissue. However, they are not strong enough to stabilize the region. “Chaos and destabilization”
brought about by a “power vacuum” have become keywords for the Middle Eastern situation and afundamental cause of “heightened geopolitical risks” included into the title of the latest forum.
The second new development in the past year from the previous Middle East forum is arise in crude oil prices. The benchmark Brent crude price has risen by more than $20 per barrel froma $52-53/bbl range at the time of the previous forum to a $75-76/bbl range. As a matter of course,
the price hike has allowed Middle Eastern economies to rebound and get back on a growth path after
being plagued with low oil prices. While crude oil prices have risen, Qatar has restored economic
stability while leaving its diplomatic relations severed with neighboring countries and Egypt has got
back on a growth path thanks to successful reform after plunging into an economic crisis. Economic
conditions in the Middle East, excluding Iran facing economic sanctions, have grown better since theprevious Middle East forum, as noted frequently at the latest forum. In this sense, overall business
opportunities including those in oil, gas and other energy areas are expected to expand. At the sametime, however, there are concerns that the oil price hike could lead Middle Eastern countries to lose
momentum for structural economic reform required over a long term. We must acknowledge that thefuture course of the Middle Eastern economy still remains uncertain, with various challenges andconstraints existing on foreign investment required for the region’s growth.
While the crude oil price hike has improved oil producing economies, the future course ofoil prices is also uncertain. Attracting attention in this sense is the fate of cooperation between theOrganization of the Petroleum Exporting Countries and Russia in cutting oil production to push up
oil prices. Particularly, OPEC leader Saudi Arabia’s oil production policy will exert great influenceon oil prices. Meanwhile, Middle Eastern oil producing countries have problems that they cannot
control on their own. Over a short term, downside risks for the global economy and U.S. shale oil
production expansion could greatly affect the supply-demand balance on the oil market, rattling
Middle Eastern economies through oil price fluctuations. Over a long term, the impacts of energy
and environmental policies and automobile technology development, including electrification, on
global oil demand have become a very significant factor for Middle Eastern oil producing countries.
The third new development in the past year is global trade war escalation. Over China’s
alleged intellectual property infringement, the United States imposed additional tariffs on $50 billion
worth of Chinese imports under Section 301 of the Trade Act in two stages – the first on July 6 andthe second on August 23. China has countered the U.S. action with additional tariffs on the same
worth of U.S. imports. The United States had threatened to expand the additional tariff coverage to$200 billion. It has also levied tariffs on steel and aluminum imports from Japan, the EU, Canada,2

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Mexico and other countries under Section 232 of the Trade Expansion Act for the reason that theseimports could affect national security. Trade war escalation involving major economies in the worldis destined to exert negative impacts on the global economy, which will inevitably spill over to theMiddle East. Global economic growth deceleration may lead to slack oil demand that would pushdown crude oil prices to the disadvantage of Middle Eastern economies. Apart from the trade war, it
was pointed out that U.S. interest rate hikes could change global money flow to trigger capitaloutflow from emerging countries and global economic growth deceleration. The future course of the
global economy after these new developments is significant for considering stability and businessexpansion in the Middle East.
In such situation, the implementation of strategic initiatives for the Middle East based on
accurate analysis of domestic and foreign conditions would grow even more important for both thegovernment and private sectors of Japan.

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