IEEJ：September 2017○ｃIEEJ 2017
Special Bulletin
A Japanese Perspective on the International Energy Landscape (342)September 19, 2017

At the IISS Bahrain Bay Forum 2017
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn September 16 and 17, the IISS Bahrain Bay Forum 2017 took place in Manama, Bahrain.
This conference was the second of its kind sponsored by the International Institute for StrategicStudies (IISS), a globally renowned think tank based in the United Kingdom, following the first one
in 2015. As indicated by its title “MENA Economies: Positioning for A New World (Dis)Order,” theforum dealt with various problems and their solutions in the MENA (Middle East and North Africa)
region, particularly the Middle East, given the international situation surrounding the region andregional challenges.
More than 200 people participated in vigorous discussions at the conference, including
ministers and other high-level officials from the host country of Bahrain and other Middle Easterncountries, as well as government officials, industry people and experts from Europe, North Americaand Asia. After keynote addresses on the first day, five plenary sessions were held for panel
discussions on (1) how best to address changes and risks in the environment surrounding the region,(2) how to face new realities regarding the international energy market and environmental problems,(3) the direction and challenges of regional economic reform initiatives, (4) how best to secure
capital for regional reform, (5) how to respond to new moves in Asia such as China’s One Belt andOne Road initiative and India’s rise, which are very important and urgent problems for the MENA
region. I served as panelist in the second plenary session. Below, I would like to summarize theimpressive points for me at the conference.
First, I acknowledged the complexity and seriousness of challenges facing the MENA region,
particularly the Middle East, through discussions at the conference and reaffirmed that initiatives toovercome these challenges would not be easy. The region is plagued with unclear, uncertain andunpredictable challenges involving international politics and geopolitical risks, including growing
tensions between Saudi Arabia and Iran, the secession of diplomatic ties between Qatar and other
Persian Gulf countries such as Saudi Arabia and the United Arab Emirates, Syrian and Yemeni civil
wars, military attacks involving the Islamic State terror group and the possibility or risk of spreading
terrorism, problems regarding domestic stability in Gulf kingdoms and emirates, and Saudi Crown
Prince Mohmmed bin Salman’s moves to consolidate his power. How these high geopolitical risks
would develop and how regional stability would be affected are serious matters of concern. Inaddition, the U.S. Trump administration’s Middle East policy could further destabilize the regionalsituation instead of stabilizing it. The Middle East will have to tackle various challenges discussed
below on the premise of an unstable situation.
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Another grave challenge in the external environment surrounding the Middle East is a crude oil
price plunge. Conference participants said that while the international oil market would go in thedirection of rebalancing eventually, crude oil prices would remain low rather than rising immediately
to rescue oil-producing economies in the Middle East and that these oil producing countries would
have to be prepared to conduct difficult economic management in the face of crude oil prices
remaining at present levels and competition from U.S. shale oil. In the long run, oil and gas
producing countries in the region will secure sales channels by taking advantage of growing oil and
LNG demand mainly in Asian developing countries to deepen the interdependent relationships withAsia. However, given a possible oil demand peak amid the rapid diffusion of electric vehicles andcompetition problems in the LNG market that remains a buyer’s market, no optimism can bewarranted. Conference participants said that while strategies for securing stable oil and LNG income
would be significant for oil and gas producing countries in the region, they would have to reduce
their heavy dependence on oil and LNG income and advance their economic structure in response topresent or future energy market changes.
The environment surrounding the advancement of the economic structure is not without
challenges. One of the background factors that increase the need for oil producing countries’
reduction of their dependence on oil income and for advancing and reforming the economic structurein the region is an increase in the young population, which leads to an employment problem. Some
conference participants noted that given the present demographic conditions, employment wouldgrow more difficult with unemployment rates rising far more rapidly than assumed. This is a grave
problem that could fundamentally shake social or economic stability in the region. Financial
resources are required for advancing and reforming the economic structure. Government spending
cannot be expected due to the oil price plunge. The advancement or reform thus depends on theprivate sector. However, the problem is whether the private sector can grow smoothly to absorb
employment. Initiatives to develop the private sector have started, but their future is uncertain. As
fundamental solutions to the employment problem, conference participants cited “consciousnessreform” and “education.” However, they cannot be done immediately but instead require long-term,
hard-nosed initiatives. How will this region survive transition until structural reform bears fruit?
Given the pains accompanying reform, the region is full of worries.
Amid the rise of China and India, developing relations with the Asian economy has become theMENA region’s key challenge, involving not only energy but also other economic areas. In the finalsession, discussions indicated that hopes and fears were mixed concerning how China’s One Beltand One Road initiative would contribute to economic development and structural reform in theMENA region. The Chinese One Belt and One Road initiative gives priority to infrastructuredevelopment and is expected by some people to make great contributions to the development of theMENA region that is plagued with low oil prices and structural economic difficulties. However,people in the region cannot see what is behind the Chinese initiative and what the initiative’s goal is.
In a sense, the most important problem for policymakers in the region is how the region should
develop and enhance the interdependent relationship with Asia including China, India and Japan,
while being greatly interested in China’s growing presence. How the MENA region as a gravity
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center of global energy supply will stabilize and develop will be a problem exerting great influence
on Asia’s deepening interdependent relationship with the region.

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