IEEJ：March 2019○ｃIEEJ 2019

A Japanese Perspective on the International Energy Landscape (416)February 22, 2019

Energy Geopolitics and U.S.-China-Russia-Middle East Relations
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan

Important viewpoints for analyzing the international energy situation include the global
economy, supply and demand in individual energy markets, energy and environment policies, andtechnological innovations and their diffusion. They also include international relations and geopolitics.
From the viewpoint of international relations and geopolitics, particularly important actors or players
for observing the current or future energy situation may be the United States, China, Russia and theMiddle East. Also important are Europe, India with great future growth potential and Japan that is aleading energy consumer, a major economy and a great technological power. In the following, however,I would like to focus on the particularly important 4 actors of the United States, China, Russia and theMiddle East and pay attention to their mutual relations rather than their domestic conditions inanalyzing the present situation from the viewpoint of energy geopolitics and anticipating the futuresituation.

Before considering energy geopolitics, I would like to provide regional keywords including“the Trump administration and the shale revolution” for the United States, “great power revival” forChina, “economic sanctions and energy development” for Russia and “regional destabilization” forthe Middle East. Then, the four actors’ relations are divided into six – (1) U.S.-China, (2) U.S.-Russia,(3) U.S.-Middle East, (4) China-Russia, (5) China-Middle East and (6) Russia-Middle East relations.

First, U.S.-China relations are attracting global attention with the escalation of a bilateral
trade war and a relevant conflict of their interests regarding their competition for technologicalsupremacy. The essential point in this regard is that China has risen as a power to challenge thesupremacy of the United States as superpower in a full-blown manner. Their relations represent themost important bilateral relations that exert great influence over the directions of international politics,
security, the global economy and global governance. As far as indicated at present, their conflict ofinterest is so essential and deep-rooted that it is difficult to predict the two countries to easily resolve
their conflict or reach compromise. This is the most important substratum for analyzing global1

geopolitics. Regarding energy, China is the world’s largest energy consumer and importer, while theUnited States is the world’s biggest oil and gas producer. Another important viewpoint is how theenergy sector would be involved in China’s Belt and Road Initiative and the United States’ IndoPacific Strategy.

Second, U.S.-Russia relations are generally difficult. The United States has led Westernsanctions on Russia over the Ukraine issue. The U.S. Congress is moving to further toughen sanctions
on Russia. Bilateral relations over security have also grown more tense as the United States has
notified Russia of its withdrawal from the Intermediate-Range Nuclear Forces Treaty, prompting
Russia to decide to take a similar action. While Russia, plagued with the economic sanctions, isrequired to diversify its economy over a long time, the energy sector’s importance and presence areand will remain very significant. While the energy sector has been affected by the economic sanctions,the United States pursuing energy dominance and Russia giving priority to Asian market exploration
after dealing mainly with the European market are competing for third party markets.

Third, the United States has remained significant for stability and security in the Middle
East. More importantly, however, the United States’ presence and influence in the Middle East are
seemingly destined to weaken. Under the Trump administration featuring a growing inward-looking
attitude, particularly, the United States is expected to reduce its engagement with the Middle East’s
stability, threatening to produce a power vacuum. In the Middle East that has been destabilized due toits various own internal factors, U.S. engagement is feared to further destabilize the situation rather
than stabilizing it. This is an important problem we should closely watch. On the other hand, the UnitedStates has increased its presence as a powerful rival of the Middle East in the international energy
market by expanding energy production and exports rapidly. U.S. shale oil has grown as a presence
that seriously affects national economies of Middle Eastern countries that heavily depend on oilrevenues.

Fourth, China and Russia are strengthening their strategic ties as both countries face difficult
relations with the United States. The severer the United States’ relations with China and Russia grow,the easier the enhancement of the China-Russia strategic relationship grows. On the other hand, thetwo bordering countries have no choice but to potentially be sensitive to each other’s presence fromthe viewpoint of security. This is the same case with energy. Energy-importing China and energyexporting Russia can have complementary relations. In fact, their energy trade has been expanding.
For Russia as an example, however, growing dependence on China in energy trade and investment is
not necessarily favorable regarding a view point of balancing and diversification. It may be importantfor Russia to pursue diversification strategy among Asian countries as partners while Russia tries to2

diversify its expansion into the Asian market to break away from its heavy dependence on Europe.

Fifth, energy-importing China with its giant economic size has recently deepened
complementary relations with the oil-exporting Middle East that heavily depends on energy export
revenues. As the United States’ presence and influence weakens relatively, China naturally increases
its presence in the Middle East while enhancing its global presence. The China-led Belt and Road
Initiative has grown more significant for Middle Eastern countries that have faced economic
management difficulties due to the oil price crash from the second half of 2014 and lowered oil prices.
On the other hand, China heavily depends on the Middle East for oil supply while trying to diversify
oil import sources. The Middle East accounts for nearly 50% of China’s oil imports. China’s highdependence on the Middle East directly leads to the problem of its dependence on sea lanes, which
has become a key viewpoint for its security strategy.

Sixth, Russia as well as China is trying to strengthen is presence and influence in the Middle
East in various areas such as security, economy and business as the United States’ presence is declining
relatively. In the international oil market, the Saudi Arabia-led Organization of the Petroleum
Exporting Countries has enhanced cooperation with Russia. Coordinated oil production adjustment byOPEC and non-OPEC oil producing countries including Russia now holds the key to stabilizing theinternational oil market. In this way, Russia’s presence has increased for the Middle East and OPEC.
On the other hand, the Middle East and Russia are competing for the expanding Asian energy market
including China. How to expand into the Asian market including China is a key challenge for Russia
and the Middle East as major energy suppliers and even for the United States prepared to expand
energy exports.

The complex relations between the major actors exert great influence on Japan’s energy
strategy. For Japan, (1) the United States as the most important ally, (2) China as a neighboring country
having close and complicated relations with Japan, (3) Russia having peace treaty and territorial
problems with Japan and (4) the Middle East as the largest energy supplier are important partners.
Japan is required to consider responses and strategies amid the complex and complicated relations
between the partners. From this viewpoint, Japan must accurately and timely analyze international
relations.

Contact: report@tky.ieej.or.jp
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