IEEJ：August 2017○ｃIEEJ 2017
Special Bulletin
A Japanese Perspective on the International Energy Landscape (339)

August 28, 2017

At the 42nd Japan Cooperation Forum for the Middle East
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
On August 26 and 27, the 42nd Japan Cooperation Forum for the Middle East took placein the Austrian capital of Vienna. The forum, sponsored by the Japan Cooperation Center for theMiddle East, is a historical conference focusing on Middle East problems. More than 300 people
participated in the forum, indicating that it is one of the largest-scale Japanese meetings on theMiddle East.
The forum began with an opening address by the center’s chairman, Hiroaki Nakanishi,
followed by keynote speeches by Hirofumi Katase, 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 Protibha Thaker from the Economic Intelligence Unit. Three reporting anddiscussion sessions were implemented on crude oil prices, economic diversification in oil producing
countries and China’s “One Belt and One Road” initiative. Reports were made by ambassadors orother senior Japanese diplomats stationed in Saudi Arabia, Iran, Egypt and Turkey and by businesssector representatives for vivid questions and answers. I participated in the forum for the first time infour years since 2013, serving as moderator for the reporting and discussion session on crude oilprices.
The Middle East is the gravity center of global energy supply including oil and LNG. TheMiddle Eastern situation is very important when we consider Japan’s stable energy supply.
Furthermore, the Middle East has high population and economic growth potential, being significant
for Japan in securing business opportunities as well as energy. As the Middle East is diversifying andadvancing its economy to depart from its heavy dependence on oil and gas, great expectations areplaced on Japan’s contributions to the economic diversification. While the Middle East has been ofgreat importance, its high geopolitical risks and fluid situation have traditionally been problematic.
Recent developments have accelerated regional destabilization, attracting global attention. In thissense, interests in the Middle East are growing in the world and in Japan. Therefore, the Vienna
conference on the Middle East was very timely and significant. In the following, I would like tosummarize impressive points of discussions at the two-day conference.
First, participants in the forum indicated their great interests in various ongoinggeopolitical risks in the Middle East, making various arguments on the risks. In a symbolic case,participants in the forum made various discussion on the severance of diplomatic relations with1IEEJ：August 2017○ｃIEEJ 2017
Qatar by other Persian Gulf countries such as Saudi Arabia and the UAE. They discussed
background factors, the present situation and an outlook regarding the confrontation, as well as its
influences on Middle Eastern stability, energy business and the market. A dominant view was thatthe confrontation is deep-rooted and cannot be expected to be resolved in a short term. Someparticipants said that while the confrontation was unlikely to radically escalate, no optimism could
be warranted. We may have to pay attention to future developments. The severance of diplomatic
relations between Qatar and other Gulf countries has not exerted any special impact on energy
problems. Given that Qatar is the world’s largest LNG exporter, has lifted a moratorium on its gas
development for the first time in 12 years and vowed to expand LNG exports, however, we will haveto closely watch how the confrontation would affect Qatar’s energy supply and policy in the future.
Various arguments about the future of Saudi Arabia at the forum were also very interesting.
While Mohammad bin Salman gathered political power after being promoted from deputy crownprince to crown prince, it is reported that some royal family members are apparently dissatisfied withthe promotion, with various problems threatening Saudi Arabia’s political stability, according to aforum participant. On the impact of Saudi Arabia’s unprecedentedly assertive diplomacy against Iranand Qatar on the overall Middle Eastern situation and the U.S. Trump administration’s Middle East
policy behind such Saudi diplomacy, forum participants made arguments that were very interestingand important for analyzing geopolitics in the Middle East. They also discussed the meaning ofSaudi Arabia’s unprecedentedly speedy and serious actions to end its heavy dependence on oil andrealize the Saudi Vision 2030. Significantly, government and private sector participants had frank
discussions on the Joint Group for Saudi-Japan Vision 2030 that Japan has formed to help Saudi
Arabia realize the Saudi Vision 2030. Economic diversification is a long-standing challenge for
Saudi Arabia and other oil producing countries and not necessarily easy. However, Saudi Arabia’s
just-started economic diversification will be important for stability in the country and in the whole ofthe Middle East, attracting global attention.
A background factor behind economic diversification that has become urgent is the crude
oil price plunge, which has caused various problems. Oil producing countries, while being required
to reform their oil-dependent economies over a long term, must cut oil production to prevent further
oil price falls and stabilize oil prices over a short term. In the forum’s session on crude oil prices, aparticipant said a coordinated oil production cut that was agreed on late last year and implemented
from January 2016 by the Organization of the Petroleum Exporting Countries and non-OPEC oil
producing countries achieved some improvement in fixing oversupply by leading to a gradualdecline in private sector oil inventories in the member countries of the Organization for Economic
Cooperation and Development. Other participants noted that U.S. shale oil had enhanced its
resistance to low oil prices and restricted rises in crude oil prices, that oil inventories were still higheven after some decline and that the market had taken more time than expected to eliminate
oversupply for rebalancing. Under market pressure, the OPEC and non-OPEC oil producing
countries extended their coordinated production cut until March 2018. Impressively, one forum
participant said how the coordinated production cut would be treated or whether it would beextended again would depend on future market rebalancing and should be analyzed on the basis ofupdated information.
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In this session, interesting arguments were made on financial factors’ influence on crude
oil pricing. Participants pointed out that while supply and demand fundamentals were naturally
important for pricing oil, crude oil futures prices had grown related to financial markets to indicatecomplex correlations with the dollar’s value against other currencies and stock prices. They also
called for paying attention to how future U.S. interest rate hikes and financial deregulation would
influence crude oil prices. Forum participants predicted that crude oil prices would remain in a
$50-55/bbl range without rising sharply through next year. While it is always difficult to accuratelyanticipate future crude oil prices, oil producing countries in the Middle East are likely to havedifficulties in their economic management in the immediate future. Under such situation, it will groweven more important for these countries to proceed with hard-nosed initiatives for long-term
economic diversification.

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