IEEJ: January 2011

Special Bulletin
A Japanese Perspective on the International Energy Landscape (26)January 13, 2011

Growingly Inward-looking Major Countries and the Lack of International
Governance
Ken Koyama, PhD
Director
Strategy and Industry Research Unit
Institute of Energy Economics, JapanAs the new year 2011 has started, I am wondering how the international energy
landscape will evolve this year. From the perspective of international politics and world
economy that are fundamental factors for considering energy and environmental
problems, I would like to present a viewpoint for looking at the future.
Since late last year, we have seen bright signs in the world economy, particularlyin the United States. Stock prices in New York market have risen, based on growing
expectations that the U.S. economy could avoid any double-dip recession, thanks partly
to the extension of Bush tax cuts. On January 5, the Dow Jones Industrial Averagesoared to 11,723, the highest level since late August 2008 before the September 2008
Lehman Shock. In this context, the world economy has made a good start this year.
When looking at the future, however, we cannot necessarily warrant anyoptimism. European sovereign risks have still been lingering as we have seen emerging
causes of concern including Portuguese government bond yield hikes (price falls). Whileseeing bright signs such as a stock market upsurge, the United States is still plagued
with structural problems including the continuously high unemployment rate, ahousing price slump and nonperforming loans. As little room is left for fiscal expansion
in Japan and other industrial countries, economic recovery must depend on quantitative
monetary easing and export expansion. It cannot be called an autonomous recovery.
Quantitative easing has allowed excess liquidity to flow into China, India and otheremerging markets, leading to concerns over inflation, asset price hikes and otheroverheating fears that have made economic management difficult. Globally growing
excess liquidity has also gone into commodity markets, bringing about price hikes for
crude oil, metal, food and other resources, which are feared to affect the world economy.

1

IEEJ: January 2011

Under this situation, we may have to pay attention to the possibility that majorcountries might have had conflicts of interest over these difficult economic problems andtend to pursue their respective interests in a narrow-sighted manner. These countries'
attitude of giving preference to their own respective economies, industries and exports
could lead to arace to devalue their respective currencies, as well as protectionist

policies and excessive capital regulations. The history of the Great Depression indicates
how seriously the world economy would be affected if these excessive policies were to get
out of control.
However, a matter of concern regarding the year 2011 may be that the yearrepresents a run-up to key elections or government changes in major countries in 2012.
Presidential elections will come in the United States, Russia and South Korea in2012. U.S. President Barack Obama will seek reelection and the “tandem” leadership
between Russian President Dmitry Medvedev and Prime Minister Vladimir Putin will
also seek a new president, while a new president will emerge in South Korea as well toreplace Lee Myung-bak. These election results would be worthy of attention. In China,
the present leadership led by President Hu Jintao and Premier Wen Jiabao will bereplaced by a new leadership including Xi Jinping. Under the present world situation,different from a case where the maintenance of the status quo is the best choice in theabsence of imminent challenges in the environment surrounding each major country,
politicians may be required to demonstrate their strong leadership in defending theirrespective economies. This means that politicians may put forward economic, industrial
and trade policies to be supported by its citizens or voters or may attempt to stimulate
nationalism. Major countries may thus grow more inward-looking ahead of key
domestic political events.
If major countries grow more inward-looking, various frictions or disputes may
surface in the world economy and international politics. Under normal circumstances,international governance system is expected to function to coordinate major countries’interests and develop their cooperative arrangements in response to global problems.
With the present international relations featuring a relative decline in U.S. power,
industrial countries’ weakening influences and growth of emerging countries, however,the G7, G20 and G2 frameworks and even the United Nations can no longer perform
effective governance functions. While major countries grow more inward-looking andgive top priority to their national interests, the world lacks international coordination
functions. This may work as a viewpoint for analyzing the present internationalsituation.

2

IEEJ: January 2011

What implications would the lack of international governance have for theinternational energy situation? As far as energy is concerned, one implication may bethat international energy markets may grow even more unstable. Financial challenges,
geopolitical problems and other potential risk factors could be coupled with the pursuitof national interests and nationalism to increase market tensions. The pursuit ofnational interests by inward-looking countries in a situation with the lack of global
governance cannot be a factor to stabilize the global energy markets. Coordination ofinterests regarding global warming and other global environment problems may groweven more difficult. No optimism can be warranted with regard to discussions andpreparations toward the 17th Conference of Parties to the U.N. Framework Convention
on Climate Change, known as COP 17. International politics and economic conditions
are thus growing even more uncertain and difficult for the two major challenges ofenergy security and global warming.
The international political and economic situations, including the internationalenergy landscape, can be said to be very severe for Japan. Thus we will be required toplan and implement foreign, energy security and economic policies based on timely.
Accurate and objective analysis on the world situation.
Contact: report@tky.ieej.or.jp

The back issues are available at the following URL.
http://eneken.ieej.or.jp/en/whatsnew/JPOIEL.html

3