IEEJ：January 2019○ｃIEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (410)January 11, 2019

International Situation for Japan Growing Difficult and Uncertain
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanAs the year 2019 has just started, the international environment including international politics,
the global economy and the geopolitical situation for Japan is growing difficult and uncertain. In
such situation, the government, companies and individuals in Japan are required to devise andimplement strategies and countermeasures for this year and a longer term.
The international political environment is growing uncertain under the U.S. Trumpadministration. This is because it is difficult to anticipate how or whether the United States would
play its traditional central role in global governance under the Trump administration that pursues theso-called “America First” foreign policy. International politics is now being destabilized andfluidized. Making a difference from traditional approaches, the Trump administration has urged U.S.
allies including Japan and European countries to bear more costs for alliances, complicating andshaking its relations with these allies. While Japan-U.S. relations are basically favorable, nooptimism can be justified about future developments.
Meanwhile, Japan-China relations have been improving since last October’s bilateral summitthat came up with the principle of switching “from competition to collaboration” after bilateral
tensions continued over China’s maritime expansion and East China Sea problems. However, wemust prudently watch whether bilateral relations would be improved or enhanced smoothly. At atime when the United States and China are not only waging a trade war but also confronting eachother in pursuit of technological supremacy, Japan must give full consideration to its relations withthe United States as its most important ally in dealing with China. In Northeast Asia, we must also
pay attention to Japan’s relations with South Korea that have rapidly cooled down due to South
Korean judicial rulings for compensation for wartime Korean workers and a South Korean warship’s
locking fire control radar on a Japanese antisubmarine patrol plane. As the second U.S.-North Korea
summit is anticipated, Japan faces very important challenges such as the North Korean nuclear andmissile development issue and the problem of how to resolve North Korea’s abduction of Japanesecitizens. These Northeast Asian problems will remain significant for Japan.
We must also closely watch the international political situation for Europe that has played a keyrole in international politics along with the United States and is plagued with destabilizing or
disturbing factors. The European Union has restored its stability, following a past period when its
centripetal force weakened on Greek debt and other problems. This year, however, the United
Kingdom’s exit from the EU is attracting global attention. Depending on relevant developments,
Europe or the EU could be destabilized. In the meantime, the political situation has grown uncertain
in EU leaders Germany and France. In Germany, Chancellor Angela Merkel’s centripetal force orinfluence has declined despite her plan to remain in office as the Chancellor for the immediate future.
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In France, protests against the policies of President Emmanuel Macron have shaken hisadministration.
While the European situation grows fluid with the United States enhancing its inward-looking
attitude, Russia under President Vladimir Putin is attempting to enhance its presence in international
politics along with China. Plagued with economic difficulties under Western economic sanctions,
Russia is countering Western countries by strengthening strategic relations with China. However,domestic support for President Putin has fallen, indicating that his future politics would notnecessarily be stable. While it is important for Russia to strengthen relations with China, any
excessive rise in Russia’s dependence on China would not necessarily be favorable for Russia inregard to international politics. Russia thus must seek to enhance relations with Asian countries otherthan China in developing its shift to the east or Asia. Japan-Russia relations should be considered inthis context.
In such international political situation, the global economy sees various destabilizing anduncertainty factors. The International Monetary Fund’s and other economic outlooks indicate a main
scenario in which the global economy will post growth in a “3.5% plus” range in 2019, driven by theU.S. economy that has kept its robustness. However, downside risks for the global economy arebeing discounted into the market. No optimism can be warranted about these downside risks. The
biggest destabilizing or uncertainty factor is the fate of the U.S.-China trade war. The two countries
are going ahead with talks on structural problems under a 90-day truce agreement. If the talks bringabout compromises or solutions, the global economy may continue robust growth as indicated in themain scenario. If the U.S.-China confrontation is not limited to the trade war but includes
competition for technological supremacy as noted above, however, no such solutions orcompromises can be expected. The possibility of the unpredictable President Trump cutting somedeal in the current talks to produce compromises or solutions cannot be denied. As the United States
has generally toughened its attitude against China, however, structural tensions between the first andsecond largest economies in the world may remain a risk factor for the global economy.
While the abovementioned uncertain, fluid situation in Northeast Asia is an importantgeopolitical risk, the Middle Eastern situation and geopolitical risks are likely to exert even greater
influence on Japan in the energy field. As a matter of course, a top matter of concern is the Iraniansituation. The Middle Eastern situation regarding Iran would depend on developments after the endof the current 180-day waiver on U.S. economic sanctions on Iran. These developments will haveinfluence on Iranian oil exports, international oil supply and demand, and oil prices. In analyzing theIranian situation, we must pay attention to the future course involving the stability of the entire
Middle East and relations between major regional powers Saudi Arabia and Iran. Also important inanalyzing Middle Eastern geopolitical risks will be how the regime and its policies will be stable in
Saudi Araba as the key player in the Middle Eastern situation and the international oil situation.
Saudi Arabia’s alleged killing of an antigovernment journalist shook the world last October and still
has spillover effects. As this incident has led Western and other countries to grow critical of Saudi
Arabia, Riyadh has come up with various measures to resolve the issue and stabilize the situation.
Given that foreign investment is indispensable for economic structure reform in Saudi Arabia, it isvery important for the oil kingdom to maintain the stability of its regime and resolve the issue. In
this sense, the Saudi Arabian situation will hold one of the keys to anticipating the futureinternational situation.
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At a time when various uncertainty factors thus exist in the international situation, Japan isrequired to come up with appropriate policies and strategies responding to these factors. We must notforget that these factors exert direct or indirect influence on the supply-demand balance and prices
on the international energy market and major countries’ energy strategies. Given very important
diplomatic events for Japan including a Group of 20 summit in Osaka this year, Japan is required tobrush up its international strategies.

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