Japanese diplomacy has been successful in strengthening economic ties with Middle Eastern, especially GCC states, which may lead to various successes in the coming years. Ambitions suggest there is more to come. This article will explain the ongoing efforts.
The recent years have shown an accelerated and magnified scale of economic cooperation among Middle Eastern states and Japan. Especially GCC countries – due to their stability, as well as historic ties with Tokyo – stand out in what appears to be a mutually beneficial course for the stakeholders. The coexistence of several factors (historical absence of hostility, financial and human capabilities, suitable brands, etc.) eases the enhancement of high-level cooperation. In the context of the energy industry, Japanese companies are stepping up, covering areas of green hydrogen, carbon capture, and storage. Due to the unquestionable advantages (both financial and natural resources) of the GCC region in relation to supporting these energy-intensive processes, Tokyo’s angle comes with limited risks on the technological development side but a bit higher on the political side due to the non-binding nature of some agreements stemming from the balancing stance of regional diplomacy-makers. On a separate matter, Japan seeks financial support to help develop and mass-produce the new generation of 2-nanometer semiconductors, which is expected to trigger an industrial breakthrough in a few years. This is yet another field of competition with China as Beijing is actively pursuing a similar strategy of funding its own development of modern semiconductors.
The Evolution and Nature of Ties
In a historical context, Japan’s trade relations with the Middle East have predominantly been attached to the field of energy due to the country’s heavy reliance on importing oil and gas resources. The most important manifestation of this phenomenon was the 1973 oil crisis, which triggered FDIs towards many countries. This has involved oil, natural gas, and, after technological advancement, LNG-related imports, with Tokyo being the number one buyer globally. However, recent developments brought about a shift from this narrowed-down approach as Japan scaled up its ambitions in the region and managed to establish mutually beneficial relationships. This, of course, does not mean that the importance of energy shrinks for Tokyo. Still, Japan’s approach to decarbonization[1] is also reflected in its diplomacy, while MENA countries can leverage this opportunity to restructure their economies.
This also reflects an accurate realization of opportunities as several countries in the region pursue transformation to green energy sources (e.g., Saudi Vision 2030, Oman Vision 2040, etc.). As part of this, Japan initiated cooperation on the production of hydrogen and ammonia as well as non-carbon-producing manufacturing with several countries in recent years, including Saudi Arabia, Bahrain, Oman, Kuwait, Qatar, and the UAE. Another significant development we have recently witnessed is that Japan signed bilateral agreements with Gulf Cooperation Council (GCC) countries that will provide financial support in several areas like agriculture, tourism, education, semiconductors, medicine, and space. In other means, Japan is supporting the restructuring of these economies while it receives the funding to foster its own technological advancement. As a continuation of this cooperation, the GCC is expected to sign a free trade agreement with Japan still this year, which most certainly realizes efforts of market penetration. This would be seen as stepping up the already existing ties since the GCC region has been the second biggest receiver of Japanese auto exports and an importer of various equipment.
Geopolitical Triggers, Stakes, and Opportunities
Besides the obvious economic gains these opportunities may unlock for Japan, a group of geopolitical reasons exists, too. President Trump’s America First policy, as well as pursued improvements in the relationship between Arab countries and Israel, have altered the dynamics in the Middle East. Simultaneously, the shale revolution has brought about a decrease in the United States’ dependence on resources from the region. Previously, the US was considered the primary insurer of regional security. Still, other actors have recently stepped up to fill any void triggered by a lower level of US involvement. China needs to be highlighted in this context due to its efforts in normalizing ties between Saudi Arabia and Iran while strengthening Russian influence can also be perceived. It may also be a possibility that the reason China is trying to ensure crude supplies traded from the region as part of a preparation for potential sanctions that would be activated imminently as a response to a contingency over Taiwan.
Japan cannot neglect to consider and reflect on these tendencies and to strengthen the rule of law in its rhetoric, as it needs a stable security environment. At the same time, it is essential that it does not get isolated alongside its regional rivals’ advancements. Apart from the already mentioned areas, it can still leverage its soft power capabilities – which are allegedly the greatest in the region – because of anime and manga, which could be leveraged to increase political influence. Additionally, the mentioned points do not mean to imply that the current trade of assets in the field of energy entirely excludes carbon-emitting sources. Indeed, Japan is in the development phase of a carbon-free economy, which requires capital from external investors and a stable flow of traditional assets. Henceforth, besides the active contracts, it seeks advantageous opportunities to sign new contracts, which manifested recently with the agreements reached with Oman to deliver LNG from 2025, the continued Saudi role as the primary oil supplier, or Tokyo’s ongoing primary role in developing Qatar’s LNG industry. These means are strong enough to express the will and desire of Tokyo’s doctrine in the Middle East. Still, obviously, it has no binding or deterring effect, which is also reflected by Riyadh’s continued balancing diplomacy towards East and West, which excludes imposing sanctions on Russia as a retorsion for its actions in Ukraine.
That being said, there are states in the scale of cooperation that go even beyond the upper listed points. Qatar fits this group as its recent mega-projects heavily relied on Japanese know-how, technology, and expertise on projects such as the 2022 World Cup, the Doha Metro, and the International Airport. Almost 100 Japanese companies are currently active in Saudi Arabia, and the majority of them are present in some capacity within the supply chain that seeks to support Riyadh’s vision to produce 500,000 electric vehicles annually. Mobility is not a standalone area of technological collaboration as the two have multiple running projects in the digital arena, including Web3, tokenization (e.g., oil contracts), cryptocurrency, artificial intelligence, and blockchain that will be coordinated from the newly formed SBI headquarters in Riyadh that Tokyo considers an ideal place to foster the development of new technologies. Furthermore, while Japan is the third most important trade partner of Saudi Arabia, ties to the United Arab Emirates fall nothing short of first tier since the stock value of $14 billion investments are related to 10,000 Japanese companies currently active in the country employ over 4 thousand nationals. Based on recent developments, it appears imminent that the two countries will even level up their cooperation with the establishment of a Business Council that will be responsible for supporting projects of artificial intelligence, sustainability, and technological advancement (aviation, space, medical services, etc.) between the private sectors.
There are still open dialogues among the parties, but no projection shows the course of these events would be altered. Japan constructed a viable and potentially highly beneficial strategy in the commercial and trade context. The benefits of this strategy can be expected to arrive by the end of the decade, but they will also have an impact well beyond.
[1] Official agenda states carbon neutrality as a goal by 2050 that involves a gradual decrease of dependency on fossil fuel throughout the years.
