Relations between the Kingdom of Saudi Arabia and Japan have deepened in recent years. The two countries have developed a close relationship that mostly revolves around economic and energy interests. Mutual state visits by high-ranking Saudi and Japanese officials and close cooperation during summit meetings at international fora have paved the path for the strengthening of ties as well as the conception of ambitious economic plans aiming to upgrade both states’ economies and societies. Despite the improved economic relationship, however, geopolitical factors still need to be taken into consideration when examining the two states’ interaction. Ultimately, the relationship between Saudi Arabia and Japan can be viewed through a balancing prism.
Saudi Arabia’s main current economic objective is to achieve diversification by 2030 so that the Kingdom can reduce its reliance on oil.
On one hand, Saudi Arabia’s main current economic objective is to achieve diversification by 2030 so that the Kingdom can reduce its reliance on oil. This ambitious endeavour is to come to life by means of Crown Prince Mohammed bin Salman (MbS)’s flagship project, Vision 2030. For this vision to become a reality, the entire Saudi society must be mobilized; and for that to be achieved, radical changes need to be introduced, which will necessitate extensive reforms in a wide variety of fields, ranging from the industrial and financial sectors, to labour markets and society. It will involve the marshalling of social groups such as women, which to date have been excluded from the country’s economic activity and public life and will also mandate a complete revision of business relations.
Late last month, the Wall Street Journal reported that amid considerations of a plan to split the Aramco IPO into two phases with the second being an international offering next year (or 2021), the oil giant is strongly considering Tokyo—as opposed to New York, London, or Hong Kong—for the second stage’s venue. Earlier this year, Akira Kiyota, who is the Japan Exchange Group Chief Executive, voiced interest in having the Saudi oil giant listed in Japan. That some of the largest IPOs have been listed on the Tokyo exchange may incentivize the Saudi leadership to lean toward Japan for the Aramco IPO.
Unquestionably, a Tokyo listing for Aramco would strengthen the already strong financial ties between the Kingdom and Japan.
Other reasons why Riyadh officials might be strongly considering Tokyo as the venue include potential litigation in New York because of the Kingdom’s OPEC membership (which could be problematic from the standpoint of America’s antitrust policies) and Justice Against Sponsors of Terrorism Act (JASTA)-related issues, the regulatory environment in post-Brexit London, and unrest in Hong Kong. Unquestionably, a Tokyo listing for Aramco would strengthen the already strong financial ties between the Kingdom and Japan, particularly considering how earlier this year Saudi Arabia’s main sovereign wealth fund invested USD 45 billion in Masayoshi Son’s SoftBank Vision Fund.
Japan, which relies on Saudi Arabia for a third of its oil imports, is now one of the Kingdom’s most important economic partners with bilateral trade growing by USD 75 billion last year. Within the past year, Japanese exports grew by more than 10 percent, to USD 41 billion, while Saudi exports to Japan increased by more than 20 percent, reaching USD 34 billion. As a result of this deeper cooperation, the then-Deputy Crown Prince Mohammed bin Salman and Japanese Prime Minister Shinzo Abe announced in September 2016 the creation of the Joint Group for Saudi-Japan Vision 2030, which would make Japan a central actor in Vision 2030. This joint project will be run by five ministries: The Ministry of Economy and Planning (MEP), the Ministry of Commerce and Investment (MCI), and the Ministry of Energy, Industry and Mineral Resources (MEIM) from Saudi Arabia, and the Ministry of Economy, Trade and Industry (METI), and the Ministry of Foreign Affairs (MOFA) from Japan.
The Saudi-Japan Vision 2030 is founded on the pillars of diversity and aims to foster sustainable growth through a healthy industrial environment, and innovation, which will allow for improved competitiveness in economic sectors, and soft values. It will also be “revitalizing social and cultural landscapes by stetting strong cooperation fundamentals.” The plan will focus on the competitiveness of industry, energy sustainability, entertainment and media, healthcare and medicals, quality infrastructure, agriculture and food security, culture, and sports and education. Japan will also help the Kingdom by developing e-commerce platforms, and offering the technology required to initiate the 4th Saudi industrial revolution. In exchange, Saudi Arabia will guarantee steady flows of oil to Japan, while developing a joint crude oil storage capacity in Okinawa.
Japan seeks to ensure that its supply of hydrocarbons will not be frustrated by developments in the tumultuous Middle East.
Japan on the other hand, which has one of the largest economies in the world, depends heavily on Saudi oil, and on the importation of resources from other Arabian Gulf countries too. Japan seeks to ensure that its supply of hydrocarbons will not be frustrated by developments in the tumultuous Middle East, and that it will continue to have access to resources that are critical to the success of its economy. It wants to make sure that developments on key fronts in the region such as the Syrian crisis, the Israel-Palestine conflict, the blockade of Qatar, and Yemen’s civil war will not hurt its economic interests.
To ensure therefore that its interests are not threatened, Japan has taken the initiative throughout the past year to participate in efforts to achieve peace in Afghanistan and Syria. It has also established a military presence in Djibouti. Such initiatives attest to Japan’s desire to safeguard the sources of its hydrocarbon imports, which the Japanese economy depends on heavily. Now, Japan wants Saudi Arabia to remain a bastion of stability in the region and believes that the Vision 2030 project will play a key role in the durability of the Saudi state, and hence the protection of Japanese interests.
Both Saudi Arabia and Japan, however, need to maintain an equilibrium between the nations they work with.
Both Saudi Arabia and Japan, however, need to maintain an equilibrium between the nations they work with.d to maintain an equilibrium between the nations they work with. For instance, MbS has completed a series of trips to China, one of Japan’s greatest regional competitors, but also to countries such as Pakistan, South Korea, and India. Although it is understandable that Saudi Arabia will try to have many available options to support its Vision 2030 project by acquiring the technology and innovation that other Asian economies can offer, it must be careful to not alienate its future partners.
Similarly, in the interest of meeting its energy needs, Japan has been working closely with both Saudi Arabia as well as the Kingdom’s arch nemesis, the Islamic Republic of Iran. Further, Japan is also one of the eight governments that have received six-month reprieves from Washington’s unilateral sanctions on Iran. To preserve solid ties with both Riyadh and Tehran, Japan must walk a fine line while navigating the Middle East’s geopolitical instability. It remains to be seen how the two countries will continue to steer through their relationship while maintaining their diplomatic ties with other states.
Nonetheless, it is a safe bet that Saudi Arabia and Japan will see each other as partners with much to gain from enhanced cooperation in the years ahead. Furthermore, against the backdrop of the Yemeni crisis, the Khashoggi murder case, and other issues which have damaged Saudi Arabia’s reputation in the West, Riyadh will continue making a gradual geo-economic pivot to the East, seeking to capitalize on stronger relations with vibrant Asian countries. Naturally, Japan has an important role to play in the Kingdom’s “Look East” foreign policy.