East Asian-Middle East Relations

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　An increasingly dense pattern of interdependence is being constructed between the Middle East and East Asia. Although its chief driver is energy, it is multidimensional, including also trade/investment, arms transfers, labour migration/remittances, and trans-national Islam,[1] all of which link the two regions. Moreover, these socio-economic relations are conditioned by a geo-political context shaped by both regional security issues and US global hegemony.

　Complex economic interdependence in increasingly linking the states of East Asia and the Middle East, making each vulnerable to and sensitive toward the other, and providing the foundation for potential cooperation. While East Asia needs the energy resources of the Middle East, Middle Eastern states value East Asian manufactured goods, FDI and technology.[2]

　Asia-Pacific is the fastest growing region in energy consumption and may become the largest consuming region by 2010. Importantly, Asia-Pacific recently accounted for 60% of oil movements from the Middle East compared to 13% to the US and 21% to West Europe, a total reversal of the trend of the previous 100 years; Middle East states will also be key exporters of liquefied natural gas to East Asia. As much as 95% of Asia-Pacific energy needs will soon be met by the Middle East.

　As a result, massive revenues are flowing into the Middle East from East Asia that make both sides more vulnerable to economic instabilities in the other. Middle East exporters will be vulnerable to Asian economic downturns/crises as in the late 1990s and Asia will suffer from increases in oil prices: every $1 rise in oil prices shrinks Asia’s trade surplus by over $2 billion a year. However, the flow of revenue is not one-way. Middle East oil exporters are investing their surplus capital in Asia, especially in Japanese and Chinese downstream energy industries, but also in fields such as tourism and services. Middle East investors are expected to purchase East Asian assets of $20-30 billion in 2007. Also, Asian labour has long been the backbone of services and construction in the Gulf, with Asian workers benefiting Asian economies by sending hard currency remittances home.[3]

　Major East Asian states are increasingly concerned about energy security. China’s “Go-Out” strategy seeks to exchange access for Middle East investors to its vast market for deals with producer states guaranteeing its oil supplies. Japan’s New National Energy Strategy calls for strengthening relations with energy rich countries and building up Japan’s own energy firms and increasing their role in oil importation, hence reducing dependence on the oil market.

　Economic relations are, however, complicated and cross-cut by geopolitics, and, in particular the role of the US hegemon, which sits astride both regions, seeking to dominate both Middle East oil reserves and to regulate East Asia’s access to and relations with the Middle East. US global hegemony rests in part on the leverage that the military protectorate it has tried to establish over Middle East oil gives it over allies and rivals alike, many of whom are much more dependent than is the US on Middle East oil.[4] Notably the US has, through its strategic alliance with Saudi Arabia, the swing producer on the global petroleum market and with the world’s largest energy reserves, been able to ensure the moderation of oil prices. Through periodic crises, the US has also established an ever more direct control over regional energy supplies. The Iran-Iraq war increased its naval presence in the Gulf. The 1990 war against Iraq was meant to demonstrate the indispensability of US military power to the stability of world energy supplies but also allowed the US to establish treaties with and military and naval bases in Arab Gulf oil states. The 2003 invasion of Iraq was meant to allow Washington to arbitrate access to the state with the world’s second largest oil reserves after Saudi Arabia. Moreover, US hegemony in the Gulf allowed it to negotiate a privileged relation with the region wherein it got oil at discount prices and profited from the re-cycling of petro-dollars through US banks and companies and through arms sales to and investment from the oil exporting states, while East Asia paid premium prices for its oil supplies, bolstering America’s competitive advantage vis-à-vis states like Japan.

　American hegemony is also pivotal to relations between East Asia and the Middle East because, in the absence of effective regional security regimes in both regions, security threats from neighbouring states allow the US to play the role of off-shore balancer and to construct “hub-and-spoke” security alliances that make key states in each region dependent on it for security, the most important instances being Japan and Saudi Arabia. East Asian states also all have important economic relations with the US, notably the need to access its huge market, which are at least as valuable as their Middle East interests. Further complicating matters is the fact that US relations with the Middle East have often been conflictual and the US has sought to force other states to follow its line there. East Asian states with an interest in the Middle East often cannot avoid taking a stand on such regional conflicts as the Arab-Israeli issue, the Iraq war and Iran’s nuclear ambitions; if they stand with the US they may alienate some Middle East states and regional opinion, at risk to their energy security, but if they defy the US they risk its displeasure. More than that, the US seeks to act as gatekeeper regarding trans-regional relations, with the right asserted, for example, to tell China and Japan that they cannot have normal relations with Iran. Recently, trans-state threats from terrorism also created shared security interests (as well as possible conflicts) between states in both regions and the US. Hence the US, the Middle East and East Asia are locked into a dense and intricate triangular relationship. 

　This relationship may, however, be changing to the disadvantage of the US. The US role as world “oil protector” has always been two sided and far from straightforward: on the one hand, the US has actually been a main source of regional instability owing to its support for Israel as the expense of Palestinian rights, putting it at odds with major nationalist-minded oil producers, Iraq, Iran and Libya; on the other hand, only the US could contain regional instability owing to its military power, its position as patron of the key regional powers, Egypt, Israel and Saudi Arabia, and its unique ability to broker an Arab-Israel peace. However, under the current Bush administration, Washington’s neglect of the peace process, the threats made against its own Saudi ally, and its invasion of Iraq, unleashing instability and sectarian conflict across the region, makes it appear more of a threat to than defender of regional stability and world oil markets. As such, Middle Eastern states are seeking to reduce their security dependency on the US; this is the significance of a GCC-Asia workshop organized in January 2006, in which Gulf participants called for an Asian role in Gulf security commensurate with its growing economic stake.[5] Moreover, as Middle East oil flows are dramatically redirected to East Asia and away from the West, East Asia needs its own version of the petro-dollar recycling which is bound to be at the expense of the US; indeed, post-9/11 American hostility to the Islamic world, has made Arab investors and governments more wary of putting their money in the US and are re-directing it to East Asia.

　Historically, both regions exhibit two contrasting security strategies: some states, such as Japan and Saudi Arabia, traditionally bandwagoned with the US in order to balance against regional threats; others (Iran, China) sought cross-regional allies in order to balance against US threats or pressures. Now the lines are being blurred: while Iran pursues an explicitly balancing policy, trying to use relations with China and Japan, now its main energy customers, to buffer itself from US pressures, Saudi Arabia, now also seeks to supplement its reliance on the US by deepening relations with East Asia.

Japan in the Middle East:[6]

　 Japan’s oil dependency is far greater than that of any other industrialized state and therefore Japan has ‘a long-term perspective’ on relations with the Middle East. Although Japan’s dependency on oil for its total energy consumption had declined from 77.4 per cent in 1973 to 51.8 per cent in 2000, its dependency on the Middle East has risen from 78.1 per cent of its oil imports in 1973 to 90.4 per cent in 2000. While Japan’s relationship with Middle East oil producers is one of interdependence, since Japan is the world’s third largest oil consumer, hence one of the greatest sources of revenue for oil producers, ultimately they have other markets while Japan lacks other comparable energy sources. Furthermore, Japan’s stake in oil access has often been accompanied by other economic interests, as the oil-rich states have grown into major economic partners for Japanese business, both as locations of investment and export markets.

　Access to Middle East energy supplies is not a purely commercial relationship but is seen by Japan to be shaped by political factors. In the early seventies, the spectacular growth in Japan’s economy fueled increased demand for energy which came up against tightening energy markets. While Japan had heretofore purchased Middle East oil through Western multinationals, after the nationalization of Middle Eastern oil and the 1973 Arab oil embargo, Japan had increasingly to deal with Middle East governments and perceived good relations with them to be contingent on Japan’s political support for Palestinian and Arab claims in the conflict with Israel. Japan’s sense of vulnerability was reinforced by the unwillingness or inability of the US government to secure its oil supply at the time of the 1973 oil crisis. Aware that it needed to take active measures of its own to secure its oil flow, Japan embarked on resource diplomacy (shigen gaiko) to develop bilateral relations and joint oil ventures with Middle East oil states. Recognizing the contribution of the Arab-Israeli conflict to regional instability, a main threat to its energy security, Japan supported the resolution of this conflict.       

　Nevertheless, Japan has remained caught between the demands of its main global ally, the United States, and the need to maintain good relations with Middle East oil producers. While Japan and the US have shared an interest in Middle East stability, US policy was frequently confrontational and military in approach while Japan attempted to avoid confrontation and making enemies in the region; it maintained ties with all regional states, including those having bad relations with the US. This required a constant balancing between Japan’s US and Middle East relations, with Japanese policy tilting toward one side or the other depending on circumstances.

　Until the end of the 1970s, when Japan’s oil dependency was highest and the Arab states were cohesive enough that there remained a possibility that the “oil weapon” could be used again, Japanese policy-makers adopted a policy of support of the Palestinians at odds with the pro-Israel policy of the US. Japan also maintained good relations with Islamic Iran despite the breakdown of US-Iranian relations.  

　In the 1980s, Japan’s policy tilted toward support for US policy in the Middle East as an emerging oil glut eased fears of energy scarcity. Moreover, the collapse of cohesion among the Arab/Islamic states, split over Egypt’s separate peace with Israel and the Iran-Iraq war; the growing dependence of the Gulf monarchs on US protection from revolutionary Iran; and the collapse of oil prices, forcing the oil producers to maximize their sales—all made a renewed Arab oil embargo unlikely. In this period, thus, Japan appeased the US by developing ties with Israel and providing financial rewards for Egypt’s separate peace with Israel. Yet Japan maintained some independence from US policy in the region. It urged the US to engage with the Palestinians. Despite their war, Japan kept a considerable economic and oil stake in both Iran and Iraq, the states which retained the last major oil reserves outside the ambit of the Western oil networks and US hegemony.

　A further shift toward the US took place after the end of the Cold War when Japan’s sense of vulnerability to threats in East Asia, hence its need for the US alliance, increased along with its fear of US abandonment. The 1990-1 Gulf War was a watershed event, in which American criticism of Japan’s non-involvement sensitized Japanese policy-makers to the need to demonstrate Japan’s value to the US alliance in Middle East crises; it subsequently abandoned its interests in Iraq under US pressure but sought to retain its stake in Iran which supplied more than 15 percent of Japan’s oil, its third-largest supplier. Japan’s sharply pro-US stance in the Iraq war of 2003 reflected its experience in the 1990-91 Gulf war, as well as a new determination of Japanese leaders to use Middle East crises to activate Japan’s long constrained military role and capability. Japan may also have hoped that by backing the US in Iraq, it would gain a privileged position in the post-Saddam Iraqi oil industry and win American tolerance of Japan’s stake in Iran.

　Indeed, Iran offered Japan a preferential partnership in its Azadegan oilfield which the Ministry of Economy was initially keen to take up, expecting a competitive rush for Iran’s oil fields and seeing Azadegan as an enormous prize that would offset the loss in 2000 of Japan’s rights in the Saudi-Kuwait neutral zone. However Japan soon began to back away from the deal; while issues of profitability and the business climate had cooled original expectations, the decisive factor was growing US hostility to Iran, focused on the so-called nuclear weapons issue. At the same time insecurity in Iraq also constrained investment there. [7]

　As a result, Japan seemed to prioritize deepening of relations with the pro-US Arab oil states of the GCC including Saudi Arabia from which it now imports 70% of its oil. Japan is Saudi Arabia’s second largest trading partner and investor, after the United States. It was the kingdom’s number one customer in 2005, importing 35 percent of its oil, amounting to about four million barrels per day, worth $ 13.15 billion. It ranked as the second largest exporting country to Saudi Arabia, selling automobiles, machinery and equipment, as well as metals, all amounting to $ 3.8 billion. Japan had lost its main drilling concession in Saudi Arabia, a major reverse; however the mega bilateral deals signed recently included the $ 10-billion refining and petrochemical complex between Saudi Aramco and Sumitomo Chemical and a $1 billion deal between Toyobo, and Saudi Aramco, which is likely to begin in Yanbu in 2008.[8]

　Deepening economic relations have been accompanied by diplomatic cooperation. In 1998, the two sides signed the “Japan-Saudi Arabia Cooperation Agenda.” Japan and the six oil-rich GCC nations began free trade talks with the intention of concluding an accord in 2008. Visiting Saudi Arabia in April 2007, Japan's Prime Minister Shinzo Abe proposed a "multilayered relationship" that would include both cooperation in fighting terrorism and a Japanese role in resolving regional conflicts in Palestine, Lebanon, and Iran. His delegation included senior officials from a multitude of Japanese companies. Increasingly concerned about energy security, Japan also sought Saudi cooperation in building up its strategic oil reserves.[9] 

China in the Middle East:

　Compared to Japan, China is a relative newcomer to the Middle East. To be sure, China under Mao saw itself as a patron of radical forces in the 3rd world such as the Palestine fedayeen, but it had little actual presence in the region which was long polarized between the US and USSR. In the 1980s, however, China became a major arms exporter to the region, to both friends and foes of the US. It sold arms to both Iraq and Iran during their war and provided missiles to both US foe Iran and US ally Saudi Arabia when the US, under Israeli pressure, refused to do so. The main driver of this was the foreign exchange that the Chinese military earned from these sales which was invested in Chinese military modernization. In addition, in 1986 there were 20,000 Chinese engineers and workers in Iraq working on construction projects.

　Economic interdependence with the Middle East only really began after 1993, when China went from oil self-sufficiency to being an oil importer; China has now become the second-largest world oil consumer after the United States and depends on the Middle East for half of its oil imports, with Saudi Arabia and Iran providing approximately 30 percent of these. In its search for energy security China seems prepared to invest in countries like Iran that are not deemed profitable enough by Western companies or Japan. Meanwhile, capital rich Middle East states have invested in China's downstream oil infrastructure. China is deepening its economic cooperation with the region through the China-Arab Cooperation Forum and the Framework Agreement between China and the Gulf Cooperation Council, which includes negotiations for a free trade zone.

  China has, remarkably, developed a strategic relationship of sorts with US ally Saudi Arabia. A watershed in this was the Saudis’ purchase of CSS-2 intermediate range missiles from China which also brought around 1,000 Chinese military advisers to Saudi Arabian missile installations in the mid-1990s. In his 1999 state visit to Saudi Arabia, Chinese leader Jiang Zemin announced a "strategic oil partnership" between the two countries. Saudi Arabia's oil exports to China rose from 60,000 barrels per day (bpd) in 1996 to 350,000 bpd in 2000. The Kingdom became China's largest oil supplier, accounting for 17 percent of Beijing's oil imports even as Saudi oil shipments to the U.S. have been declining. China secured numerous energy exploration agreements with the Saudi government while Saudi Arabia agreed to assist China in the development of its strategic petroleum reserves and to upgrade China's downstream refinery capacity. The watershed visit by Saudi King Abdullah to China in January 2006 demonstrated the deepening relationship between the world's fastest growing source of oil demand and the world's biggest oil supplier.

　At the same time China deepened its relationship with Iran, despite the US hostility to the country that was constraining Japan’s relations with it. Iran seeks a full-blown strategic partnership with China and has sought to use Chinese-Japanese rivalry to get commitments from both, because it badly needs the investment in its aging oil fields and as a buffer against the US. Iran's oil exports to China increased from 20,000 bpd in 1995 to 200,000 bpd in 2000. Trade reached US$9.5bn in 2005, fuelled by growing Chinese investment in Iran's infrastructure.  China signed a US$100bn deal with Iran to import 10 million tons of liquefied natural gas over a 25-year period in exchange for a Chinese stake of 50 percent in the development of the Yadavaran oil field. But China has yet to start on this project, wary of confrontation with the US. Iran has, however, been accorded observer status in the China-led Shanghai Cooperation Organization.

　China’s political role in the region is only now starting to match its economic involvement but it remains in some respects caught between conflicting priorities. China had long posed as an advocate of Third world states and of the Palestine cause. By the 1990s, however, as it became a world economic power with a permanent seat on the UN Security Council, it acquired the ambition to play the role of a great power and to be seen as a responsible member of the “international community.” This has meant that in crises such as that over Iran’s nuclear capability, it must balance between the latter ambition and the need to protect its stake in Iran. Wishing to be seen as a peace broker in the Middle East, in 1992 China’s foreign minister made a first historic visit to Israel and in September 2002 Beijing appointed its first Middle East peace envoy. In the meantime, China had developed a covert arms relationship with Israel which supplied it with advanced weapons technology, mostly American derived and without US permission, including technology to build a version of the Patriot anti-missile system and an advanced fighter aircraft. Israel became China's second largest supplier of weaponry after Russia. Thus, China now must balance its historic ties with the Arabs with its newer relationship with Israel.

　Another particular Chinese interest, which linked it to the Middle East, was the million Chinese Muslims concentrated in strategic border zones where China’s oil fields were located and which were experiencing some Islamist separatism, especially among the Uighir community. China experienced frictions with states such as Turkey that, for a period, patronized Uighir separatism until Turkey’s leaders decided to prioritize good relations with China. A common perceived threat from radical Islamism brought China and the US together after 9/11; at the same time, though, China sponsored the Shanghai Cooperation Organization, a concert of regional states aimed to contain both Islamic extremism and the US penetration of Central Asia during its war on the Afghan Taliban.

　While China and the United States are not engaged in overt competition in the Middle East, China’s diplomacy has emphasized the principles of sovereignty and non-interference against the US assertion of its right to override these principles in its war on terrorism. It advocates a multi-polar international system that would constrain U.S. hegemony. Additionally, China's growing resource needs are placing pressure on raw material prices and fuelling a global competition for certain energy resources that could lead to conflict. As John Calabrese observes, "The critical importance of oil (and gas) to the global balance of power has not been lost on Chinese officials.”[10] China's 'oil diplomacy' in the Middle East is an effort to ensure continued access to oil from a U.S.-dominated region. According to Erica Strecker Downs,[11] "China currently does not possess the naval capabilities necessary to defend its sea shipments of oil and, consequently, regards their passage through waters dominated by the U.S. Navy--especially the Persian Gulf--as a key strategic vulnerability." This is why it is promoting an oil pipeline from Kazakhstan.

The Geopolitical Consequences Of East Asian-Middle East Relations

　As the first, second and third largest oil consuming states, the US, China and Japan are inevitably locked into a triangular relationship regarding the Middle East, with global energy reserves the prize in this high stakes game. The relationship may, however, be changing. The economic reality is that the main customer of Middle East oil producers, and especially Iran and Saudi Arabia, is now Asia. While the US long enjoyed a privileged relationship with Middle East oil producers, as oil flows shift eastward, East Asia needs a recycling relationship that is likely to come at US expense. While East Asia’s energy security benefited from the US role as a stabiliser in the Middle East, East Asian states have increasingly had to bear the costs of Middle East instability, energy insecurity and high oil prices brought on by US hostility to and intervention against major oil suppliers such as Iran and Iraq. Middle East states suffering from US hostility—Iran and Iraq—have sought to draw China and Japan into relationships that might protect them. Now even US ally, Saudi Arabia, looks to East Asia to lighten its dependence on a US that, after Iraq, appears unreliable. Yet no Asian power will be able to replace the US as the dominant military power in the Gulf for decades; hence both Japan and China face similar dilemmas in the region. While Japan has recently veering toward overt bandwagoning with the US and China pursues a sort of  “soft-balancing” against US power in the region, each continues to have to balance its interests in the Middle East states with its relations with the US.

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