Saudi King Salman's monthlong tour of Asia highlights the growing economic nexus between the region and the Middle East. The trip has multiple aims that go well beyond oil: In addition to reinforcing religious, political and energy ties with Sunni Islamic-majority states -- namely Indonesia, Malaysia and Brunei -- the king was seeking investment and support for a bold, transformational plan to modernize the Saudi nation.
On King Salman's Southeast Asia swing, he made several investments in oil refineries in Malaysia and Indonesia to lock in Saudi market share and shore up the Sunni bond.
As for Japan -- Riyadh's second-largest economic partner, with $57 billion in two-way trade -- the Saudi visit followed Prime Minister Shinzo Abe's three trips to the Middle East since 2012. For Tokyo, King Salman's arrival presented an opportunity to both enhance energy security and to capture large infrastructure investment opportunities in Saudi Arabia, including an agreement to explore setting up special economic zones.
Clearly, there is interdependence not just between the Saudis and Japan, but the Gulf and East Asia more broadly. Some two-thirds of Saudi oil exports go to East Asia. Eighty-three percent of Japan's oil imports come from the Gulf -- including 34% from Saudi Arabia, 24% from the United Arab Emirates, 8% from Kuwait, 7% from Qatar and 6% from Iran. In addition, Japan, which accounts for 32% of the world's liquefied natural gas purchases, imports 21% of its LNG from the Gulf (Qatar and the UAE), while drawing the rest from Asian partners.
China gets nearly 60% of its oil imports from the region, while South Korea's ratio comes to 85%.
The intriguing question is whether this energy-based nexus is principally a commercial relationship or whether it has strategic consequences.
It is no surprise that Saudi Arabian Oil Co., the state conglomerate known as Aramco, signed $13 billion worth of oil refinery deals during King Salman's visits to Jakarta and Kuala Lumpur. These will double Saudi refining capacity. Aramco has also been negotiating to renew leases on oil storage tanks in Japan's Okinawa Prefecture. In addition, there is Saudi-Japanese cross-investment in petrochemical plants and refineries in Saudi Arabia and in Japan. These will likely expand under the "Saudi-Japan Vision 2030" ventures following the king's visit.
For Japan as well as China, the quest for stability in the conflict-plagued Middle East is critical to their energy security. The region is engulfed in overlapping sectarian conflicts and civil wars -- Syria, Yemen, Libya -- along with the terrorist threat from the Islamic State group. Much of the turmoil is driven by conflict between the Sunni and Shiite factions of Islam, centered on strategic competition between Saudi Arabia and Iran for regional preeminence.
China has been seeking to raise its profile in the Middle East, including efforts to broker a deal to end the Syria conflict, and its Belt and Road Initiative for building infrastructure across Eurasia. Abe, too, has been pursuing an incrementally larger security role in the Middle East. Moreover, Tokyo's lack of colonial baggage helps position it as a potential "honest broker," a role that China has also begun to play.
Not least, cooperation in the Middle East is an important element of the U.S.-Japan strategic partnership.
Thus, one difficult issue in Beijing's and Tokyo's quests for energy security is balancing growing ties with both Riyadh and Tehran. Since the lifting of sanctions on Iran after the P5+1 nuclear deal in 2013, Japan, in competition with China, has sought to restore energy and other economic ties with the Iranians. China's tilt toward the Assad regime in Syria also risks the Saudis' wrath.
In 2016, Tokyo signed a bilateral investment treaty with Iran that included debt guarantees to reduce risks. To advance its business interests, Japan has extended $10 billion in investment credits. One main Japanese target is renewing expired investments in Iran's oil and gas fields, particularly the Azadegan oil fields, which may contain up to 30 billion barrels of reserves.
In any case, the future of Japan-Saudi relations, and Saudi Arabia itself, hinges on the realization of "Saudi Vision 2030." The plan for transforming society, governance and the economy, and building a stronger business culture, is the most ambitious in the Arab world. If it succeeds, it will turn the desert kingdom into a modern knowledge economy, positioned for a post-petroleum world.
One of the most interesting Japanese-Saudi instruments that may facilitate the Saudi vision is the $100 billion partnership between SoftBank Group and Riyadh's Public Investment Fund, its sovereign wealth investment vehicle. This will create the world's largest tech fund, and because it will not have to repay investors for 12 years, it will be able to take a long-term approach. And while the fund's investments will be global, acquisitions of technology will almost certainly filter into Saudi development efforts.
Riyadh is also aiming to transfer ownership of Aramco -- in which it is planning to sell a 5% stake in an initial public offering -- as it expands the size of its sovereign wealth fund. Abe sought to have Aramco list in Japan, with the IPO believed to be in the $100 billion range.
Yet, however deep the ties Japan develops with Saudi Arabia, it will be competing economically and strategically with China for its place in the Middle East.
In Beijing, King Salman signed 21 memorandums of understanding for up to $65 billion in potential deals. The list includes refining and petrochemical plants in China and Saudi Arabia, along with cooperation in renewable energy and digital commerce. This fits the pattern of cross-investment, with the Saudis securing oil market share.
From the Saudi and Gulf Cooperation Council perspective, growing Japanese and Chinese engagement in the region is part of a hedging strategy. While the Saudis are relieved at U.S. President Donald Trump's support for their war in Yemen and tougher stance toward Iran, they are also concerned about what "America first" may mean for the long-term U.S. role in the Middle East -- a role that is already being challenged by Moscow's new activism.
While China is a long way from becoming a security guarantor, more than one Arab intellectual has suggested such a role may be appropriate, given that the U.S. gets little oil from the region.
Regardless, King Salman's tour has created opportunities for Japan, China and others to enhance ties with Riyadh. For Japan and China, especially, it has given them a chance to boost their respective postures in the Middle East on multiple levels.
Robert A. Manning is a senior fellow of the Brent Scowcroft Center on International Security at the Atlantic Council and its Strategic Foresight Initiative. He served as a senior counselor to the Under Secretary of State for Global Affairs from 2001 to 2004, as a member of the U.S. Department of State Policy Planning Staff from 2004 to 2008, and on the National Intelligence Council Strategic Futures Group, 2008-2012. Tweet: @RManning4