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Japan Table of Contents


The Middle East

The importance of the Middle East expanded dramatically in the 1970s with the jumps in crude oil prices. Japan was deeply concerned with maintaining good relations with these oil-producing nations to avoid a debilitating cut in oil supplies. During the 1980s, however, oil prices fell and Japan's concerns over the security of its oil supply diminished greatly.

The Middle East represented only 7.5 percent of total Japanese imports in 1960 and 12.4 percent in 1970, with the small rise resulting from the rapid increase in the volume of oil consumed by the growing Japanese economy. By 1980, however, this share had climbed to a peak of 31.7 percent because of the two rounds of price hikes in the 1970s. Falling oil prices after 1980 brought this share back down to 10.5 percent by 1988--actually a lower percentage than in 1970, before the price hikes had started. The major oil suppliers to Japan in 1988 were Saudi Arabia and the United Arab Emirates. Iran, Iraq, and Kuwait were also significant, but smaller, sources. These three countries became less important oil suppliers after 1980 because of the Iran-Iraq war (1980-88) and resulting damage to loading facilities and shipping.

As imports from the Middle East surged in the 1970s, so did Japan's exports to the region. Paralleling the pattern for imports, however, this share fell in the 1980s. Amounting to 1.8 percent in 1960, exports to this region rose to 11.1 percent of total Japanese exports in 1980 but then declined to 3.6 percent by 1988.

Part of Japan's strategy to ensure oil supplies is to encourage investment in oil-supplying countries. However, such investment have never kept pace with Japan's investments in other regions. The country's expanding need for oil helped push direct investment in the Middle East to 9.3 percent of total direct investments abroad by Japanese companies in 1970, but this share had fallen to 6.2 percent by 1980 and to only 1.8 percent by 1988. The Iran-Iraq War (1980-88) was a major factor in the declining interest of Japanese investors, exemplified by the fate of a large US$3 billion petrochemical complex in Iran, which was almost complete when the Islamic revolution took place in Iran in 1979. Completion was delayed first by political concerns (when United States embassy personnel were held hostage) and then by repeated Iraqi bombing raids. The project was finally canceled in 1989, with losses for both Japanese companies and the Japanese government, which had provided insurance for the project.

Data as of January 1994