THE DEATH OF KING FAHD

Several important developments have taken place in Japan-Saudi Arabian relations in the past week. Of course, the death of King Fahd is the most important issue. Although Fahd has been an invalid for ten years, the rise to power of the new King Abdallah may have important consequences. Abdallah is thought to be much more of an Arab nationalist than Fahd was, and is likely to crack down on the worst signs of corruption in the Saudi Kingdom. If he lives up to his reputation, the reign of King Abdallah may be an eventful one, so long as he stays healthy.

For Japan, the advent of King Abdallah may be a good thing or a bad thing. Abdallah is thought to be a skeptic when it comes to the United States. This could be good for Japan if he therefore tries to reduce his degree of direct dependence on the United States. It is possible that Japanese companies may find it easier to beat out their American rivals in such an environment.

The possible downside is that Saudi Arabia itself may become less stable under King Abdallah, and that would not benefit anyone other than the most bitter opponents of the Saudi regime. It seems possible to me that any serious attempt to uproot corruption in Saudi Arabia could quite possibly undermine the entire regime. It may just be that corruption itself is the key to the regime’s survival so far. There is considerable evidence that most Arabians despise their own government. If the Saudi family itself begins to rip apart over Abdallah’s reforms, the potential for serious upheaval is great. Since Japan (and just about everyone else) depends so heavily on Saudi oil, a collapse of the regime would have major consequences, to say the least.

The Japanese government’s immediate response to the news of the death of King Fahd was to send condolences. The Emperor, Prime Minister Koizumi, and Foreign Minister Machimura all made telephone calls. To attend the funeral ceremonies, the Crown Prince and former Prime Minister Hashimoto were sent to Saudi Arabia. On the 3rd, they met with King Abdallah, who told them, “I consider Japan to be a true friend.”

SUMITOMO CHEMICAL AND THE HUGE PETRORABIGH PROJECT

The diplomacy regarding the death of King Fahd is not the only recent news in Japan-Saudi relations however. There has also been a huge deal announced from the business world as well.

This is the Aramco-Sumitomo Chemical agreement to form the Rabigh Refining and Petrochemical Company. Rabigh is a town on the Red Sea coast that already has a refinery. However, these facilities will be massively expanded under this deal. It is thought that when the construction is finished, the total price tag on the deal may be in the range of US$8.5 billion, making it larger than even the ill-fated IJPC project in Iran. The construction is expected to be completed in late 2008.

Aramco and Sumitomo Chemical have been conducting a joint feasibility study on this project since May 9, 2004. The results of that study were obviously satisfactory. Also joining in this project’s financing are the Mitsubishi Corporation and the state-backed Japan Bank for International Cooperation.

According to a joint statement released on August 1st, Sumitomo Chemical “will secure a reliable and stable supply of feedstock to strengthen its medium- and long-term competitiveness… the Rabigh project is the company’s first step to establish a foothold in an oil and gas producing country.”

As if all that wasn’t enough, another large and related deal was announced this week. The Marubeni Corporation, the Itochu Corporation, and the JGC Corporation will jointly build a huge desalinization plant to supply water to the new petrochemical facility in Rabigh. This deal alone is worth US$1.1 billion.

Shingetsu Newsletter No. 11 had reported that Saudi Arabia had recently regained its position as Japan’s top supplier of oil after a twenty-year lapse. Shingetsu Newsletter No. 41 announced a deal between the Toyo Corporation and the Saudi Basic Industries Corporation to build an ethylene glycol plant in Yanbu. Now comes this news of two huge deals in Rabigh. When all of this is added up, it is quite clear that Japan is more heavily invested in Saudi Arabia than ever before. No wonder that the Crown Prince was sent to Riyadh! Japan had better pray that their faith in the future of Saudi Arabia will be justified by future events.