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DUBAI — Saudi Arabia postponed Crown Prince Mohammed bin Salman’s official visit to Japan this week amid concerns about the health of aging King Salman Bin Abdulaziz, who is currently undergoing medical treatment. The crown prince was to meet Prime Minister Fumio Kishida and Emperor Naruhito, but a Saudi delegation traveled to Japan without the country's de facto leader.
Kishida visited Jeddah in July 2023 as Asia’s second-biggest economy looks to secure and expand trade ties with its top oil supplier.
The robust Saudi-Japan relationship has largely been rooted in the energy sector. Japan is the third-largest market in the world for Saudi Arabian exports, after China and India. The import of Saudi crude oil is vital for the Japanese economy, accounting in December 2023 for 44% of the country's total oil requirements.
Resource-poor Japan imports 90% of its energy supplies, according to International Energy Agency data, and is a key market for Saudi Arabia’s exports of its main commodity, fossil fuels and their derivatives. Petroleum products made up about 97% of Saudi exports to Japan as of 2022, racking the kingdom up about $35 billion that year, according to the Observatory of Economic Complexity. Japan’s sustained thirst for fossil fuels has benefited Saudi Arabia, whose exports to Japan have grown at an average annual rate of 5.3% since 1995.
The global push toward decarbonization could expand Saudi-Japanese economic ties in the clean energy sector. While Japan pledged in 2020 to reach net zero by 2050, its energy supply remains carbon intensive, with fossil fuels making up 87% of the mix as of 2022.
During his 2023 visit to the region, Kishida pushed for projects in the Gulf to produce hydrogen and ammonia using renewable energy that can be exported to Japan to help the island nation cut down on its large carbon emissions.
Saudi auto industry in its infancy
The small size of Saudi Arabia's auto industry has played in Japan’s favor. According to Saudi Arabia’s National Industry Strategy, there were about 11 million cars on the road in the kingdom as of 2022, with roughly 650,000 new vehicles being added annually, half of which are imported from Japanese carmakers Toyota, Nissan, Isuzu, Mazda, Honda and Lexus. Vehicles made up more than 70% of Japan’s exports to Saudi Arabia in 2022.
Saudi Arabia’s plan to localize car manufacturing to slash imports could cost Japanese carmakers market shares in the long term, but that potential scenario remains a long way off. The kingdom’s sole auto factory, which opened in September 2023 and had assembled about 800 cars by December, belongs to Lucid Motors, an American electric vehicle maker owned by Saudi Arabia’s Public Investment Fund. South Korean carmaker Hyundai Motor said in 2023 that it will build a car plant in Saudi Arabia by 2026 through a joint venture 70% owned by the PIF, with a capacity to produce 50,000 electric and gas-powered cars annually.
But Japanese carmakers are doubtful about Saudi Arabia’s ability to rival well-established manufacturing hubs and supply chains. In 2019 Toyota rebuffed Riyadh’s courting to open a plant in the kingdom after it concluded that “production costs will be similar to other countries only if there is a 50% government incentive," Reuters reported. The reality on the ground seems to confirm Toyota’s concerns. Lucid Motors does not produce cars in Saudi Arabia. It puts back together vehicles fully built in the United States, then disassembled and shipped to the Saudi plant as kits, a Lucid executive told Reuters.
Gaming sector
The next boost in Saudi-Japan economic ties is likely to come from the video game sector, an industry that the crown prince, an avid gamer, has set his sights on. Saudi Arabia hopes to emerge as a hub for the gaming and esports industry as it looks to diversify its economy beyond fossil fuels. The PIF is the biggest foreign shareholder in Nintendo with a 8.26% stake in the Japanese video game company and also owns a stake in Capcom, an Osaka-based company. Japan, the world’s third-biggest gaming industry in market value, “might be on the map” for further Saudi investments, Japanese game industry consultancy Kantan Games told AFP. This year, Japanese anime franchise “Dragon Ball” said the first-ever theme park based on the fantasy and martial arts universe will be built in Qiddiya City, a planned entertainment hub near Riyadh.
Japanese cultural and entertainment products like video games, anime and manga help push Saudi-Japan ties beyond economics. “More than 7% of the kingdom’s population has visited Japan” and Saudis are “closely linked to Japanese culture,” Culture Minister Badr bin Abdullah bin Farhan Al-Saud wrote in 2020 in Arab News.
Hedging its bets in Asia
Beyond fossil fuels and automotive trade, Saudi-Japan economic ties are limited. The Saudi Press Agency reported in July 2023 that Japanese capital investments into Saudi Arabia stood at $4.7 million, while Saudi investments into Japan amounted to $103 million in 2020 via 66 companies, mainly in the fossil fuel industry.
People-to-people ties between Saudi Arabia and Japan remain limited despite thriving government-to-government ties, with more than 50 Saudi official visits to Japan since 1990. According to Japan’s Ministry of Foreign Affairs, only 628 Japanese citizens live in Saudi Arabia, while 451 Saudis live in Japan.
Saudi Arabia’s solid diplomatic relations with Japan, established in 1955, could help Riyadh hedge its exposure to China as the kingdom looks to strengthen ties with other Asian economies while doubling down on its economic ties with China. Deepening ties with US allies in Asia such as Japan and South Korea while getting closer to Beijing is likely to help Saudi Arabia avoid becoming entangled in the US-China rivalry. Ahmed Quraishi, a journalist who has studied Saudi policy, told Al-Monitor, “Riyadh is thinking strategically and it’s looking at other parts of Asia. The Saudis have options, and they’re carefully studying those options.”
