Energy Security Through FDI: The Legacy of Early Japanese Investment in the Oil Sectors of the Persian Gulf
The 25-year period stretching from the late 1950s until the early 1980s was the heyday of Japanese foreign direct investment into the Persian Gulf oil producing states. Japan’s investments were instigated by the enormous oil price spikes and shortages of the 1970s. These events drove Tokyo to enhance political and economic relations with energy-rich countries. Those relations, it was hoped, would result in ample supplies of oil, natural gas and refined products for energy-poor Japan. For that reason, the Japanese government provided financial support to private-sector companies, encouraging them to embark on “national projects,” some of which turned out to be fraught with extreme financial risk.
This paper presents short case studies examining five such projects in the Gulf. The legacy and outcomes of Japan’s FDI ventures is a mixed one. On the one hand, Japan did create goodwill and strong ties with Gulf oil producers which remain important in the present day. Japanese equity in Gulf crude oil production also succeeded in providing a small but steady supply of Japan’s imported crude. On the other hand, Japanese firms fell victim to government expropriation and other legal economic hazards. In one case, a struggling Japanese joint venture failed when it became part of a wartime battlefield. For the FDI recipients, the legacy of Japanese FDI remains a mixture of strong technical transfers, particularly in petrochemicals, but limited assistance in economic diversity or job creation.
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