Japan and the EU most vulnerable to instability in energy market

John de Boer (University of Tokyo & GLOCOM Platform)

The European Commission Vice-President responsible for Energy and Transport, Loyola de Palacio, gave a speech on 20 September at the Japanese National Press where she stressed the common geo-political concerns that Japan and the EU have regarding the stability of energy markets. In her speech, Ms. Palacio emphasized the direct link between energy and security and pointed out the need for greater cooperation between Japan and the EU.

In her speech, Ms. Palacio did not shy away from making clear the EU's opposition to an attack on Iraq stating that, "there could be dramatic repercussions on both our economies". She reminded her Japanese audience about the fact that, "in the last decades, every economic recession has been linked to dramatic increases in oil prices" and noted that, "governments across the globe are waking up to the direct link between energy security and their wider strategic, economic and political interests".

Her speech sounded like a rallying call aimed at coordinating opposition to the US' plans for attacking Iraq. Once again, as is the case in regards to climate change, the ABM treaty, the International Criminal Court and steel, the US is threatening to push through its unilateral interests despite a majority consensus that using force against Iraq at this juncture will do more harm than good.

The concern for Ms. Palacio is not Iraq's weapons of mass destruction, but rather the impact that an attack on Iraq would have on stability in the energy market. In her speech she raised three critical issues that the EU is seeking to address. These were (1) How to manage energy dependence; (2) how to approach stability in international energy markets; and (3) how to address sustainable energy policy.

After admitting that Japan and the European Union expect their dependence on Middle Eastern oil to grow, she stressed the need to diversify the oil supply. That this hasn't happened 30 years after the first oil shock and despite recognition that every economic recession has been linked to dramatic increases in oil prices, highlights the bankruptcy of their policy options. The EU and Japan have yet to find a viable alternative to the Middle East's cheap oil supplies.

Realizing their powerlessness to control supply, the EU has been focusing efforts on managing demand. Suggestions include a directive that introduces new controls on energy use in buildings, tax incentives for using bio-fuels and encouraging the use of energy efficient co-generation. However, in addition to placing an additional burden on the already struggling economy, these initiatives do not provide a solution, they are simply aimed at damage control.

The critical issue that Japan and the EU face today is making the US understand the impact that an attack on Iraq will have on their economies. So far the US has refused to admit that the attack will affect oil markets. They have stressed their military superiority and insisted that the mission will end in less than a week. However, the US have yet to provide a vision of what is to happen after the mission to remove Saddam takes place. How will rule and order be enforced and maintained in Iraq? What will happen to oil production? Who will control it? How will an attack on Iraq affect stability in neighboring countries and the world as a whole?

As far as the EU is concerned (with the exception of the UK), the outlook does not look good. The fact of the matter is that the issue of Iraq goes far beyond Saddam Hussein and weapons of mass destruction. To date 500,000 Iraqi children have died as a result of UN sanctions imposed since 1991. Tomorrow, the US wants to drop more bombs on Iraq to remove a dictator who they put and kept in power under the justification that "maybe" he "might" be able to produce nuclear weapons in two years "if" he has someone to sell him weapons grade uranium. In addition to the untold amount of human suffering that such an operation will cause, there will no doubt be economic repercussions in Japan and the EU at a time when both economies continue to be increasingly vulnerable. As Loyola de Palacio pointed out, "Japan and the EU share an interest in the stability of energy markets" and need to stand up for the interests of their constituents, who do not want to see a war in Iraq.

Speech:

• European Commission Member and Vice President, Loyola de Palacio, responsible for Relations with the European Parliament, Transport and Energy, at the National Press Club, Tokyo, 20 September 2002.