The linkages between Asia and the Middle East are growing steadily.  I am happy that Singapore’s Rajaratnam School of International Studies and the Gulf Research Centre of Dubai have joined hands to organise the Middle East and Asia Energy Summit which is both timely and relevant.  The Middle East supplies the bulk of Asia’s oil imports and a growing proportion of Asia’s gas needs.  In the long term, Asia’s economic rise will make it an indispensable partner for much of the Middle East.  The choice of Singapore for your conference is also appropriate given that we are among the top five oil refining hubs in the world, and a strategic maritime node between the Middle East and Asia.

This morning, I would like to reiterate why the Middle East and Asia should work more closely together and share with you how both sides can deepen their engagement, especially in the energy field.

MIDDLE EAST & ASIA – REGIONS IN TRANSFORMATION

Our two regions, Asia and the Middle East, are in the midst of rapid transformation.  I first visited the Middle East in the seventies.  Since then, I have re-visited the region many times.  The physical change is breath-taking, particularly in the Gulf region.  There are now more cranes in Dubai than anywhere else in the world.  Barren desert land has been transformed into sophisticated cities, teeming with people, business opportunities and even greenery.  Not surprisingly, the region is attracting a healthy inflow of foreign investments and tourists.  Bold vision backed by high energy prices are helping to drive this transformation.

The change is more than just physical.  The political leadership in many Middle East countries know that in today’s world, a nation’s competitiveness and fortunes are determined more by the quality of its human resources than by the abundance of its natural resources.  This is particularly vital given the demographics in the Middle East.  In Saudi Arabia, for example, almost half of the total population is under 15 years of age.  This will be a huge asset only if heavy investments are made in education and skills training.  Hence, it is not surprising that countries in the Middle East are placing great emphasis on education.  Qatar’s Education City, for example, has attracted world class universities and students from the region.  Similarly, Abu Dhabi is revamping its teacher-training standards.  And Saudi Arabia is sending hundreds of its undergraduate students to Asia, including Singapore.

Growth is also the main story in Asia.  The region has quickly and fully recovered from the 1997 Asian Financial Crisis, proving its resilience.  Many countries have embarked on massive infrastructural projects and invested heavily in training the younger generation.  Per capita GDP for East Asia has increased almost 30% over the past decade.  China and India have been and will continue to be the twin engines of Asia’s growth.  Asia is expected to constitute 45% of world GDP by 2020, up from the current 36%.

Southeast Asia has certainly reaped the benefits.  According to the Asian Development Bank, average GDP growth increased from 3.9% in 1997 to 6% in 2006.  Regional prospects continue to look bright.  At the just concluded Summit in Singapore, ASEAN Leaders signed two landmark agreements: the ASEAN Economic Community (AEC) agreement and the ASEAN Charter.  The politically-binding declaration to establish an ASEAN Economic Community by 2015 will integrate the ten ASEAN countries into a single market and production base with free flow of goods, services, investment, skilled labour and capital.  The adoption of the ASEAN Charter will turn ASEAN into a more effective rules-based organisation.  Taken together, Southeast Asia will become an even more competitive region.

For the past decade, both Asia and the Middle East have been growing at a rate faster than the world average.  I am therefore optimistic about the long-term future of both the Middle East and Asia, provided resources continue to be invested for productive ends, human capital is enhanced at all levels and no great political upheavals and security threats take place.

CHALLENGES TO STABILITY AND GROWTH

Indeed, both regions do face some political and security challenges.  Peace and political stability have been central to Asia’s growth over the last three decades.  However, Asia is not entirely free from political risks.  The Korean Peninsula, for instance, bears close watching.  While the Six-Party Talks have made good progress, denuclearisation of the Korean Peninsula remains a long and difficult process.  For Taiwan, cross-strait relations are entering a critical phase in the run-up to the upcoming Presidential Elections in March next year.

In the Middle East, which has shown great resilience amidst adversity, the security challenges are acute.  Recent conflicts in the region have unleashed forces that challenge the fundamentals of the region’s political order.  The future of Iraq is unclear.  An Iraq that descends into further chaos and becomes a breeding ground for terrorism would have repercussions for not just the Middle East but the entire world.  The unresolved Israeli-Palestinian conflict also continues to plague the region.  We must hope that both sides will commit to a sustained effort to negotiate final status issues after Annapolis.  Overlaying these conflicts is the broader challenge of Iran’s growing influence coupled with its nuclear ambitions.  Given its size, there is no doubt that Iran is a regional power but as Saudi Foreign Minister Prince Saud Al-Faisal noted in a recent Newsweek interview, Iran will not achieve leadership by pushing for confrontation.  Another war would be disastrous for the region and beyond.  So the diplomatic efforts must continue.  I hope Iran will take serious steps to address the confidence deficit that hangs over its nuclear programme.

The various hotspots, be it Iraq, Iran, Palestine or Lebanon, cannot be treated as separate stand-alone issues.  There is a need to take a broader regional approach in promoting stability.  As in Asia, this must involve not only the regional players but also the major extra-regional powers such as the US, EU and Russia.  Increasingly, new global powers such as China also have an important role.  Jordan’s King Abdullah, for example, has called for China to play a more active role in the Middle East.

MUTUAL INTERESTS IN STABILITY AND GROWTH

What happens in the Middle East will affect Asia.  What is less obvious is that the Middle East too has a strategic stake in Asia’s stability and prosperity.  It has been estimated that between Year 2000 and 2006, Asia accounted for about 60% of the increase in exports of Middle East oil.  Therefore, just as Middle East stability ensures an uninterrupted flow of oil and gas to Asia, Asia’s stability and economic growth also ensures that demand for, and hence price of, oil remains high.  If Asia catches a cold, it will also quickly spread to the Middle East through reductions in oil revenue.  The fact is Asia’s drive to enhance its security of oil and gas supply is but the other side of the coin for the Middle East whose oil revenue is increasingly fuelled by Asian growth.

Asia can continue to grow strongly only if it is not overwhelmed by rising oil prices and inflation.  Rising oil prices are exerting inflationary pressures and straining the budgets of governments that subsidise energy use.  These have both economic and political ramifications, and will require deft handling by countries in the region.  In Singapore’s case, we have no fuel subsidies.  Yet it has been estimated that every US$10 increase in oil prices would shave 0.4 percentage points off our annual GDP growth.

A NEW ERA OF COOPERATION BETWEEN ASIA AND MIDDLE EAST

Closer cooperation is therefore an imperative, and not a luxury.  This will build on the historical links between our two regions when Arab traders first brought Islam to Southeast Asia in the 14th century.  With our mutual interdependence, we now have the opportunity to reopen a new era of cooperation.
 
Like the ancient Silk and Spice Routes, increased trade and investment flows are helping to restore our ancient links.  Trade between the Middle East and Singapore, for example, shot up 48% between 2004 and 2006 to reach US$31 billion.  With the GCC-Singapore FTA in the final stages of negotiation, I am confident that these figures will soon be surpassed.

We have also seen a number of major investments by Middle East companies in Asia.  For instance, companies such as Emirates National Oil Company, Saudi Basic Industries Corporation (SABIC), Kuwait’s Proclad Group and Qatar Telecom have made multi-million dollar investments in Singapore.  Similarly, a group of Middle East investors, including Mubadala, Abu Dhabi’s strategic investment vehicle, is reported to be committing US$1.2 billion to Malaysia’s Iskandar Development Region in neighbouring Johor state.  Going forward, McKinsey has predicted that cross-border capital flows between the Gulf Cooperation Council and Asia will climb 20-fold from an annual US$15 billion today to US$300 billion in 2020.  These are win-win relationships as the Middle East can reap profits for itself, while supporting economic growth in Asia which in turn props up high oil and gas prices.

In terms of energy cooperation, I can think of four areas where the Middle East and Asia could work together.  For a start, the Middle East and Asia could co-invest in energy infrastructure.  In fact, some cooperation of this nature already exists.  Saudi Aramco for example has partnered a Chinese company to build a refinery in China.  As energy demand continues to climb, adequate long-term, supply-side investments must be made to meet this demand.  The rising demand for natural gas also presents new investment opportunities for both regions.  Investments in LNG production and receiving terminals will be required to support the growth of this new industry.  Asia and the Middle East should do their parts as stakeholders to ensure a stable and efficient gas market.

Second, our regions can cooperate in the area of energy R&D, be it on renewable energy sources, energy efficiency, or in green technology to mitigate global warming.  Several platforms already exist for such cooperation.  One example is the Masdar Initiative in Abu Dhabi, which was launched as a global cooperative platform for scientists, companies, experts and policymakers to collaborate on renewable energy technologies.  By investing in energy R&D, especially in clean and renewable energy, the Middle East and Asia can project themselves as responsible energy players that are responding positively to the challenge of climate change mitigation.  To kick start R&D cooperation, both regions could conduct exploratory visits and discussions to identify areas of mutual interest.

Energy security also involves ensuring the safety and security of vital energy transit routes.  This is the third area in which our two regions can cooperate further.  The Straits of Malacca and Singapore is an especially important energy sea lane for Asia.  About 60 per cent of China’s imported oil - as well as 90 per cent of Japan’s and 80 per cent of Korea’s - passes through the Straits from the Middle East.  Any disruption would have far-reaching consequences for the global economy.  Together with the littoral states of Indonesia and Malaysia, Singapore will do its part to ensure that the Straits of Malacca and Singapore remain safe, free and open for all.  One example is the launch of the Co-operative Mechanism between the littoral States and user States in September 2007 to improve navigational safety and environmental protection.  I am pleased that some Middle Eastern countries, such as the UAE, have committed to contributing to the Mechanism.  I hope this will spur others to follow suit.

Finally, both regions should encourage inter-regional energy dialogue through conferences like this.  I believe that regular exchanges of information and ideas between countries help to enhance confidence and understanding.  This was one of the reasons why Singapore initiated the Asia-Middle East Dialogue (AMED) to promote mutual understanding and share experiences.  Given the deepening energy relationship between Asia and the Middle East, it is perhaps timely that energy security also be discussed at AMED.

I hope these suggestions will allow both Asia and the Middle East to play a greater role as responsible and constructive stakeholders in the global energy system.

LOOKING BEYOND ECONOMIC LINKS

But more than just economic links, another key area of cooperation is the sharing of experiences.  Like the traders of old who would bring back their observations of life in foreign lands, we too can continue to learn from one another.  I have been pleasantly surprised with the interest shown in Singapore’s developmental experience by the Middle East and I welcome this.  If Singapore’s experience is relevant, we are more than happy to share it with our friends in the Middle East.  I hope that AMED whose second dialogue will be held in Egypt in March next year can become like a marketplace or souk of ideas.

CONCLUSION

Let me conclude by saying that the Middle East remains a challenging region to understand.  There is much we in Asia still have to learn.  Asia may also appear complex to Middle Eastern eyes.  However, our destinies and interests are increasingly intertwined, economically, socially and politically.  It is in our mutual interest to understand and help each other.  Singapore is committed to sustaining this engagement.  As a small country that reflects the diversity of our region, we will be happy to play a helpful bridging role between Asia and the Middle East.

I wish you all a productive discussion and an enjoyable stay in Singapore.  Thank you.