“Russia, Iran and Saudi Arabia depend on exporting Oil & Gas. Their economies will collapse if Oil & Gas suddenly give way to Solar & Wind.” (Yuval Noah Harari)

Oil has long been the backbone of Saudi Arabia’s economy and the driving force behind its development. As the world’s largest oil exporter, it’s challenging to envision a Saudi Arabia without oil. However, the country is now on a bold mission to reduce its dependence on oil revenue as the bedrock of its national economy. This push for economic diversification comes in the wake of a decade marked by oil market volatility, which has intensified the economic and political challenges faced by the ruling Al Saud family. Saudi Arabia possesses approximately 17% of the world’s proven petroleum reserves, making it one of the leading net exporters of petroleum and home to the world’s second-largest proven oil reserves. Saudi Aramco, one of the world’s largest integrated energy and chemical companies, operates across three segments: upstream, midstream, and downstream. In 2022, Aramco’s average hydrocarbon production was 13.6 million barrels per day, with crude oil accounting for 11.5 million barrels per day. The company proudly claims to produce the lowest-carbon barrel of oil in the industry and has committed to achieving net-zero emissions by 2050, ahead of the government’s 2060 target. Saudi Arabia continues to invest in cleaner conventional engines, carbon capture, utilization and storage (CCUS), hydrogen, and renewable energy sources. Despite these efforts, Saudi Arabia remains heavily reliant on oil, which contributes 42% to the country’s GDP, 90% of export earnings, and 87% of budget revenue.

Historical Context 

(March 3, 1938 CE: Oil discovered in Saudi Arabia) 

On March 3, 1938, an American-owned oil well in Dammam, Saudi Arabia, tapped into what would become the world’s largest petroleum reserve. This discovery profoundly transformed Saudi Arabia, the Middle East, and the global landscape—politically, economically, and geographically. Before the discovery, the majority of Saudi Arabians were nomadic, and the nation’s economy largely depended on the tourism industry, driven by religious pilgrimages to Mecca. The company responsible for the discovery, which later became Chevron, set the stage for a seismic shift in the country’s future.

In the wake of the discovery, Saudi engineers developed an extensive infrastructure of ports, refineries, pipelines, and oil wells. Today, oil accounts for 92% of Saudi Arabia’s budget, making the nation one of the world’s leading producers and exporters of petroleum. This wealth from oil has fostered high-level diplomatic relationships with the West, as well as with China, Japan, and Southeast Asia. Some argue that Saudi Arabia’s oil wealth allows it to wield significant influence over international foreign policy decisions, particularly those involving the Middle East.

The kingdom’s demographics have also been reshaped by the oil industry, attracting millions of foreign workers from the Middle East, South Asia, South East Asia and other regions of the world. The first oil discovery site near Dharan is now connected to a vast pipeline network that transports petroleum across the region.

Petrodollar System

Petrodollars refer to the revenues generated from oil exports, denominated in US dollars, and are not a separate currency but rather US dollars accepted by oil-exporting countries in exchange for their oil. In 2020, the global average for daily crude oil exports was around 88.4 million barrels. With an average price of $100 per barrel, this would translate into an annual global supply of petrodollars exceeding $3.2 trillion.

For many members of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil and gas exporters like Russia, Qatar, and Norway, petrodollars are a primary source of income and wealth. The term “petrodollar” reflects the common practice of these nations accepting US dollars for crude oil transactions rather than a global trading system or a distinct currency. The US dollar is favored by oil exporters because of its global value in international investments, making it a practical store of value for oil revenues that need to generate returns.

A significant example of petrodollar recycling is the 1974 agreement between the United States and Saudi Arabia, where Saudi petrodollars were invested in U.S. Treasuries. The profits from these investments were later used to finance American arms sales to Saudi Arabia, as well as various development and assistance programs in the country. Today, many oil-exporting nations channel their petrodollars through sovereign wealth funds, investing in stocks, bonds, and other financial products. For example, one such fund holds nearly 1.5% of all publicly traded shares worldwide, with 72% of its investments in equities.

The petrodollar system has been crucial in facilitating smoother international trade by standardizing oil pricing, simplifying transactions, and reducing exchange rate risks for oil-importing nations. This system underpinned the strategic alliance between the United States, Saudi Arabia, and other oil-producing countries—a partnership that has significantly influenced global politics for decades. For oil-exporting nations, petrodollars have provided essential income, enabling reinvestment in infrastructure, drilling, and exploration projects, which in turn boosts oil production and drives technological advancements in the energy sector.

The petrodollar system has reinforced the US dollar’s status as the world’s primary reserve currency, driving global demand for it. Oil-exporting countries typically hold large reserves of US dollars, which they often invest in US government securities, thereby strengthening the US economy. This high demand for US dollars, fueled by oil trade, helps maintain a favorable US trade balance and ensures ample liquidity, making the dollar the most traded currency in the forex market.

However, the future of the petrodollar system is increasingly uncertain due to shifting geopolitical dynamics. On June 9, 2024, Saudi Arabia ended its 50-year petrodollar agreement with the United States, an event widely regarded as the “end of the petrodollar.” This agreement had been the cornerstone of the petrodollar system, and its termination marks a significant shift in the global economic landscape. With the end of this agreement, oil transactions may now be conducted in various currencies, including the yuan, euro, yen, and possibly even virtual currencies like Bitcoin.

These developments reflect a growing desire among nations to diversify economic risks and reduce their reliance on the US dollar. By diminishing the dollar’s dominance, these changes could lead to a more multipolar monetary system, granting countries greater financial independence and potentially creating a more balanced global economic environment. The rise of new economic alliances and the global shift towards sustainable energy alternatives further challenge the traditional oil-US dollar system. The transition to renewable energy could reduce global reliance on oil, thereby diminishing the significance of the US dollar and prompting a reevaluation of the current system.

As global energy and financial systems evolve, the role of the petrodollar is increasingly being questioned. The recent end of the US-Saudi agreement is a clear example of the shifting geopolitical and economic landscape. These changes may result in market volatility and the revaluation of various currencies, presenting both challenges and opportunities for the global economy. 

Diversification Efforts

Saudi Vision 2030 

“Given the nation’s climatic advantages, the Vision 2030 statement stresses the growth of renewable energy sources, such as solar and wind. Opportunities for Western businesses specializing in solar and wind technology, energy storage solutions, and green construction technologies arise from the target of producing 9.5 gigawatts of renewable energy by 2030. The country is a rich ground for renewable energy projects because of its large, sunny deserts and substantial investment in green energy.” (Rana Maristani) 

Saudi Arabia’s Vision 2030 is a comprehensive plan launched on April 25, 2016, aimed at reducing the nation’s dependency on oil and diversifying its economy. Centered around three main themes, the framework outlines specific objectives to be achieved by 2030, including the development of ports, cultural assets, and tourism destinations to leverage Saudi Arabia’s strategic position at the crossroads of the Arab and Islamic worlds. A key element of the plan involves partially privatizing the national oil company, Aramco, and enhancing the resources and influence of the Saudi Public Investment Fund.

For decades, Saudi Arabia’s economic growth has been driven by oil, but this reliance has exposed the nation to the volatility of global crude prices. In the 1990s, while oil prices remained stagnant, government policies encouraging larger families led to a population boom. This growth, combined with a young, highly educated workforce, resulted in rising underemployment and unemployment rates, particularly among the youth.

Vision 2030 seeks to address these challenges by transforming Saudi Arabia’s economy over 15 years. The plan aims to improve the quality of life for citizens through world-class healthcare and education, equipping young people with the skills needed for future jobs. It also focuses on creating a diversified economy, emphasizing trade, tourism, high-tech industries, and a business-friendly environment to attract foreign direct investment and entrepreneurs. Key areas of diversification include cryptocurrency, artificial intelligence, and environmental sustainability.

In a significant milestone, Saudi Arabia’s non-oil sector contributed 50% of the GDP for the first time last year, signaling the success of the ongoing economic transformation. With Vision 2030, the Kingdom plans to inject $3 trillion in foreign investment into its economy, driving further growth and offering new opportunities for multinational companies. As the nation continues its economic revolution, it is well-positioned for a promising future.

“Saudi Arabia is becoming more welcoming to foreign investment as it works to advance living standards, build non-oil sectors, and upgrade infrastructure. The Kingdom has taken the initiative in recent years to improve the investment climate by enacting policies that improve business regulations, providing incentives, and establishing special economic zones that offer advantages like tax breaks and business support services.” (Rana Maristani)

Difficulties and Vulnerabilities 

The Kingdom of Saudi Arabia is confronted with various obstacles and weaknesses, chiefly arising from the vagaries of international markets and oil prices. The country urgently has to diversify its economy and lessen its reliance on oil revenue, as this instability in the economy highlights. The country also needs to deal with environmental issues and the global shift to renewable energy sources, which puts further strain on its established economic structure. Given that oil exports account for a sizeable amount of Saudi Arabia’s national income, the country’s economy is greatly impacted by the volatility of oil prices. It is challenging for the nation to keep a solid economic outlook due to the unpredictability of the world oil market. As a result, the kingdom has been actively pursuing measures for economic diversification through its Vision 2030 project, with the goal of fostering the growth of non-oil industries including technology, entertainment, and tourism. The world’s need for oil is predicted to decrease as it moves toward renewable and sustainable energy sources. The adoption of greener technologies and investments in renewable energy projects are imperative in light of this worldwide trend. Saudi Arabia, seeing the need to change with the energy environment, has begun to investigate and invest in solar and wind energy. The main issues facing Saudi Arabia are its dependency on oil for its economy, the instability of the market, and the necessity of embracing environmental sustainability. For the country to have long-term economic stability and growth, these problems must be resolved.

Financial Resilience  

After a year of minimal growth in 2023, the Saudi economy is expected to start recovering in 2024, though its success will largely hinge on the government’s oil production policies. The economic downturn in 2023 was exacerbated by the monarchy’s unilateral decision to cut oil output by one million barrels per day from July 2023 through the end of the year to support oil prices. This move led to a self-inflicted economic slump. However, with an anticipated increase in oil production and exports, along with continued expansion in the non-oil sector, real GDP growth is projected to rise by approximately 2% in the latter half of 2024, aligning with historical averages since 2014.

A significant budget deficit is likely to persist, potentially dampening energy and construction projects, particularly with the resurgence of regional conflicts. Despite these challenges, Saudi Arabia is expected to continue investing heavily in large-scale projects.

Saudi Arabia’s reliance on agri-food imports, particularly grain, remains substantial, but the kingdom has managed to find alternatives due to its purchasing power. Inflation is projected to remain around 2%, supported by substantial export earnings, significant reserves that maintain the currency peg with the US dollar, and a rigorous monetary tightening cycle that began in March 2022 alongside the US Federal Reserve.

Oil prices will continue to be a key driver of the economy, providing essential funding for Vision 2030’s long-term objectives. Decisions made by OPEC and its partners, including Russia, Kazakhstan, Azerbaijan, Mexico, and Oman (OPEC+), have struggled to maintain crude oil prices above USD 80 per barrel, a level deemed necessary for most OPEC+ countries to balance their trade and fiscal needs. Attempts to increase production limits have been hindered by renewed geopolitical tensions in the Middle East, benefiting countries not constrained by output limits. 

Non-Oil Prospects

In 2022, Saudi Arabia’s economy grew faster than any other G20 nation, with overall growth reaching 8.7% and non-oil GDP expanding by 4.8%. The non-oil sector saw its most robust growth since Q3 2021, increasing by 6.2% in Q4 2022. For 2023, the non-oil sector is expected to grow by 4.7%, driven primarily by strong private consumption and significant private sector investments, particularly in construction, retail, wholesale, and transportation. This shift highlights the growing role of the private sector in Saudi Arabia’s evolving economy.

Vision 2030 aims to increase the non-oil GDP share to 50% by 2030 and diversify non-oil exports. Key sectors for focus include finance, insurance, transportation, communication, non-oil manufacturing, and agriculture. In 2023, non-oil revenues surged by 9%, while oil revenues fell by 3% due to declining crude prices. To reduce reliance on oil, the Saudi government has implemented significant budgetary reforms including revenue enhancement, spending rationalization, Treasury Single Account implementation, energy price reforms, fiscal risk assessments, improved budget transparency, and strengthened debt management.

The non-oil sector is seen as a crucial component for managing the increasing number of Saudi nationals entering the labor market each year. It offers greater stability, sustainability, and job creation compared to the volatile oil sector.

Geographical Consequences 

The stability of the region and worldwide alliances are greatly impacted by Saudi Arabia’s strategic position in the world oil markets. Being one of the world’s top oil producers, the Kingdom has significant influence over the availability and cost of energy worldwide. Saudi Arabia is able to shape alliances and regional dynamics thanks to its advantageous geopolitical position. The potential of the Kingdom to influence or destabilize the oil markets can have significant ramifications for countries that import and export petroleum products. Global markets closely follow Saudi Arabia’s decisions about the amount of oil produced, as these decisions have the potential to affect global economic conditions. Its position in the Organization of the Petroleum Exporting Countries (OPEC), where it frequently takes the lead in coordinating member states’ production policies, is another example of this power. Saudi Arabia’s energy policy and geopolitical ambitions are closely related on a regional level. Part of the reason for its partnerships with major world powers, especially the US, is shared energy interests. Additionally, the Kingdom can support or oppose different regional actors due to its money and influence, which has an impact on regional stability. Saudi Arabia’s oil interests and the need to preserve its dominant position in the region play a major role in its engagement in crises and diplomatic attempts throughout the Middle East, particularly its attitude on Iran.

Inference 

When one considers Saudi Arabia’s transition from an oil-dependent economy to one that is more diverse, one can see that the Kingdom is at a turning point. Although there is uncertainty about the future during this shift, it emphasizes how important it is to be resilient and adaptable. By adopting strategic planning, encouraging innovation, and making a commitment to sustainable development, Saudi Arabia is managing this transition. Even though there are still obstacles to overcome, the Kingdom’s initiatives to lessen its reliance on oil earnings and investigate new business opportunities represent a substantial step in the direction of a more diverse and sustainable future. In essence, Saudi Arabia’s long-term economic growth and stability will depend greatly on its capacity to adjust to these changes. Although the road ahead is difficult, the Kingdom’s proactive strategy presents a viable way forward.

Before ASEAN’s formation, Southeast Asia saw the establishment of the Southeast Asia Treaty Organization (SEATO) in 1954, a Western initiative aimed at containing communism that included the United States, the United Kingdom, France, and regional members like Thailand and the Philippines. However, SEATO’s internal divisions led to its dissolution in 1977. The earlier Malayan Emergency (1948-1960), a communist insurgency in British Malaya, led the region’s vulnerability to communist influence and the need for cooperation. This context set the stage for the founding of ASEAN in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand through the Bangkok Declaration, with goals of preventing communism, promoting economic growth, and ensuring regional peace. Today, ASEAN faces a new set of challenges, including territorial disputes, economic disparities, and the influence of external powers, all of which test the organization’s ability to maintain regional cohesion and stability. Let’s get into the detail of it.

The Historical Context and Evolution of ASEAN’s Security Landscape

ASEAN’s origins are rooted in a period of intense ideological conflict, where its founding members aimed to protect their independence from global power struggles. As the organization expanded to include Brunei Darussalam, Vietnam, Laos, Myanmar, and Cambodia, its focus shifted from ideological concerns to economic cooperation and regional integration. However, security has remained a critical issue, particularly as Southeast Asia has emerged as a focal point for great power competition. The South China Sea disputes have highlighted ASEAN’s security challenges, with overlapping territorial claims involving China and several ASEAN member states testing the organization’s cohesion and conflict management abilities. The South China Sea, a vital maritime region, represents broader security concerns, including economic vulnerabilities, military imbalances, and the influence of external powers like the United States and China.

Internal Divisions and Historical Grievances Among ASEAN Member States

ASEAN’s efforts at promoting regional cooperation are often hampered by internal challenges rooted in historical disputes and national pride. These tensions not only strain bilateral relations but also weaken ASEAN’s collective bargaining power, undermining its ability to present a unified front against external threats.

Malaysia and the Philippines: The Sabah Dispute

The territorial disagreement between Malaysia and the Philippines over Sabah is one of ASEAN’s most enduring disputes. The Philippines bases its claim on historical ties to the Sultanate of Sulu, while Malaysia asserts its sovereignty over Sabah, which was incorporated into its territory in 1963. Despite various diplomatic efforts, the issue remains unresolved, straining bilateral relations and complicating ASEAN’s quest for unity.

Cambodia and Thailand: The Preah Vihear Temple Dispute

The conflict over the Preah Vihear Temple between Cambodia and Thailand is another example of intra-ASEAN tensions. Despite the International Court of Justice ruling in favor of Cambodia in 1962, disputes over the surrounding territory have led to periodic military skirmishes. This ongoing conflict highlights how national pride and historical grievances can overshadow regional stability, challenging ASEAN’s capacity to maintain harmony among its members.

Cambodia and Vietnam: Maritime Boundary Dispute

The maritime boundary dispute in the Gulf of Thailand between Cambodia and Vietnam, involving overlapping claims on fishing rights and oil exploration, further illustrates ASEAN’s challenges. The inability to address such disputes effectively, due to ASEAN’s principles of consensus and non-interference, undermines the organization’s credibility and cohesion.

Indonesia and Malaysia: The Ambalat Dispute

The Ambalat dispute over oil-rich waters in the Celebes Sea between Indonesia and Malaysia reflects the broader challenge of managing resource-related conflicts within ASEAN. Despite ongoing diplomatic negotiations, the lack of resolution continues to strain bilateral relations and test ASEAN’s ability to mediate internal disputes.

Myanmar and Bangladesh: The Rohingya Refugee Crisis

While not a territorial dispute within ASEAN, Myanmar’s treatment of the Rohingya minority, leading to a massive refugee influx into Bangladesh, has strained relations within the bloc. This crisis raised critical questions about ASEAN’s principle of non-interference and its ability to address serious human rights concerns while maintaining regional stability. The situation exposed the limitations of ASEAN’s ability to manage internal conflicts and uphold its values.

Territorial Disputes and Overlapping Claims

The South China Sea is a flashpoint for regional tensions, with China, Vietnam, the Philippines, Malaysia, Brunei, and Taiwan all laying claim to parts of this critical maritime region. China’s expansive claims, encapsulated by the “New Ten-Dash Line,” overlap with the Exclusive Economic Zones (EEZs) of several ASEAN countries, leading to frequent confrontations.

Incidents of confrontation between Chinese and Southeast Asian vessels have escalated tensions. Diplomatic efforts, such as the Declaration on the Conduct of Parties in the South China Sea (DOC) signed in 2002, have sought to prevent conflicts, but a binding Code of Conduct (COC) remains elusive. ASEAN’s inability to present a unified front has allowed China to assert its claims more aggressively, leading to the militarization of disputed features and an increased risk of conflict.

Economic Interests and Vulnerabilities

The South China Sea is a vital artery for global trade, with nearly one-third of the world’s maritime traffic passing through its waters. For ASEAN member states, the SCS is crucial for trade routes, fisheries, and potential energy resources. However, these economic interests also represent a source of vulnerability. The region’s dependence on these waters for economic prosperity has made it a hotbed for geopolitical competition.

China’s economic influence in the region complicates ASEAN’s security dilemma. As the largest trading partner for many ASEAN countries, China wields significant economic power, which it has not hesitated to use as leverage in territorial disputes. For instance, in 2023, China imposed trade restrictions on Vietnam in response to Hanoi’s increased maritime activities in the disputed Paracel Islands, targeting Vietnamese exports such as seafood and rice. These trade restrictions had a significant impact on Vietnam’s economy, highlighting the challenges ASEAN member states face in balancing their economic relationships with China while also protecting their territorial and security interests.

Economic disparities among ASEAN member states exacerbate these vulnerabilities. Countries like Singapore and Malaysia have relatively advanced economies, while others, such as Laos, Cambodia, and Myanmar, are still developing. This disparity affects ASEAN’s collective bargaining power and creates divergent interests among its members, making it difficult to form a cohesive strategy in dealing with external pressures.

1. Singapore, the most advanced economy within ASEAN, has a nominal GDP of approximately $673 billion in 2023 and a per capita GDP of $82,807. As a global financial hub, Singapore’s economic strength lies in its advanced services sector, particularly in finance, trade, and technology. Its high level of development allows it to play a leading role in ASEAN, often driving regional initiatives and economic integration efforts.
2. Brunei Darussalam, though smaller in economic size with a nominal GDP of around $15 billion, enjoys a high per capita GDP of $37,152, largely due to its abundant oil and gas resources. However, its economy is heavily reliant on hydrocarbons, making diversification a pressing challenge.
3. Malaysia, with a nominal GDP of $399 billion and a per capita GDP of $11,933, has a well-diversified economy that spans manufacturing, services, and commodities. It is a middle-income nation striving to transition into a high-income economy, facing challenges in ensuring inclusive growth and reducing income disparities.
4. Thailand and Vietnam are significant players in the region, with nominal GDPs of $543 billion and $433 billion, respectively. Thailand’s economy is driven by its manufacturing sector and tourism, while Vietnam’s rapid industrialization has turned it into a crucial link in global supply chains, particularly in electronics and textiles. However, both countries face challenges such as infrastructure gaps, skill shortages, and economic dependency on external markets, particularly China.
5. Indonesia, the largest economy in ASEAN, has a nominal GDP of $1,371 billion. Its vast natural resources, large domestic market, and young population present significant growth potential. However, Indonesia still grapples with infrastructure deficits, regional inequalities, and the need to diversify its economy away from a reliance on commodities.
6. The Philippines, with a nominal GDP of approximately $437 billion, is characterized by a young, growing population that fuels domestic consumption. However, it also faces significant challenges such as high unemployment, economic vulnerabilities, and the impact of climate change.
7. Cambodia and Laos, with nominal GDPs of around $31.77 billion and $15.84 billion, respectively, are among the least developed in ASEAN. These countries rely heavily on agriculture, tourism, and, increasingly, Chinese investment and aid. Their economic dependency on China, coupled with underdeveloped infrastructure and low levels of industrialization, leaves them vulnerable to external pressures and economic shocks.
8. Myanmar, with a nominal GDP of $64.82 billion, has been hindered by political instability and economic sanctions. The manufacturing sector, which accounts for a significant portion of its GDP, struggles with inadequate infrastructure, a lack of skilled labor, and ongoing internal conflict.

These economic disparity among ASEAN member states creates a complex environment where national interests often clash, making consensus-building within the organization challenging. These economic differences also lead to varying levels of dependency on external powers like China and the United States, further complicating ASEAN’s ability to present a unified front in regional security matters.

Military Capabilities and Asymmetries

The disparity in military capabilities among ASEAN member states also contributes to the region’s security dilemma. While some countries, like Singapore, have advanced and well-equipped armed forces, others, such as Laos and Cambodia, have relatively modest military capabilities. This asymmetry affects the ability of ASEAN to coordinate joint security initiatives and response to external threats.

Singapore is known for having one of the most advanced military forces in Southeast Asia. Its defense budget, which stood at approximately $19.76 billion in 2023, allowed it to maintain a highly modernized and technologically sophisticated military. The Singapore Armed Forces (SAF) are equipped with cutting-edge weaponry, including F-35 fighter jets, advanced naval vessels, and a robust cyber defense unit. Singapore’s strategic location and military prowess make it a critical player in regional security.

Indonesia, with the largest population in ASEAN, also has the largest military force. Its defense budget of around $9.2 billion in 2023 supports a sizable army, navy, and air force, although it lags in technological sophistication compared to Singapore. Indonesia’s military focuses on securing its vast archipelagic territory, including critical maritime chokepoints such as the Malacca Strait.

Vietnam has a defense budget of approximately $5.8 billion, with a strong emphasis on its army and navy, given its proximity to the South China Sea. Vietnam’s military capabilities are enhanced by recent acquisitions of advanced Russian-made submarines, fighter jets, and coastal defense systems. The country’s military strategy is shaped by its historical experiences with external aggression and its ongoing territorial disputes with China.

Thailand allocates around $6.9 billion to its defense budget, focusing on maintaining a balanced military force capable of addressing both conventional and unconventional threats. Thailand’s military, which has historically played a significant role in domestic politics, is equipped with a mix of Western and Chinese military hardware.

Malaysia spends approximately $4.1 billion on defense, with a focus on securing its maritime boundaries and addressing non-traditional security threats such as piracy and terrorism. Malaysia’s military, though smaller than those of Indonesia and Vietnam, is relatively well-equipped and plays a key role in regional security initiatives.

The Philippines has a defense budget of about $4.3 billion, which is modest given its extensive territorial claims in the South China Sea. The Armed Forces of the Philippines (AFP) have been undergoing modernization efforts to improve their capabilities, particularly in maritime security and counter-terrorism. However, the military still faces significant challenges in terms of equipment and training.

Myanmar, with a defense budget of around $2.4 billion, maintains a large army but faces challenges related to outdated equipment and ongoing internal conflicts. The military’s focus has been on domestic security, particularly in dealing with ethnic insurgencies and political unrest.

Brunei, despite its small size, spends a significant portion of its budget on defense, amounting to around $615 million. Its military is small but well-trained.

Cambodia and Laos have relatively small defense budgets, at approximately $500 million and $100 million, respectively. Their militaries are modest in size and capability, with a focus on internal security rather than external defense.

The military asymmetry within ASEAN creates challenges for joint defense initiatives and hampers the organization’s ability to present a united front in response to external threats. The disparities in defense capabilities also contribute to differing threat perceptions among member states, making consensus on security issues difficult to achieve.

ASEAN and the Great Power Dynamics

ASEAN’s unity is increasingly being tested by the growing influence of external powers, particularly the United States and China.

US-China Rivalry in Southeast Asia

The US-China rivalry is a defining feature of the current geopolitical landscape in Southeast Asia. As China’s influence grows, particularly through initiatives like the Belt and Road Initiative (BRI), the United States has sought to counterbalance this influence through initiatives such as the Indo-Pacific Strategy and by strengthening alliances with regional powers like Japan, Australia, and India. This great power competition puts ASEAN in a difficult position, as member states are often forced to navigate balance between maintaining economic ties with China and security partnerships with the United States.

China’s Belt and Road Initiative has made significant inroads in Southeast Asia, with billions of dollars invested in infrastructure projects across the region. Countries like Cambodia, Laos, and Myanmar have become increasingly dependent on Chinese investment, creating a situation where their foreign policy decisions are heavily influenced by Beijing. This growing dependence on China has raised concerns within ASEAN about the potential for Chinese economic leverage to translate into political influence, undermining the organization’s unity.

The United States, meanwhile, has sought to strengthen its presence in Southeast Asia through various initiatives, including the Indo-Pacific Strategy, which emphasizes the importance of a free and open Indo-Pacific region. The US has also deepened its security partnerships with key ASEAN member states, such as the Philippines, Thailand, and Vietnam, through joint military exercises, arms sales, and defense cooperation agreements. These efforts are aimed at countering China’s growing influence and ensuring the US remains a key player in the region’s security architecture.

The competing interests of the US and China have created divisions within ASEAN, with some member states aligning more closely with one power over the other. These divisions are further exacerbated by differing threat perceptions among member states, with some prioritizing economic ties with China, while others are more concerned with security threats and maintaining strategic autonomy.

Pathways to Resolution: Cooperative Security Frameworks

ASEAN’s security dilemma is compounded by the lack of a cohesive and effective regional security architecture. The existing security frameworks, such as the ASEAN Regional Forum (ARF) and the ASEAN Defense Ministers’ Meeting (ADMM), have been criticized for their inability to address the region’s most pressing security challenges effectively.

The ASEAN Regional Forum (ARF), established in 1994, was designed to promote dialogue and cooperation on security issues in the Asia-Pacific region. However, the ARF has often been criticized for being a “talk shop,” where discussions are held without concrete actions being taken. The forum’s consensus-based decision-making process has also been a significant impediment to addressing contentious issues, such as the South China Sea disputes.

The ASEAN Defense Ministers’ Meeting (ADMM), established in 2006, serves as a platform for ASEAN defense ministers to discuss security and defense cooperation. While the ADMM has made some progress in promoting confidence-building measures and joint exercises, it has been less effective in addressing the region’s more significant security challenges, such as territorial disputes and the influence of external powers.

To overcome these challenges, ASEAN may need to explore new cooperative security frameworks that go beyond the existing structures. One potential pathway could be the establishment of a more robust and binding Code of Conduct (COC) for the South China Sea, which would include mechanisms for dispute resolution and conflict prevention. However, achieving such a framework would require overcoming significant internal divisions within ASEAN and securing the buy-in of external powers, particularly China.

Another potential pathway could involve greater engagement with external partners through mechanisms such as the ASEAN Plus Three (APT) and the East Asia Summit (EAS). These forums could be leveraged to address broader security challenges in the region, including non-traditional security threats such as cyber threats, terrorism, and climate change. However, for these efforts to be successful, ASEAN would need to strengthen its internal cohesion and present a more united front in dealing with external powers.

Future Prospects and Challenges

The future of ASEAN’s security landscape is fraught with challenges, as the region continues to grapple with internal divisions, economic disparities, military asymmetries, and the growing influence of external powers. However, ASEAN’s ability to navigate these challenges will be crucial in determining the region’s stability and prosperity in the years to come.

One of the key challenges for ASEAN will be maintaining its unity and cohesion in the face of increasing external pressures. This will require addressing the internal divisions and historical grievances that have often hampered the organization’s ability to present a united front. ASEAN will also need to find ways to manage the growing influence of external powers, particularly the US and China, while maintaining its strategic autonomy and ensuring that its member states are not forced to choose sides.

Another challenge will be the need to develop more effective security frameworks that can address the region’s most pressing security challenges. This will require ASEAN to move beyond its current consensus-based decision-making process and adopt more flexible and pragmatic approaches to conflict resolution and security cooperation.

Finally, ASEAN will need to address the economic disparities and vulnerabilities that have often undermined its collective bargaining power. This will require greater efforts to promote economic integration and development within the region, while also ensuring that the benefits of growth are more equitably distributed among its member states.

End Note

ASEAN’s security dilemma is a complex and multifaceted issue that reflects the broader geopolitical dynamics of Southeast Asia. The organization’s ability to navigate this dilemma will be crucial in determining the region’s stability and prosperity in the years to come. While ASEAN faces significant challenges, including internal divisions, economic disparities, military asymmetries, and the growing influence of external powers, it also has the potential to play a pivotal role in shaping the future of Southeast Asia. To do so, ASEAN will need to strengthen its internal cohesion, develop more effective security frameworks, and find ways to manage the growing influence of external powers while maintaining its strategic autonomy. Ultimately, the future of ASEAN will depend on its ability to adapt to the evolving security landscape and ensure that its member states can navigate the complex geopolitics of Southeast Asia in a way that promotes peace, stability, and prosperity for all.

In the wake of transformative historical events, including Vietnam’s struggle for independence and Japan’s post-World War II reconstruction, both nations have carved unique paths to economic prosperity. Vietnam’s journey from the Đổi Mới reforms of the late 1980s to its current status as one of the fastest-growing economies in the world showcases its dynamic shift from a war-torn nation to a burgeoning market-oriented powerhouse, leveraging its young workforce and strategic location to attract foreign investment. Meanwhile, Japan’s remarkable post-war recovery, driven by innovations in automotive manufacturing, electronics, and robotics, transformed it into a global industrial leader. This analysis delves into their economic trajectories, from Vietnam’s agricultural roots to its tech-savvy future, and Japan’s evolution from a bombed-out landscape to a technological titan. Exploring their political frameworks, trade dynamics, and investment strategies, we uncover how Vietnam’s openness to global supply chains and Japan’s steadfast commitment to quality and innovation continue to shape the economic contours of Asia. Through this exploration, we aim to illuminate the pivotal roles these nations play in shaping the economic contours of the Asian continent.

Economic Trajectories

Vietnam’s economy has been characterized by a remarkable transformation since its independence in 1945. Emerging from decades of colonial rule and devastating conflicts, Vietnam embarked on a path of economic reform, transitioning from a centrally planned to a market-oriented economy. This shift, often referred to as Đổi Mới, began in the late 1980s and has since propelled Vietnam to becoming one of the fastest-growing economies in the world. The country’s strategic location, abundant natural resources, and a young and dynamic workforce have contributed significantly to its economic development. Vietnam has also capitalized on its openness to foreign investment and trade, attracting multinational corporations seeking low-cost labor and access to rapidly growing consumer markets.

Key sectors such as manufacturing, agriculture, tourism, and technology have experienced substantial growth. For 2024, Vietnam’s GDP is projected to surpass $341 billion USD, building on the substantial economic progress seen in recent years. The country’s economy continues to thrive, with forecasts predicting a GDP growth rate of approximately 6% in 2024. In contrast, Japan’s economic journey post-World War II has been characterized by unprecedented growth and industrialization. Following the devastation of the war, Japan underwent rapid reconstruction and modernization, leveraging its skilled workforce, advanced technology, and strong industrial base.

Through strategic government policies, targeted investments in infrastructure, education, and research and development, Japan emerged as a global economic powerhouse, leading in sectors such as automotive manufacturing, electronics, and robotics. For 2024, Japan’s GDP is projected to be around $4.26 trillion USD, with an estimated per capita income of approximately $54,184 USD. As one of the world’s largest and most advanced economies, Japan continues to demonstrate resilience and growth despite various global economic challenges. Despite facing challenges such as an aging population, deflationary pressures, and competition from emerging economies, Japan continues to innovate and adapt, maintaining its position as a leader in technology, finance, and global trade.

Pillars of Economic Growth

Vietnam and Japan have distinct pillars of economic growth, reflecting their unique strengths and strategic advantages. Vietnam’s economy thrives on its diverse sectors, including agriculture, manufacturing, and an increasingly prominent technology industry. The country’s rich agricultural resources support a robust farming sector, contributing significantly to both domestic consumption and exports. Moreover, Vietnam has emerged as a manufacturing hub, particularly for labor-intensive industries such as textiles, garments, and electronics assembly. The government’s focus on promoting innovation and entrepreneurship has also fueled the growth of a burgeoning technology sector, with startups and tech companies gaining traction both domestically and internationally. Vietnam’s strategic location in Southeast Asia further enhances its economic prospects, positioning it as a key player in regional trade and investment flows.

On the other hand, Japan’s economic landscape is characterized by its leadership in advanced manufacturing, robotics, and high-tech industries. Renowned for its precision engineering and quality craftsmanship, Japan dominates sectors such as automotive manufacturing, producing some of the world’s most popular and reliable vehicles. Additionally, Japan is at the forefront of robotics and automation, with companies pioneering developments in industrial robotics, humanoid robots, and artificial intelligence. The country’s prowess in electronics is exemplified by its leading companies in consumer electronics, semiconductor manufacturing, and electronic components.  While Vietnam and Japan excel in different areas of economic activity, both nations leverage their strengths to drive growth, foster innovation, and contribute to regional and global economic development. Their complementary strengths, diverse economies, and strategic advantages position them as key players in the dynamic landscape of the Asia-Pacific region and beyond.

Political Dynamics 

Both Vietnam and Japan have distinct political frameworks. Vietnam operates under a socialist republic governance structure, which shapes its economic policies and development strategies. The government plays a significant role in guiding economic activity, with a focus on promoting social equity, sustainable growth, and national self-reliance. This approach fosters resilience in the face of external shocks and challenges, enabling Vietnam to maintain steady economic progress. Additionally, Vietnam’s commitment to sustainable development is reflected in its efforts to balance economic growth with environmental conservation and social welfare. The country’s emphasis on improving the Ease of Doing Business Index highlights its dedication to creating a favorable environment for both domestic and foreign businesses, fostering investment, entrepreneurship, and economic dynamism.

Japan, on the other hand, operates within a constitutional monarchy framework, characterized by political stability and continuity. The government’s economic policies prioritize innovation, technology, and environmental sustainability, aligning with Japan’s long-term vision for economic growth and societal progress. Tokyo, Japan’s capital, exemplifies these priorities, serving as a global hub for innovation, finance, and culture. With its advanced infrastructure, efficient governance, and high quality of life, Tokyo consistently ranks among the world’s most advanced and livable cities, attracting talent, investment, and business opportunities. Vietnam and Japan differ in their political systems and approaches to governance, both nations share a commitment to navigating economic realities and political dynamics in ways that promote growth, stability, and prosperity.

Trade Routes and Investment Horizons

Vietnam’s economic landscape is marked by impressive export performance and robust foreign investment. In 2024, Vietnam’s exports are projected to reach approximately $350 billion USD, driven by continued growth in key sectors such as textiles, electronics, and agricultural products. The country’s strategic location, competitive manufacturing capabilities, and favorable trade agreements have facilitated its integration into global supply chains, enhancing its export opportunities and market access. Additionally, Vietnam attracted $36.6 billion USD in Foreign Direct Investment (FDI) in 2023, with significant investments flowing into energy, manufacturing, and real estate. This confidence in Vietnam’s business environment and growth prospects is further supported by its foreign reserves, estimated at around $110 billion USD.

Japan, on the other hand, maintains its status as a global export powerhouse with exports expected to total around $750 billion USD in 2024. Key sectors such as automobiles, electronics, and machinery continue to drive Japan’s export dominance, supported by the country’s reputation for quality, innovation, and reliability. Japan’s extensive network of trade agreements, technological expertise, and strong brand reputation reinforce its competitiveness in international markets, ensuring a strong presence across diverse industries. In 2023, Japan witnessed substantial FDI inflows of $230 billion USD, reflecting its attractiveness to multinational corporations seeking access to advanced infrastructure, a skilled workforce, and an innovation ecosystem. Japan’s financial strength is signified by its robust foreign reserves, which remain at approximately $1.4 trillion USD.

Vietnam’s strategic location, competitive manufacturing capabilities, and effective trade agreements have facilitated its integration into global supply chains, emphasizing its role as a key player in regional and global trade dynamics. In contrast, Japan’s well-established position as a global export leader is driven by its excellence in key sectors, technological expertise, and extensive trade networks.

Foreign Direct Investment serves as a vital source of economic vitality for both countries. Vietnam’s attraction of $36.6 billion USD in FDI in 2023 highlights the confidence in its business environment, while Japan’s significant FDI inflows of $230 billion USD in the same year outlines its global investment hub status. The State Bank of Vietnam and the Bank of Japan play a crucial role in safeguarding assets and ensuring monetary stability. Vietnam’s foreign reserves stand at $110 billion USD, while Japan’s reserves are a robust $1.4 trillion USD, reflecting their commitment to maintaining economic stability and managing external risks. Overall, the trade routes and investment horizons of Vietnam and Japan reflect their respective strengths, opportunities, and challenges in navigating the global economy.

End Note

In essence, Vietnam and Japan chart distinct paths toward economic prominence in Asia. Vietnam’s economic diversity, political resilience, and strategic positioning position it as a formidable contender, while Japan’s technological prowess, stability, and global influence make it an enduring force. As these two nations navigate their economic trajectories, the global gaze remains fixed, recognizing that their journey toward economic prominence extends beyond the horizon. The narrative is set, and Vietnam and Japan, each with its unique stories, stand ready to script new chapters in the unfolding narrative of regional economic influence. Our exploration into the realm of international economics continues, inviting you to delve into the evolving stories of these economic protagonists, painting a dynamic picture of aspiration, growth, and progress.