The Winds of Change: A Gradual Energy Transition in the Middle East

By Supriya Shekhar

Within the last decade, the gradual transition from wood-to-coal-to-oil and natural gas as dominant energy sources in the Middle East has been evident. Yet, while this transition may be an achievement in itself, critical changes in the renewable energy sector have lacked urgency. Data and studies depict a host of problems namely disastrous environmental pollution and oil spills/rig explosions , with the use of conventional fuels, governments and firms are coming to a desperate realization for the need of new sustainable fuels. How will a region which is largely dependent on oil and natural gas trade fare in the face of ongoing fuel reformation?

The Middle east; the world’s prevailing net crude exporter, has more than a third of proven gas reserves, allowing governments to structure society and international relations circling this advantage. Discovery and trade of these resources have socially and economically boosted this region. Deals such as The US-Gulf security accord; where American military backing is provided to vulnerable oil producing states(to which The Middle East/Gulf still relies on), the sudden spikes in GDP, considerable decline in open unemployment and infant mortality, advancement of higher education, government spending and tourism are all direct and indirect results from their prospering fuel trade. A common yet evident opinion would be that with the deteriorating oil’s influence and price, these states will lose their geopolitical and economical prestige and all the civil progress they made throughout the years will start decaying too. Very clearly, these states will not retain the same stature and influence on the global stage and understanding who will adapt and resist these changes will become an important question moving forward.

For the middle eastern region, expanding and entering industries other than the oil trade, is not only a dire economic need, but also a hope to hold on to it’s political and social influence. The region should realise that oil will eventually run out, while its population is expected to double by 2050. Bahrain and Oman are in the most fraught with danger, expecting to run out within the next decade for Bahrain and within 25 years for Oman. 20 million young people are expected to join the workforce in this region by 2025 and a diminishing oil industry doesn’t have the capacity to place them all. This calls for a desperate action to involve more of its citizens in economics affairs and private sector for personal capital accumulation to maintain a certain standard of living. Moreover recent attacks on Saudi’s oil facilities have highlighted the fragile dependence of its economy on fuel trade and pertinent risks by volatile oil prices.

Diversifying and condensing dependency on oil has become a bone of contention across the Middle East. Suhail Bin Mohammed Al Mazrouei, energy minister of the United Arab Emirates (UAE) has been reported saying that UAE is actively developing its non-oil economy and are moving away majority of its oil revenue reliance at the World Economic Forum (WEF) in Davos. Mr Al Mazrouei plans for the oil earnings to be withdrawn as a luxury or extra profit which will be reinvested instead forming the backbone of their budget. UAE is actively investing outside the emirates too and is progressively building its human capital and tertiary sector. Plummeting prices have forced Gulf countries like Saudi Arabia , Kuwait , UAE etc. to introduce a sales tax and remove its long-standing fuel subsidies. Oil prices have declined 70% and while some see it as a struggle to just push through, regions such as Bahrain are taking this as a chance for reformation and to have a sustainable future by increasing its secondary and infrastructural sector. Fundamental changes such as encouraging health and educational sector, supporting young entrepreneurs etc are small steps taken by the region to promote other non-oil sectors.

International renewable energy agency (IRENA) headquartered in Abu Dhabi, suggested that subsidising/promoting renewable energy sources within the Gulf countries, will actually help these states decrease imports and increase the quantities of oil and gas left to export. This is recognised by many specialists such as Dr David Renne; president of ISES, as more advantageous for the Middle East region. He notes that increased renewable energy usage domestically will not only environmentally clean up this region, but be a more efficient fuel for transportation than standard fuel. The Gulf region is at different stages of development and 1% of their energy is from renewables currently. According to International energy agency’s data , Kuwait’s solar PV output was just 2 GWh’ UAE produced 95GWh of solar in 2016 and Saudi had 1Gwh of solar energy. However, Iraq had no measurable solar nor wind generation and that it also had no data for renewables in Qatar. 

So, it might be asked, is it their rigidity or an actual hindrance preventing the Middle East and Gulf to optimise renewable energy? Dr Jim Krane, specialist on energy in the Middle East at Rice University’s Baker Institute, Houston, argued that many Gulf countries gain significant profit margins from the oil and gas business, making it very difficult to wean themselves away from. Meanwhile, revenue from renewable fuels formulates just a tiny fraction of their current fuel trade, implying for many Gulf countries renewable energy is just not an attractive business venture. Further problems arise regarding the maintenance of public support and opinion – which is a corner stone of many monarchies within the region and is dependent on significant domestic investment. Yet, geological hurdles also exist and may explain external factors out with their control such as frequent sandstorms, minimal water sources and an untappable humidity which inhibit the region.

Eventually the winds of change will bring about a transformation in the region’s fuel consumption and trade patterns. However, the question remains, will it be quick and ambitious enough?

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.

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