The Energy Politics of the Middle East is Struggling with a Low-Carbon Future

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The economics of energy has long been seen as crucial to understanding political dynamics in the Middle East.

Popular commentators and academic scholars alike have seen oversized endowments of oil and natural gas as laying at the heart of conflict and contention, political authoritarianism and repression, and the failure of economic modernisation and diversification in the region.

Yet the politics of energy in the region may become more complex still as the world experiences a low-carbon transition, renewable fuel sources take centre-stage, and lucrative contracts for oil and gas begin to dry up.

Concerns over human induced climate change and air pollution are already having significant effects on the global energy market. In addition to increased awareness of the ecological damage of hydro-carbon use, technical developments portend a low carbon transition.

In addition to increased awareness of the ecological damage of hydro-carbon use, technical developments portend a low carbon transition.

The decreasing cost of renewable energy infrastructure and the rapid rise of electric vehicle usage stand out in this regard. According to the International Renewable Energy Agency (IRENA), solar photovoltaic module prices have fallen by around 80% over the last decade and wind turbine prices have fallen by around 40%. Bloomberg New Energy Finance, a research organisation, estimates that within two decades the number of electric vehicles in use will rise from below 10 million to as many as 550 million.

Bloomberg New Energy Finance, a research organisation, estimates that within two decades the number of electric vehicles in use will rise from below 10 million to as many as 550 million

A recent report published by Chatham House, a London based policy institute, offers a gloomy conclusion on the geopolitical implications of this energy transition. As its author, Dr Paul Stevens, a Distinguished Fellow in Energy Politics argues ‘We can expect conflict over oil market share, linked to a contest for hegemony in the Middle East, as oil-producing countries in the region and elsewhere in the world struggle to disguise their economic failure’, provoking ‘serious military conflict, potentially triggered by another oil price shock and aggravated by the efforts of ever more failed states in the region to distract restive populations with foreign adventures.’

‘We can expect conflict over oil market share, linked to a contest for hegemony in the Middle East, as oil-producing countries in the region and elsewhere in the world struggle to disguise their economic failure’
 – Dr Paul Stevens, a Distinguished Fellow in Energy Politics

According to the Observatory of Economic Complexity, a monitor of international trade data, 87% of Qatari, 95% of Iraqi, 50% of Emirati, 75% of Saudi and 75% of Iranian exports are hydro-carbon fuel based.

Importantly, oil exporting states are central to a wider system of regional investment and all important remittance payments which have come to play a vital structural role in non-oil economies.

A low-carbon transition wold deprive such states of their most significant revenue stream, effecting their internal politics and international position in turn. Andres Goldthau, an expert in global energy politics and Professor of Public Policy at the University of Erfurt argues that crude revenues are ‘important not only to sustain a lopsided economic model in many oil producer countries, but also to maintain the social contract’.

crude revenues are ‘important not only to sustain a lopsided economic model in many oil producer countries, but also to maintain the social contract’.
 – Andres Goldthau

Hydrocarbon rents can be used to stave off popular political dissent by funding social services, subsiding the price of consumer goods and reducing the burden of income and wealth taxation on citizens. Funnelling rents to political elites, including regime allies and potential rivals provides further stability for incumbent leaders.

Dr Goldthau and other energy experts argue that much will depend on the pace of transition to a low carbon future. Where oil and gas exporters have time to prepare for the transition, the implications of a reduction in revenues can be better managed.

Indra Øverland, the head of the Energy Programme at the Norwegian Institute of International Affairs argues that many, including the International Energy Agency have underestimated the speed of transition to a low carbon energy regime: ‘many people underestimate the speed of the energy transition…on the cost of solar and wind power, most mainstream actors have entirely failed to understand what is happening.’

Assessing the speed of change is complex and Dr Øverland suggests that ‘although things are going much faster than some people realise, they are going far too slowly to mitigate climate change.’ Dr Goldthau argues that the existing industry has proved remarkably resilient.

‘although things are going much faster than some people realise, they are going far too slowly to mitigate climate change.’
 – Dr Goldthau

The number of coal and oil-fired power plants that continue to be built in the developing world, ‘often with the financial support of precisely those countries pushing for a renewable revolution at home, such as China’ cautions against hailing an overnight renewable revolution.

However, the level of uncertainty introduced by an energy transition may encourage hydrocarbon exporters to act rashly. ‘If producer countries fear their markets may wither away, they may try to cash in. A panic and pump approach will send the oil market into turmoil, resulting in lost revenue and endangering the social contract’.

Economic choices made by hydrocarbon exporters play a key role in the geopolitical implications of an energy transition. Dr Stevens is right to note that state’s fearing domestic unpopularity due to economic mismanagement may seek to escalate regional conflict to maintain their powers at home, yet economic diversification likely holds the term solution for the region’s hydrocarbon dependent states.

In Feb 2019, Saudi Arabia signed an MoU with China’s National Energy Administration on renewable energy as part of its ambitious ‘Vision 2030’ economic diversification strategy. /AFP

Diversification initiatives such as Oman’s Tanfeedh program, Saudi Arabia’s Vision 2030 and the UAE’s Vision 2021 all call for ambitious programs of economic reform, including growing a green energy sector. Indeed, the states of the Arab Gulf increased their total renewable share by 355% between 2014-2018 according to IRENA and are geographically well positioned for harnessing wind and solar energy.

the states of the Arab Gulf increased their total renewable share by 355% between 2014-2018 according to IRENA and are geographically well positioned for harnessing wind and solar energy.

Yet economic diversification, particularly involving high-skilled and technologically centred industries like green energy faces formidable challenges in the region. Dr Goldthau argues that it ‘requires the rule of law to attract foreign investment, and the technology and know-how that comes with it’.

The states best set to reap the advantages of a low carbon future are therefore those who are leaders in ow carbon technology which contain ‘mature domestic innovation ecosystems’. Few analysts would argue that the states of the Gulf, in particular, fit this profile.

Dr Øverland argues that ‘the problem with natural resource revenues like those from oil and gas is that they are addictive, and it is therefore difficult to get off them on one’s own initiative’.

This is particularly true for those political elites who derive their prosperity from networks of rent distributing patronage. Transitioning to a low carbon economy would require elites to let go of the resource revenues that often underpin their autocratic rule.

Despite this obstacle, economic diversification and energy transitions may therefore be a form of ‘blessing in disguise’ according to Dr Øverland. The loss of natural resource revenues could reduce authoritarian political control – ‘the decarbonised future may be quite bright for the populations of many fossil fuel powers, though not necessarily for their current rulers’.

Major transitions in energy production and usage will likely be global in their effect. The rise of the renewable sector and its displacement of hydrocarbon based energy will be watched with much alarm in Moscow, Lagos, Luanda and Caracas as states dependent on the sale of oil and gas seek to stave off the crippling economic effects of decreasing demand.

Yet it is in the Middle East that the transition to a low carbon future will prove most intriguing.

The views expressed in this article do not necessarily reflect those of Al Bawaba News.