The evolving roles of the Gulf states in the low-carbon energy transition
The hydrocarbon-rich Gulf states play a significant role in supplying the energy that fuels economic growth and declines in poverty rates. This role is especially pronounced across the Asian continent and the Pacific, where fossil fuels account for 85 percent of energy consumption. In 2019, almost 60 percent of crude oil and 25 percent of liquefied natural gas (LNG) in Asia were sourced from the Middle East, largely from the Gulf states.
Conversely, Asia is the destination for over 85 percent of crude exports and two-thirds of LNG exports from the Middle East, primarily the Gulf states. Asia is also expected to dominate global energy consumption by 2030, unlike stagnating demand in developed countries. Consequently, Asia will continue to underwrite future growth prospects in the Gulf, where the performance of the hydrocarbon sector, relative to the non-oil sector, continues to drive gross domestic product growth, budgets, and current account balances.
The global transition to a less fossil-fuel-based energy system is unlikely to end energy interdependence between the Gulf and Asia. Rather, this transition presents opportunities for the Gulf states to exercise energy diplomacy through addressing and managing energy transition-related issues with its interlocutors in Asia.
As a result, the Gulf states have developed four stylized positions in the governance of the global energy transition: Rule breakers, rule takers, rule promoters, and rule shapers.
Rule breakers
The Gulf states’ most traditional stance involves acting as rule breakers, seeking to delay the global move away from fossil fuels. The rationale for this is clear: These nations possess some of the world’s largest proven reserves of oil and gas. A rapid shift away from their resources would drastically reduce their hydrocarbon-based growth and prosperity, posing risks to both economic stability and, potentially, regime stability. Forecasts suggest oil revenues could plunge by 80 percent by 2050, driven by the falling use of road transport, making the preservation of the fossil fuel industry essential for these nations.
SIGN UP FOR THIS WEEK IN THE MIDEAST NEWSLETTER
As part of this “dig in” strategy, Gulf countries such as Saudi Arabia continue to bolster the dominance of fossil fuels in the global energy system. They remain outspoken in their opposition to mainstream views on climate change and have actively increased domestic crude, refinery, and petrochemical capacities to secure demand for decades. Gulf states are also investing in overseas refineries, petrochemical plants, and oil while funding research into more efficient gasoline engines and oil production methods. These narratives and behaviors differ markedly from those in developed countries.
The Gulf states’ reliance on Asia further highlights their role as rule breakers. Asia is the leading destination for Gulf crude and LNG exports, with countries like China, Japan, South Korea, and India being key consumers (Figures 1 and 2). Saudi Aramco has been making long-term supply deals with private refineries in China to lock in long-term demand for their crude oil exports. In Southeast Asia, Gulf investments in oil and petrochemical industries are substantial, including projects in Thailand, Malaysia, and Vietnam.
(Note: May not add up to 100 percent due to rounding off)
(Note: May not add up to 100 percent due to rounding off)
Rule takers and rule promoters
Some Gulf states have adopted an “all in” strategy to align with mainstream energy transition policies, despite this being far from their preferred approach. Environmental consciousness among Gulf populations is low compared to regional peers, and Gulf governments’ support for sustainability is largely driven by considerations for monetization, economic diversification, or prestige.
Rule-taking by Gulf states is best illustrated by their institutionalized commitment to the energy transition. All Gulf states are signatories to the Paris Agreement and have net-zero goals except Qatar. The United Arab Emirates (UAE) has led regional efforts, establishing the Gulf’s first Ministry of Climate Change and Environment in 2016 and spearheading renewable energy power projects and ambitions such as Abu Dhabi’s target for 60 percent of its energy to come from clean sources, e.g., solar and nuclear, by 2035. Even land-scarce Bahrain has recently ramped up its deployment of solar power.
Within this “all in” strategy, rule-promoting Gulf states go one better by exporting low-carbon technologies, financing, or expertise. The UAE supports renewable energy projects in overlooked and cash-strapped regions, such as the Pacific Islands and Maldives, through its Abu Dhabi Fund for Development. Saudi-based ACWA Power’s thirteen solar, wind, and green hydrogen deals in Uzbekistan render Tashkent the company’s second-largest foreign market after the UAE in terms of investment costs ($8.4 billion) as of the end of 2023.
Rule shapers
The most sophisticated role played by the Gulf states in the global energy transition focuses on maximizing the limited space for fossil fuels while contributing to climate solutions. This “conditional joining in” strategy privileges emissions over fuel type, which means that as long as emissions are minimized through technologies like carbon capture and zero-flaring practices, the production of fossil fuels should not be demonized. For instance, Saudi Arabia influenced the United Nations’ Intergovernmental Panel on Climate Change to include the term “unabated” fossil fuels with carbon capture as part of the solution to meet global climate goals. In the case of Qatar, QatarEnergy is building solar power plants at Dukkhan, Ras Laffan, and Mesaieed to produce power that will lower the carbon footprint of its LNG facilities rather than for use by households.
The evolution of some Gulf states into rule shapers is motivated by several considerations. First, the Gulf states believe they can influence the global narrative on fossil fuels. Saudi Aramco’s leadership on the Aiming for Zero Methane Emissions Initiative aims to shape discussions on methane levels instead of simply being a rule taker for decisions that will significantly impact oil exporters. Second, major Gulf companies have a comparative advantage that they can leverage in the low-carbon energy transition. With some of the lowest carbon dioxide emission levels globally, Saudi Aramco and the Abu Dhabi National Oil Company are likely to have acquired a social license to operate well into the energy transition. Third, low-carbon energy investments may be aligned with domestic priorities in economic diversification. An example is Emirates Global Aluminium, which makes and exports “green” aluminum, whose production is powered by solar energy. Saudi Arabia’s interest in investing in Indonesia’s nickel resources, for instance, reflects its broader ambitions to secure a complete supply chain for the electric vehicle manufacturing hub in the kingdom.
Gulf-Asia ties also illustrate the promotion of the Gulf’s rule. The circular carbon economy (CCE) initiative, spearheaded by Saudi Arabia, promotes the continuous use and reuse of carbon from fossil fuels and has been endorsed by China, India, and the Association of Southeast Asian Nations. The investment by some Gulf countries in lowering fossil fuel emissions from ammonia production, which is essential for food and industrial sectors, has garnered interest from countries like Japan and South Korea.
Looking into the future
Overall, the UAE, Qatar, and Saudi Arabia are adopting rule-shaper and rule-promoter roles more often than the other Gulf states which are largely rule-takers. Their respective roles are reflected in their interactions with Asia. Although differences in state capacity largely explain the variation among the Gulf states, all are cognizant that the “dig in’ strategy is becoming less and less tenable.
Nevertheless, Gulf states must exercise caution in their relatively new roles to avoid reputational damage. UAE-based initiatives such as Blue Carbon and the UAE Carbon Alliance have invested in projects like forestry conservation in Africa, from which carbon credits can then be sold to companies and governments to offset emissions. While Blue Carbon has been chided for ‘carbon colonialism’ in its practices, the UAE Carbon Alliance has been careful to co-invest with established global partners.
Still, expect an increase in Gulf states’ participation in global climate governance. Policies that promote Gulf participation in international climate initiatives—through roles in the Conference of Parties climate summits, collaborations with multilateral organizations, or bilateral initiatives—could reinforce the Gulf’s commitment to the energy transition away from fossil fuels.
Li-Chen Sim is an assistant professor at Khalifa University in the United Arab Emirates and a non-resident scholar at the Middle East Institute.
Farkhod Aminjonov is an assistant professor at the National Defence College in the United Arab Emirates. All views expressed are personal.
Further reading
Thu, May 16, 2024
The Red Sea attacks highlight the erosion of US leadership in the region
MENASource By Jean-Loup Samaan
The biggest issue facing the White House is not the Houthi threat but the US failure to rally partners and allies behind its leadership
Wed, Dec 13, 2023
China’s de-dollarization message finds a receptive audience in North Africa
MENASource By
A coordinated and concerted de-dollarization effort in North Africa poses a significant threat to US interests in the region and the African continent at large by existing regional trade groupings and agreements.
Thu, Feb 22, 2024
The future of Saudi-Israeli relations is a balancing act between Palestinian and regional interests
MENASource By R. Clarke Cooper
Any credible movement to formalize bilateral relations between Riyadh and Jerusalem cannot ignore what the Saudis have consistently stated about the two-state solution.
Image: Officials including energy ministers of several Arab countries attend the 12th Arab Energy Conference at the Ritz-Carlton in Doha, Qatar, December 11, 2023. REUTERS/Yousef Saba