The energy dynamics of the Middle East are in the midst of significant change, propelled by domestic socio-economic hurdles, changing global energy demands, and transforming geopolitical contexts. This article explores these critical shifts, investigating their origins, examining how the region is adjusting, and analyzing what these changes mean for the Middle East and the global community in terms of reducing carbon emissions.

Roots of Change

At the heart of the Middle East’s current energy dilemmas lie domestic socio-economic concerns, largely due to the overdependence on oil revenue. The volatility of oil prices subjects the region’s economies to external disruptions, compromising financial stability and underscoring the critical need for diversifying economic streams.[1] An expanding workforce is also increasing pressure for broader economic diversification away from the oil industry.[2]

Moreover, the global oil market’s dynamics are shifting. The global shift towards renewable energy, motivated by environmental concerns and the competitiveness of renewables, impacts the demand for Middle Eastern oil. The emergence of new energy producers, like the U.S. shale industry, further challenges Organization of Petroleum Exporting Countries’ (OPEC) dominance, pushing the region towards strategic adaptations in its energy and economic policies.[3] Innovations in renewable energy technologies and energy storage are making alternatives to fossil fuels more viable. This shift not only reduces the Middle East’s global market influence but also necessitates a strategic pivot towards non-oil sectors and clean energy.

Strategic Shifts and Adaptations

In response to the pressing need for change, Middle Eastern countries are making strategic shifts and significant adaptations, targeting economic diversification, renewable energy development, and enhanced regional cooperation to build resilience against the challenges posed by the evolving global energy landscape.

Nations are investing in sectors like tourism, technology, and finance to create a more sustainable economic foundation and diversify from oil dependency. For instance, Vision 2030 in Saudi Arabia sets ambitious goals for expanding the non-oil economy, including investments in major projects like NEOM, a planned smart city that aims to be a hub for innovation and trade.[4] Additionally, leveraging the region’s optimal conditions for solar and wind energy, the UAE’s solar farm[5] and Saudi Arabia’s 2.6 GW Al Shuaibah solar plant are expected to start operations in 2025.[6] These initiatives are not only aimed at reducing carbon emissions but also at positioning the Middle East as a leader in the global transition to renewable energy.

Investment in technological innovation is key to these strategic shifts. Countries are focusing on developing local capacities in green technologies, such as carbon capture and storage (CCS) and green hydrogen production, to lead in the future energy market.[7] These strategic shifts and adaptations underscore the Middle East’s proactive approach to addressing its unique challenges and opportunities in the context of the global energy transition.

Global Implications and the Path Forward

The global transition towards decarbonization, underscored by forecasts from the International Energy Agency (IEA) and OPEC, presents both challenges and opportunities for the Middle East. In order to achieve the announced net-zero pledge by 2050, the IEA has called to stop investments in fossil fuels and transfer the capital to the reduction of carbon emission.[8] If this approach is successful, oil demand could decrease to 80 million barrels per day by 2050,  electric vehicles would constitute 60% of new car sales by 2030, and over 1,020 gigawatts of solar and wind energy capacity could be installed. However, absent this approach, OPEC’s forecast suggests continued reliance on oil, with increased demand from non-OECD countries.[9] Key sectors driving increased oil demand include road transportation, especially in rapidly urbanizing developing countries like India, and aviation, as the expanding middle class in emerging economies spurs air travel growth. Additionally, continued growth in the petrochemical industry, a rise in agricultural activities, and the demand for plastics are all set to contribute substantially to growing oil demand.

However, even though OPEC has predicted that countries like India and China will drive up oil production, these countries are still making climate-conscious efforts, and their strategies and reforms are pivotal in shaping the world’s energy direction. India is keen on drawing foreign investment, ramping up its domestic manufacturing capabilities, generating employment opportunities, and advancing skillsets across multiple industries.[10] The development of electric vehicles (EVs) and renewable energy sources plays a pivotal role in fulfilling these objectives, positioning them as key components of the “Make in India” campaign.[11] This initiative by the Indian government aims to transform India into a major global manufacturing center.[12]

For China, its coal mining capacity stands at over 5 billion tons, significantly surpassing the actual global demand of 3.5 to 4 billion tons.[13] This excess capacity results in low utilization rates, longer project payback periods, and reduced investment returns. Refining China’s energy composition requires a shift from fossil fuels towards progressive, inventive, and eco-friendly sectors that synchronize manufacturing capabilities with actual demand. Energy is also a crucial part of China’s Belt and Road Initiative (BRI). Notably, in 2022, China’s photovoltaic product exports surged to roughly $51.25 billion, marking a significant 80.3% increase from the previous year, illustrating the country’s expanding influence in the global renewable energy market.[14]

For the Middle East, navigating this transition presents both challenges and opportunities. The region’s immense solar capacity, strategic geographic location, and existing energy infrastructure offer a solid foundation for becoming a powerhouse in renewable energy production and export. Embracing these assets, the Middle East can pivot from being primarily an oil exporter to a leading center for green energy, thereby maintaining its global energy significance in a low-carbon future. However, the success of this transformation depends on regional cooperation and strategic partnerships. The evolving relationship with China, driven by mutual interests in clean energy and infrastructure development, represents a shift in the geopolitical landscape.[15] Yet, this does not imply diminished ties with Western nations. The Middle East’s engagement with Western technology firms and Western investment in clean energy sectors[16] reflect a balanced approach, aiming to integrate the best of global innovations to fuel its sustainable development.

Conclusion

As the Middle East navigates its energy transition, the interplay of domestic reforms, global market dynamics, and international diplomacy will shape its future. The shift towards sustainable energy offers a pathway not only to address internal economic and social challenges but also to redefine the region’s role in a rapidly changing global energy landscape. While the transition presents significant challenges, it also offers unprecedented opportunities for the Middle East to assert a new form of leadership in the global energy economy.

 

 

*Image obtained from the “Global Solar Atlas 2.0, a free, web-based application is developed and operated by the company Solargis s.r.o. on behalf of the World Bank Group, utilizing Solargis data, with funding provided by the Energy Sector Management Assistance Program (ESMAP). For additional information: https://globalsolaratlas.info.

[1] WBG, Population, total – Middle East & North Africa (2022), https://data.worldbank.org/indicator/SP.POP.TOTL?locations=ZQ.;WBG, Jobs Undone: Stagnant MENA Labor Markets Need a Level Playing Field, https://www.worldbank.org/en/news/feature/2022/05/16/jobs-undone-stagnant-mena-labor-markets-need-a-level-playing-field (last visited Dec. 14, 2022)

[2] Hilal Halaoui, et al., Private-sector participation in the GCC: Building foundations for success, PricewaterhouseCoopers, 9-11, (2017) https://www.strategyand.pwc.com/m1/en/ideation-center/media/private-sector-participation-in-the-gcc.pdf

[3] Daniel Yergin, The New Map 55 (Ann Godoff eds., 1^st ed. 2020).

[4] Stephen Grand & Katherine Wolff, Assessing Saudi Vision 2030: A 2020 Review, Atl. Council, 35 (2020),  https://www.jstor.org/stable/pdf/resrep29468.8.pdf; Jane Nakano, Saudi Arabia’s Hydrogen Industrial Strategy, Ctr. Strategic & Int’l. Stud. (Jan. 7, 2022) https://www.csis.org/analysis/saudi-arabias-hydrogen-industrial-strategy

[5] Gaurav Sharma, Abu Dhabi To Unveil World’s Fourth Largest Solar Farm “Very Soon”, Forbes (Oct. 3, 2023) https://www.forbes.com/sites/gauravsharma/2023/10/03/abu-dhabi-to-unveil-worlds-fourth-largest-solar-farm-very-soon/?sh=54c874aa3d24

[6] Maha El Dahan, Saudi’s ACWA Power, PIF unit to develop largest solar plant in Middle, Reuters (Nov. 30, 2022), https://www.reuters.com/world/middle-east/saudis-acwa-power-pif-unit-develop-largest-solar-plant-middle-east-2022-11-30/

[7] International Energy Agency, Hydrogen Leadership Roadmap (2023), https://www.iea.org/policies/16975-hydrogen-leadership-roadmap

[8] Stéphanie Bouckaert et al., Net Zero by 2050: A Roadmap for the Global Energy Sector, Int’l Energy Agency (2021) https://iea.blob.core.windows.net/assets/deebef5d-0c34-4539-9d0c-10b13d840027/NetZeroby2050-ARoadmapfortheGlobalEnergySector_CORR.pdf

[9] HE Haitham Al Ghais et al., 2023 World Oil Outlook 2045, Org. Petrol. Exp. Cnty., (Oct. 2023) https://woo.opec.org/pdf-download/

[10] Prime Minister India, Major Initiatives: India, https://www.pmindia.gov.in/en/major_initiatives/make-in-india/

[11] Id.

[12] Id.

[13] Zhang Shuwei (张树伟), Nengyuan Lingyu Gongjice Gaige Jiushi Quchanneng Ma? (能源领域供给侧改革就是去产能吗？)[Is supply-side Reform in the energy sector to reduce capacity?], Zhongguo Nengyuan Bao (中国能源报)[China Energy News] (Feb. 19, 2016), https://mp.weixin.qq.com/s/VFoQYbb95xW4fRgiBoa8SA

[14] Yang Yongming (杨永明), “Yidaiyilu”Nengyuan Guoji Hezuo Baogao (“一带一路”能源国际合作报告)[Report on International Energy cooperation under the Belt and Road Initiative], Zhongneng Chuanmei Nengyuan Anquan Xinzhanlue Yanjiuyuan (中能传媒能源安全新战略研究院)[China Energy News Research Institute of New Energy Security Strategy] (Sept. 22, 2023), https://www.cpnn.com.cn/news/baogao2023/202309/t20230922_1637305_wap.html

[15] Reuters, Factbox: Asia Region is most dependent on Middle East crude oil, LNG supplies, Reuters (Jan. 8, 2020), https://www.reuters.com/article/asia-mideast-oil-factbox/factbox-asia-region-is-most-dependent-on-middle-east-crude-oil-lng-supplies-idINKBN1Z71VW/?edition-redirect=in

[16] Yuvraj Malik, Lucid opens first international EV factory in Saudi Arabia, Reuters (Sept. 27, 2023), https://www.reuters.com/business/autos-transportation/lucid-opens-first-international-ev-factory-saudi-arabia-2023-09-27/;Summer Said et al., U.S., Saudi Arabia in Talks to Secure Metals for EVs, Wall. St. J. (Sept. 10, 2023), https://www.wsj.com/world/middle-east/u-s-saudi-arabia-in-talks-to-secure-metals-for-evs-9719f5