The ambivalent green commitment of the Gulf countries

The Spanish government, through the mouth of its vice-president Yolanda Díaz, described as "dystopian" the fact that COP 28 - the United Nations climate change conference held last year at lecture - took place in the United Arab Emirates (UAE), a mainly oil-producing country, and that it was chaired by Al Yaber, director executive of ADNOC, the Emirati national hydrocarbons company.

However, the visibility of the UAE - and other neighbors such as Saudi Arabia and Qatar - at the UN's lecture highlighted the commitment expressed by these nations, along with the rest of the participants, to move towards a decarbonized world. At the summit, various leaders of the Persian Gulf countries added their signature to agreement which decreed "the beginning of the end" of the fossil fuel era, despite the fact that their economies are based on the production and marketing of these products. In essence, rather than betting on the end of the oil paradigm, what these countries were doing was committing themselves to the development of clean energies, so that these would also grow in their national energy mix and help them to move towards a global model in which, although hydrocarbons will continue to be extracted for various uses, they will no longer be the fuel that moves the world.

The Gulf countries have been faced with the dilemma of either closing themselves off to any change, turning their backs on international conventions, or joining the general efforts for an energy sustainable Economics . The decision has not been an easy one, because for them hydrocarbons have been a major component of their GDP and because in recent decades they have represented a strategic resource that has given them great influence in the world. In the last decade, however, Saudi Arabia and other neighboring nations have been planning an economic diversification to ensure their adaptation to a new era of reduced fossil fuel consumption.

COP 28 Dubai Commitments

Confronting the climatic consequences of hydrocarbon exploitation and promote an effective solution requires a joint international response. An important breakthrough was the Paris Treaty, in force since 2016, which among other measures established a commitment to policies aimed at limiting global warming to 1.5 Degrees centigrade, recovering the levels presented by the planet in pre-industrial times. framework The treaty was agreed by the United Nations Framework Convention on Climate Change (UNFCCC), of which the COP is the supreme decision-making body. Notable milestones have been the Kyoto protocol , the Copenhagen agreement or the aforementioned Paris agreement .

At COP 28, held in Dubai from November 30 to December 12, 2023 (COP 29 will take place at the end of 2024 in Azerbaijan, another oil producer), the global assessment of the Paris agreement was carried out, noting that small progress has been made, but without achieving the targets set, thus highlighting the need to develop more effective policies. Specifically, the signatories set themselves the goal target of reducing greenhouse gas emissions by 43% by 2030 and 60% by 2035.

The Dubai agreement , adopted unanimously by the plenary, welcomed the commitment to triple global renewable energy capacity by 2030, accelerate the phase-out of coal-based energy use, create a fund for countries most vulnerable to climate impact and, above all, achieve the withdrawal of fossil fuels to reach net zero emissions by 2050.

Importance of fossil energy for the Gulf

Control of energy sources has been and continues to be a condition of political and economic power, which is why those who control these resources may be reluctant to lose global influence. The weight of the Middle East in the world is due precisely to its hydrocarbon production, something that the Gulf countries have asserted in recent decades and also today.

In 1973, the surprise joint attack by Egypt and Syria on Israel during Yom Kippur led, after the Jewish victory, to an oil boycott by the Arab OPEC nations against the West. This oil crisis causeda major recession in many countries, including the United States, which suffered 12% inflation.

The strategic value of fossil energy control has again been highlighted by the Ukrainian war and the resulting economic sanctions on Russia. The imbalance in the market as a result of the war led to a dramatic rise in fuel prices, especially through 2022.

This status, onerous for the West, is presented as an opportunity for the countries of the Middle East, both because it represents an additional contribution of income derived from hydrocarbons, and because of Europe's greater dependence on supplies from specific countries, as is the case of liquefied natural gas from Qatar (the Al Thani dynasty, aware of the energy needs of the old continent, is developing a plan to increase its production by 80%).

The strategic importance of the Persian Gulf countries as major energy sources explains why Saudi Arabia, the main crude oil exporter, and the Emirates, together with Iran, joined BRICS+ this year, an organization that brings together countries that account for 44% of the world's oil production.

Crude oil is the world's most traded commodity in monetary terms, affecting a money supply of $1.45 trillion in 2022. The year 2023 saw an all-time high in global demand, led by China and emerging markets. With all this, it is not surprising that Saudi Aramco (business Saudi state-owned oil company) recorded $161 million in profit in 2022, surpassing the combined results of other major energy companies such as Shell, BP, ExxonMobil and Chevron, and constituting a record profit in any international market arena. Fossil fuel revenues have directly contributed to the Arabian Peninsula states (counting their GDP as a bloc) overtaking countries such as Russia and Brazil to rank among the world's top 10 economies.

Dependence on GDP

The increase in fossil fuel revenues masks the effort that some Gulf countries are making to diversify their economic activity, so that this diversification has not led in recent years to an increase in the contribution of non-hydrocarbon activities to national GDP.

Thus, Saudi Arabia's non-oil GDP has remained at around 65% of GDP, from agreement with theInternational Monetary Fund's (IMF) data: the share reached 73% in 2020, influenced by the world's reduced need for fuel due to reduced transportation during the Covid-19 pandemic closures, and dropped to 55.9% in 2022, the year when oil prices rose in the wake of the invasion of Ukraine.

A similar fluctuation can be seen in the weight in Qatar's GDP of non-hydrocarbon activity, which in 2020 amounted to 71% during the global pandemic shutdown, and dropped to 55.8% in 2022 in the face of increased demand for Qatari gas as an alternative to Russian gas. The IMF estimates that the contribution in 2023 to Qatari GDP was 61.1% and could be 65% in 2025 and 2026.

Less conjunctural fluctuation is seen in the case of the Emirates, whose non-oil sector has contributed around 72% of GDP in recent years, as indicated by the country's statistics (the contribution increased by ten points after the oil price fell sharply in 2014, but has remained more or less constant since then).

The figures show that the Degree dependence on fossil fuels is not diminishing in the Gulf economies; although the region's governments are promoting alternative activities in anticipation of a time when the world's demand for oil and gas decreases, they will continue to extract and export hydrocarbons as long as they can place them on the market. In this sense, Saudi Arabia's energy minister, Prince Abdulaziz bin Salman, stated in 2021 that "every molecule of hydrocarbon" would be extracted. For his part, the director of the IMF's Middle East and Central Asia department , Jihad Azour, declared that oil exporters "must increase and strengthen their reserves and use this moment as test of fire for sustainable diversification". In doing so, he endorsed the countries' own strategy of tapping their natural resources while they can and thereby creating a financial cushion to facilitate the model economic transition.

Renewable energies

If, in the case of the contribution to GDP, the impact of the steps being taken by the Gulf countries in search of alternative economic activities cannot be seen at grade , given the weight that the hydrocarbon sector maintains in the national balance sheets thanks to the high prices paid by international demand, an incipient commitment, still very small, to renewable energies can be observed.

This bet can be interpreted as a strategy to maximize revenues from crude oil: to advance in the substitution of domestic consumption of oil or gas by renewable sources, to sell abroad as much fossil fuel as possible at a time of good prices and thus take advantage of global demand before it begins to decrease due to policies promoted as a result of climate change. But it can also be interpreted as a sincere choice for green energies, partly as a way to promote the development of cutting-edge technologies that are receiving investment worldwide.

Starting from zero, the UAE and Saudi Arabia have set themselves ambitious targets. The UAE has set itself the target of 50% of its national energy consumption coming from renewable sources and a 70% reduction in carbon emissions by 2050. Saudi Arabia has set itself the same target of being able to generate 50% of its energy from non-polluting sources, although in this case the horizon is 2030, twenty years less. To make progress on its purpose, the Saudis have 12 projects that will increase solar and wind capacity (Qurrayat, Madinah, Rafha, Alfaisalia, Rabigh, Jeddah, Mahad Dahab, Saad, Alras, Wadi Adwawser, Qurrayat, Yanbu and, above all, Sakaka). They are also investing in innovative initiatives; thus, in 2022 Saudi Aramco pioneered the shipment of a blue hydrogen cargo to South Korea.

The aforementioned goals, however, seem difficult to achieve in view of the low percentage that renewable energy currently represents in these countries; especially unattainable in the case of Saudi Arabia, which in 2030 will fall far short of the desired horizon. Since 2018, this country has very timidly increased its installed electricity capacity from renewable sources, reaching only 2.9% of the total in 2023, according to the International Renewable Energy Agency (Irena). In terms of effective generation, the figure is even lower: only 0.1% (data for 2021, the latest provided by Irena). The UAE and Qatar significantly outperform the Saudis with 14% and 7.2% of installed capacity, and a more timid 4.2% and 0.3% in terms of generation, respectively.

Visions

To understand the Middle East's approach with respect to fossil fuels and the energy transition, we must take into account the strong statement of Mohamed bin Zayed, President of the Emirates and Emir of Abu Dhabi: "In 50 years, when we may have the last barrel of oil, the question will be: when this barrel is exported abroad, will we be sad? If we invest today in the right sectors, I can assure you that we will be celebrating at that time."

This regional ambition for diversification is embodied in the new national strategies announced in the last decade. These are Saudi Arabia's 'Vision 2030', the Emirates' 'Energy Strategy 2050' and Qatar's 'National Vision 2030'. Other Gulf countries have also planned similar programs, such as Bahrain, Kuwait and Oman. These projects, which aim at high private investment, include major infrastructure works and technological bets, with the development even large futuristic cities, such as the Saudi NEOM.

The 'reinvention' of the Gulf countries also involves intense public diplomacy, which seeks to offer a renewed national image. Aware of the social and cultural divergences with the West, they are promoting campaigns to be seen as modern states involved in the protection of human rights. Examples of these attempts are the hosting of COP 28 in the Emirates, the holding of the last World Cup in Qatar or the disbursement of large sums of money for some of the most mediatic soccer players to wear the jerseys of Saudi clubs.

This commitment has helped them to renew their national image and to attract foreign investment. For the moment, however, there is a certain ambivalence, since the figures reveal both a continued dependence on fossil fuels and a still very timid commitment to electricity production from renewable sources, despite public commitments such as those made at COP 28, which are mainly aimed at buying time.