MIDDLE EAST The Sand is Greener on the Other Side Lessening Oil Dependency in the Gulf

by Najla Alsweilem

edited by Gideon Gordon and Keegan Mitsuoka

As global temperatures rise and nations around the world face ever intensifying environmental hardship, it is clear that minimizing oil reliance remains the key to ensuring a prosperous future for generations to come: the Gulf region, with its historic dependence upon oil for both energy and trade, is no exception.

Due to the region’s historical ties to the oil industry, energy and energy governance in the Gulf have cultivated strong alliances, power dynamics, and economic and social systems that dictate foreign relations. Ultimately, a country’s performance in the oil industry and, by extension its wealth, determines the political hierarchy of the region. The Gulf Cooperation Council (GCC), consisting of Saudi Arabia, Kuwait, Qatar, the United Arab Emirates (UAE), Bahrain, and Oman, contribute to one fifth of global oil production, 1 wherein 691,000 barrels of crude oil are exported daily to the United States. 2 The GCC was founded in 1981 with headquarters in Riyadh, Saudi Arabia. 3 With the exception of Bahrain and Oman, all GCC countries are also members of the Organization of the Petroleum Exporting Countries (OPEC). Collectively, the GCC countries in OPEC produce roughly 15.9 million barrels of oil per day. 4 Ultimately, oil abundance and high export rates heighten GCC member states’ responsibility to transition to more sustainable sources of energy, a move which presents opportunities for economic gain, such as a diversified investment portfolio and a first mover advantage presaging a global shift away from oil dependency.

According to the International Energy Agency, “CO2 emissions from energy and industry have increased by 60 percent” since 1992, 5 while global CO2 emissions in 2021 have reached their highest levels. 6 Moreover, the humanitarian and environmental costs make oil prosperity a finite economic security solution. Ultimately, countries transitioning to clean energy should embrace cooperation and multilateralism on an international scale, but more importantly, at the regional level. Regional cooperation in the Gulf can ensure a secure and stable transition period, while also allowing GCC states to capitalize on their shared cultural values in a self-sustaining future economy.

Current GCC Climate Projects

All six GCC countries have signed onto the Global Methane Pledge (GMP), launched in November 2021. The pledge aims to reduce “global methane emissions” and “keep the goal of limiting warming to 1.5 degrees Celsius within reach.” 7 According to the GMP, methane’s short life expectancy has accounted for 50 percent of the net rise in global average temperatures since the pre-industrial era. 8 Following the October 2021 announcement that Saudi Arabia will be joining the GMP pledge, Saudi Minister of Energy Khalid Al-Falih noted in that year’s United Nations Climate Change Conference that “more than 53 Saudi initiatives have been published, with more than 185 billion dollars of investment,” to help facilitate the pledge’s ambitions. 9 Furthermore, the UAE has successfully reduced the quantity of natural gas flared in its domestic energy sector by 90 percent over the past five decades 10 and invested in “$17 billion in clean energy projects in six continents around the world.” 11 Bahrain, although responsible for only 0.07 percent of global emissions, aims to reach net-zero emissions by 2060, while decreasing emissions to 30 percent by 2035 through decarbonization efforts. 12 According to the US Department of State, the Global Methane Pledge promotes “renewable expansion” in oilproducing countries that can “reduce domestic gas consumption and free up gas for export at today’s high market prices.” 13

During the Middle East Policy Council’s 109th Capitol Hill Conference, Laura Lochman, Deputy Assistant Secretary for Energy Diplomacy at the US Department of State, applauded the Gulf partners joining the Methane Pledge. However, she encouraged Gulf countries to join the methane Pledge Energy Pathway as well, which focuses on lowering methane emissions in the fossil fuel industry. 14 Additionally, Lochman honored the GCC’s commitment to devote 3 billion dollars in support of projects that align with the Partnership for Global Infrastructure Investment (PGII), which supports sustainable infrastructure development in developing nations.

Qatar, Saudi Arabia, and the United Arab Emirates comprise three out of the six members of the Net-Zero Producer Forum (NPF), who strive to reach net-zero carbon emissions by 2050 via “methane abatement, advancing the circular carbon economy approach, and the development and deployment of clean-energy and carbon capture and storage technologies.” 15 The NPF was launched in April 2021 by the collective energy ministries of Canada, Norway, Qatar, Saudi Arabia, and the United States. 16 Achieving net-zero emissions requires stabilizing the atmosphere by offsetting–or canceling out–greenhouse gas emissions. 17 In other words, according to National Grid ESO, “(members will) reach net zero when the amount of carbon emissions we add is no more than the amount taken away.” 18 Adam Sieminski, senior advisor to the Board of Trustees of King Abdullah Petroleum Studies and Research Center (KAPSARC), emphasizes that the NPF is built on “fostering cooperation” to support the GCC’s sustainability goals. 19

Other regional strategies include a collaborative effort between the Qatar Fund for Development (QFFD) and the Gulf Cooperation Council Interconnection Authority (GCCIA) to “develop the Gulf electricity interconnection system and connect it to the southern Iraq network.” 20 Electricity interconnection systems’ high-voltage cables make use of surplus power that is sustainably generated from solar and wind energy, and can be shared among countries. 21 During this summer’s Exploring Potentials of GCC Interconnection forum held in Bahrain, energy leaders across the GCC announced that the interconnection system has ensured 100% power supply and remains a critical step towards ensuring regional energy security. 22 The GCC connection grid has helped reduce Iraq’s dependence upon Iranian energy imports and, according to the Qatar Fund, has granted economic savings worth $3 billion for all GCC countries. 23

Effect of the Russia-Ukraine Crisis

Today, transitioning to sustainable energy is as difficult as ever. With the Russia-Ukraine crisis underway and the aftermath of the COVID-19 pandemic, global reliance on fossil fuels has only increased. After the Russian government’s invasion of Ukraine in February 2022, Western sanctions against the regime have interfered with the clearance of Russian oil transactions. 24 Prior to the war, Russia accounted for approximately 10% of the global oil supply, and 40 percent of the EU’s supply. 25 Although Russian oil is still being imported throughout the world, trade is occurring at a much slower rate, resulting in a large gap in global oil supply. Although the United States has responded to this crisis by requesting increased oil production from OPEC countries, Saudi Arabia released an unexpected announcement on October 22 revealing the Kingdom’s decision to cut 2 million barrels of oil per day going forward. 26 According to Fahad Nazer, official spokesperson for the embassy of Saudi Arabia in Washington, DC, “[Saudi Arabia’s] decisions on production levels are strictly determined by supply and demand, … political issues, political considerations, do not take effect.” 27 Regardless, the cut severely threatens international oil supply, and has already caused gas prices to spike again. 28 Ultimately, Although the Kingdom's motivations for decreasing its oil exports don’t appear to be environmentally driven, proponents of sustainable energy in the Gulf can take advantage of this momentum in pursuit of a stronger transition towards cleaner, safer energy throughout the region.

Sustainable Energy Transition in the Gulf through Enhanced Regional Cooperation

A central feature of the transition towards cleaner energy sources among the GCC members is cooperation. The Gulf countries have the advantage of sharing close traditions, cultures, and linguistic heritages. 29 Additionally, the countries’ geographic proximity to one another is coupled by possession of similar resources, both naturally and economically. Similarly to the European Union, 30 Gulf Cooperation Council member states form a political and economic bloc, resulting in a unified economic identity. 31

Alejandro Foxley, former Minister of Foreign Affairs of Chile, reveals in a 2010 study that “regional trade agreements reach their full potential when the political and ideological differences among participating countries are minimal.” 32 Thus, the Gulf’s collective identity provides a unique economic opportunity for political cooperation. In addition to recent examples, the GCC boasts a history of multilaterlism at the core of the region’s stability and innovation efforts. In 1983, member states ratified a free trade agreement facilitating the movement of goods across nations without the need for individual states’ customs duties. In 2003, GCC countries established a customs union, and in 2008, a common market. Economic unity has garnered economic prosperity for the Gulf region as a whole:

GCC Assistant Secretary-General for Political Affairs and Negotiation Dr. Abdel Aziz Aluwaisheg claims that “combined GCC GDP is about $1.6 trillion, representing eightfold growth” from 1981, when the council was originally formed. 33 Furthermore, the volume of trade exchange between member states has ranked ninth globally at roughly $1,000 billion as of 2021. 34

Transitioning to a Knowledge-Based Economy

The numerous initiatives ratified and the regional cooperation they have inspired have been immensely beneficial to the Gulf countries. However, such projects cannot be sustained in the absence of adequate human capital. The conversion to sustainable energy must be accompanied and supplemented by advances in the labor force, investments both internal and foreign, and the development of initiatives that generate income through non-energy sectors. For instance, rebuilding the Gulf economy on knowledge-based rather than oil-based foundations, as professors Walter W. Powell and Kaisa Snellman at Stanford University explain, would cultivate “a greater reliance on intellectual capabilities than on physical inputs or natural resources.” 35 Developing a knowledge-based economy entails subsidizing and encouraging foreign direct investment (FDI) in areas like the educational sector. 36 Such efforts are exemplified in the GCC’s various national visions, such as Saudi Arabia, Bahrain, and Qatar’s Vision 2030, Kuwait Vision 2035, UAE’s Vision 2021, and Oman’s Vision 2040. Each of these projects aim at decreasing oil-dependence through human development. For instance, Qatar’s Vision 2030 asserts that “future economic success will increasingly depend on the ability of the Qatari people to deal with a new international order that is knowledge-based and extremely competitive.” 37 Additionally, each GCC country has agreed to provide a government-funded scholarship program for selected students studying abroad, which includes a monthly stipend and health insurance. 38

By offering citizens the tools to gather knowledge from other developed countries, the GCC is investing in the recirculation of that knowledge back into the Gulf economy. The majority of the Gulf’s population is under the age of 40, granting the region a unique advantage in a population that is capable of integrating into the workforce and aiding in economic progression that accelerates the transition to clean energy. 39 Undoubtedly, it is crucial to ensure that such initiatives are well structured and managed efficiently, which requires a solid telecommunications framework. Moreover, strengthening the knowledge sector and subsidizing the educational field should also be coupled with ensuring there are sovereign wealth funds (defined by International Monetary Fund as “special investment funds created or owned by governments to hold foreign assets for long-term purposes” 40) to stabilize the economy on a long-term basis.

Developing Non-Oil Sectors: Tourism and Entertainment

Importantly, investing in non-energy sector fields, like tourism and entertainment, aids in solidifying a national source of income that is non-reliant on natural resources and can generate more employment opportunities. Saudi’s Vision 2030 focuses on developing cultural tourism by capitalizing on the nation’s traditions and tribal heritage to attract tourists from abroad, while also motivating citizens to travel domestically. 41 The UAE’s entertainment sector is estimated to expand at a compound annual growth rate of 9 percent from 2021 to 2028. 42 Additionally, the UAE is striving to become the region’s motion picture hub under the Abu Dhabi Film Commission’s production incentives. 43 For instance, the commission provides a 30 percent cashback rebate on feature films, television dramas, commercials, and etc. 44 Furthermore, in 2019, Abu Dhabi agreed to waive licensing and registration fees for companies and freelancers for their first two years of work as a means to attract foreign direct investment. 45 In Kuwait, revenues from travel and tourism are expected to rise to $1.13 billion by 2025, creating greater demand for hotels and resorts, and encouraging foreign direct investment. 46 Environmental concerns aside, Bahrain has recently launched a $427 million waterfront development project encompassing luxury hotels, restaurants, and other attractions, as well as an exhibition space worth $221 million that is expected to be the largest in the Middle East. 47 Lastly, Qatar is home to two of the world’s largest international broadcasting companies, Al

Jazeera and beIN Media Group. 48 Prior to the FIFA World Cup, Qatar had announced its launching of an “entertainment island” called Qetaifan Island North and Fuwairit Kite Beach. 49 Capitalizing on the growing prevalence of entertainment in an individual state’s economy may sustain future growth for all GCC countries developing their entertainment industry.

Similarly, tourism fuels economic growth by generating employment opportunities. According to the World Travel and Tourism Council, “tourism is a driver of job growth and economic prosperity, accounting for one in ten jobs worldwide and delivering one in five of all new jobs created in 2017.” 50 Furthermore, according to the World Tourism Organization (WTO), the opportunities for women in the tourism industry are steadily increasing in the Middle East. The WTO’S Regional Report on Women in Tourism in the Middle East, published alongside the Ministry of Tourism in Saudi Arabia in 2021, highlights the inclusion of women in the region’s tourism sector. Investing in domestic tourism also aids in retaining more money within the GCC. Gulf nationals have a history of spending their disposable income abroad on leisure and travel; for instance, Saudi tourists have spent over a billion dollars in the United Kingdom in 2017, 51 while Qatari investors by 2017 have owned more property in the UK than the late Queen Elizabeth II. Keeping more money within the country means that the funds can recirculate back to the economy and aid in funding institutions that develop human capital.

As global leaders in oil production and exports, how will the GCC countries’ geopolitical standing change once they can no longer depend upon fossil fuels? Investments in sustainable energy and the signing of regional agreements that capitalize on the cooperation between Gulf countries aid in decreasing the Gulf’s dependence on oil. Investments in non-oil sectors and foreign direct investment in developing fields create a strong foundation for sustaining the transition toward clean energy. Furthermore, such initiatives and investments must be backed up by a skilled workforce that is capable of executing and integrating the projects into the GCC’s economy. Although the shift away from fossil fuel production will present challenges to the GCC, the region must act quickly towards decreasing oil-dependency.

References

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23 Ibid

24 Shanti Menon, “War and Gas: What Russia's War on Ukraine Means for Energy Prices and the Climate,” Environmental Defense Fund, May 9, 2022, https:// www.edf.org/article/war-ukraine-driving-gasprices#:~:text=Second%2C%20the%20conflict%20in%20 Ukraine,have%20a%20gap%20in%20supply.

25 Ibid

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27 Fahad Nazer, Twitter (Twitter, October 17, 2022), https:// twitter.com/KSAEmbassySpox/status/1582014515855577088.

28 Ibid

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32 Alejandro Foxley, “Regional Trade Blocs: The Way to the Future? ,” 2010, https://carnegieendowment.org/files/regional_ trade_blocs.pdf.

33 Talat Hafiz, “GCC's 40 Years of Remarkable Economic Achievement,” Arab News, June 2, 2021, https://www.arabnews. com/node/1869471.

34 Ibid

35 Walter W. Powell and Kaisa Snellman, “The Knowledge Economy - Harvard University,” 2004, https://scholar.harvard. edu/files/kaisa/files/powell_snellman.pdf.

36 Ibid

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41 Najla Alsweilem, “Will Culture Sell? Saudi Arabia's Take on Tourism,” International Relations Review, 2022.

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43 Ibid 44 Ibid 45 Ibid

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47 Nadia Leigh-Hewitson, “New Beaches and the Largest Exhibition Center in the Middle East: Can Bahrain Become a Tourist Hotspot?,” CNN (Cable News Network, March 29, 2022), https://www.cnn.com/2022/03/29/middleeast/bahraintourism-waterfront-development-spc-intl/index.html.

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49 Qatar Tourism, “Five Major Tourism Developments Opening in Qatar before the FIFA World Cup 2022™,” GlobeNewswire News Room (Qatar Tourism, July 20, 2022), https://www.globenewswire.com/en/newsrelease/2022/07/20/2482756/0/en/Five-Major-TourismDevelopments-Opening-in-Qatar-Before-the-FIFA-WorldCup-2022.html.

50 World Travel & Tourism Council, “Tourism Provides Jobs Where They're Needed Most,” Medium (Medium, June 18, 2018), https://worldtraveltourismcouncil.medium. com/tourism-provides-jobs-where-theyre-needed-most200f11ac2029.

51 Charlie Neyra, “London Calling as Saudi Tourists Flock to the British Capital,” Arab News (Arabnews, March 8, 2018), https://www.arabnews.com/node/1261611/saudi-arabia