September 9, 2021
Last week, Ali Allawi, Finance Minister and Deputy Prime Minister of Iraq, co-wrote an opinion piece in The Guardian with Fatih Birol, executive director of the International Energy Agency (IEA), urging oil-producing nations to embrace renewable energy, or else face a bleak future of declining revenues, economic collapse, and social and political unrest. This unprecedented challenge from a senior member of an OPEC government is the latest development in a hostile public relations year for fossil fuel producers, amid a darkening economic outlook for the oil industry.
2021 has seen a long hot summer of wildfires and other freak weather events on every continent, an increasing focus on climate change in the political sphere, and the release of the Sixth Assessment Report from the Intergovernmental Panel on Climate Change, which declared “Code Red for Humanity” and called for immediate and drastic action to reduce carbon emissions.
In the same tone, Allawi and Birol called for urgent decarbonisation of oil-producers’ economies, and the reorientation of energy policy towards energy efficiency, green industry, and renewables. They highlight figures from the IEA’s “Global Roadmap to Net Zero by 2050”, which anticipates a fall in the demand for oil from over 90m barrels today to under 25m by 2050, and a consequent fall in revenue of 75% for oil-producing nations, many of which use oil export cash as the lynchpin of their government spending. They write that, “If oil revenues start to decline before producer countries have successfully diversified their economies, livelihoods will be lost and poverty rates will increase,” warning of the political instability this will bring.
In fact, oil producers should hardly need this warning. The dramatic collapse in fuel commodity prices related to the pandemic industrial slowdown saw the price of crude oil briefly turn negative in April last year, playing havoc with budgets of exporters, and underlining the dangers of putting all your fiscal eggs in one volatile, petrochemical basket. On top of that, investors and fund managers are under increasing pressure from activist shareholders to divest from fossil fuel stocks, and many are actively reducing oil and gas investment portfolios. For many, the direction of travel is clear, as the fluctuations of a commodity-based industry are gradually replaced by the relative certainty of ever-cheaper renewable technology.
All that said, Allawi and Birol were at pains to emphasise the positive alternatives to the bleak future of oil dependency in the Middle East, noting “the region’s vast potential for producing and supplying clean energy” and calling for “an economic renewal focused on environmentally sound policies and technologies.” Many countries with substantial oil reserves are also graced with more sun, and space, than European countries could ever imagine, and indeed, many states in the region have taken this into account; Jordan, Morocco, and Egypt have rapidly-growing renewable energy sectors, and Oman and the UAE have already made significant investments into hydrogen power.
Meanwhile, Saudi Arabia seems set on a “last man standing” strategy. Although the Kingdom’s much-discussed ‘Saudi Vision 2030’ strategy spoke of a diversified energy industry as a key plank of the country’s future, analysts doubt that this will be accompanied by significant reductions in oil production, and as recently as June this year, Prince Abdulaziz bin Salman, the Saudi Energy Minister, dismissed the IPCC report as “a sequel of the La La Land movie” that need not be taken seriously. Officials have highlighted the country’s vast reserves (82 years at 2019 production levels) and relatively low production costs, and as other major players in the energy industry switch to renewables, the Saudi policy seems to be to step in to meet the remaining demand for oil, even if the overall pie is smaller.Combined with some increase in renewables investments, Saudi Arabia therefore looks in a position to cement its position as an energy power. “Saudi Arabia is no longer an oil country, it’s an energy-producing country,” said Prince Abdulaziz, earlier this year. “Not only we are an energy country, we are a very competitive energy country, and we are low-cost in producing oil, low cost in producing gas and low-cost in producing renewables and will definitely be the least-cost producer of hydrogen. I urge the world to accept this as a reality. We are going to be winners of all these activities.”
