Client Insight > The ‘Power’ Game: Phasing out fossil fuels and developing renewable energies in the GCC

The ‘Power’ Game: Phasing out fossil fuels and developing renewable energies in the GCC

The term energy transition originally referred to prospective solutions against the 1970s energy crisis. The 1973 Yom Kippur War and the 1979 Iranian Revolution led to several consecutive interruptions in exports from the Middle East to the Western world, causing oil shortages and soaring prices. 

This concept progressively fell into neglect until the early-2000s, when the climate crisis started to attract more attention, first from the media, and then from the public. In the meantime, its acceptation had changed, however, to express the need to transform ‘the global energy sector from fossil-based to zero-carbon’ and particularly to ‘reduce energy-related CO2 emissions to limit climate change,’ as outlined by the International Renewable Energy Agency (IRENA). 

A more institutionalised definition emerged from the Sustainable Development Goals (SDGs) formulated by the UN General Assembly in 2015, and throughout the successive United Nations Climate Change Conferences such as the COP 21 (Paris Agreement) or the recent COP 26 held in Glasgow in October and November 2021. 

This global shift has already had and will continue to have an impact on countries whose economy has traditionally been based on fossil fuel production, as this is the case for Gulf Cooperation Council (GCC) countries.  

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Indeed, the energy sector has become subject to major uncertainty. If the International Energy Agency (IEA) anticipates a colossal increase in global energy demands due to the rise of emerging markets, it has also observed that energy use has declined in advanced economies. In addition, in a deeply interconnected world, global crises can have a critical and lasting effect on the consumption of fossil fuels. The Covid-19 crisis is emblematic of this risk. Finally, the push towards green and renewable energies from major economic poles, like the EU, opens the field of possibilities and leads to a lesser demand and a more efficient use of energy in the medium and long term, although some, like Philippe Sébille-Lopez, Founding Director of geopolitical and energy consultancy Géopolia, anticipate an increase in EU’s electricity needs. 

The Middle East countries have long initiated a pivot from fossil fuels and started to diversify their main activities. Notably, they have included the modern acceptation of energy transition in governmental green papers and strategic frameworks, such as the Saudi Green Initiative (part of Saudi Vision 2030) or the UAE Energy Strategy 2050. As Philippe Sébille-Lopez states, ‘GCC countries compete with others in a globalised world. They have a history of attracting foreign entrepreneurs into the energy sector but attracting elite and specialised companies as well as the largest investors is vital for them if they want to transition successfully.’ 

Russia’s military invasion of Ukraine, which started on 24 February 2022, might affect the region’s transition, though. Following the international imposition of sanctions against Russian assets, imports and exports, several European leaders have initiated energy talks with GCC countries – particularly with Saudi Arabia and the UAE – to escape their reliance on Russian gas. The situation is likely to prompt EU-members to develop their renewable energy solutions further, but short-term, they are likely to demand more oil and natural gas from the Gulf and other producers. 

 In any case, the conflict is goading governments around the world to deepen or establish their energy independence, which should induce GCC governments to withdraw – at least partially – from intensive fossil fuel extraction. 

Auspiciously, the region swarms with ideas and projects, and, as Sébille-Lopez explains, because of the ‘peculiarity of their economies, social contracts and even extreme weather conditions, they can hold immense opportunities if they build the right business ecosystem.’  

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THE LEGAL 500 and BSA AHMAD BIN HEZEEM & ASSOCIATES LLP (‘BSA’) join forces to investigate the Gulf renewable energy industry and its regulatory environment. Since 2001, BSA has grown to be one of the top Middle Eastern law firms, with nine offices across five countries. Their diverse team of 150 lawyers are from 35 different cultural backgrounds and speak 22 languages. BSA is the market leader in new and evolving sectors, and partners with their clients towards a sustainable and progressive future. 

Foreword – BSA

The United Arab Emirates (UAE) and the Middle East as a whole are undergoing a remarkable transformation in their energy sector, reflecting the sustainable energy goals of the global energy industry. This report investigates the Gulf’s renewable energy industry and its regulatory environment through the eyes of various experts in the field.  In a region …

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So far, GCC countries, remaining faithful to their international commitments, have made important steps towards transitioning their energy sectors and are committing further to the pivot. However, with their ample fossil fuel reserves – Kuwait, Saudi Arabia, and the UAE are in the top ten countries with the largest proven oil reserves, with the latter …

Author focus

Focus on Géopolia:  Consultancy created in 1995, Géopolia provides insights and solutions based on a geopolitical and geoeconomics approach to prominent stakeholders of the energy industry. Géopolia’s founder and CEO, Philippe Sébille-Lopez, is the author of a well-received book on the geopolitics of oil …