The International Energy Agency’s (IEA) forecast of a peak in global demand for fossil fuels by 2030 poses a significant risk to petrostates like the United Arab Emirates (UAE). The UAE, along with 40 other oil-dependent nations, faces the very real prospect of losing over half of their expected income from fossil fuels. This revelation comes from a report by the Carbon Tracker financial think tank, which highlights the potential consequences for government finances and social stability if the transition to clean energy is mishandled.
Falling Demand and Plummeting Revenues: A Dire Scenario for Petrostates
As the world acts on the climate crisis, governments globally are adopting stricter climate policies, leading to a decline in the demand for oil and gas. The IEA estimates a drop in oil demand from 100 million barrels a day in 2019 to 92.5 million b/d in 2050, and 54.8 million b/d by 2050 if current policy pledges are met. Petrostates, including the UAE, may witness a severe reduction in revenues, with up to 40 nations experiencing a decline from an expected $17 trillion to just $9 trillion in oil and gas revenues by 2040.
Vulnerability of Petrostates: A Global Perspective
Carbon Tracker’s report, titled ‘PetroStates of Decline,’ delves into the vulnerability of 28 petrostates, including the UAE and Saudi Arabia, as they stand to lose more than half of their anticipated revenue in a moderately paced transition scenario. Additionally, six African nations, such as Nigeria and Angola, face the risk of over 70% lower oil and gas revenues than expected. Venezuela is identified as one of the most vulnerable countries, with fossil fuel revenues potentially plummeting by over 80%.
The Urgency of Diversification and Economic Resilience
Governments of petrostates are urged to act swiftly in reducing their reliance on fossil fuel revenues. Diversification of economies and investments in new sectors emerge as crucial strategies. The report advocates ending subsidies for fossil fuel consumption to ease the burden on government finances and calls for a broader tax base to increase state income. While Dubai serves as an example of successful diversification, the report emphasizes the need for international financial and technical support for necessary reforms, especially in Abu Dhabi, which remains heavily dependent on oil.
Navigating the Energy Transition: International Collaboration and Support
The report underscores the importance of international collaboration in helping petrostates navigate the challenges posed by the energy transition. It suggests Just Energy Transition Partnerships, previously focused on coal phaseout, as potential models for collaboration. The international community is urged to support petrostates not only for developmental reasons but also to mitigate the risk of conflict and instability arising from the substantial impact of the energy transition on these nations.
SOURCE: Ref Image from China Dialogue
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