Economic Diversification in Arab Oil-Exporting Countries in the Context of Peak Oil and the Energy Transition

Abstract

A renewed sense of urgency has arisen around diversification in Arab oil-exporting countries, driven by a paradigm shift around the future prospects of global oil demand, and whether the oil industry will continue to generate sufficient rents into the future to sustain oil exporters’ economies and their extensive welfare systems. Regardless as to when oil demand will eventually peak, the current debate marks a break with history as it signifies a shift of perception from scarcity to abundance, which is already affecting the behaviour of all oil market players. In this chapter, we argue that the broader characteristics of the current energy transition, from hydrocarbons to low-carbon energy sources, are of greater relevance to economic diversification rather than when oil demand will peak. The diversification strategy adopted by oil-exporting countries will be conditioned by the speed of the transition, during which the oil sector will continue to play a key strategic role in these economies, as a means to diversification and generator of income. In a more competitive world, oil policy will continue to matter, and cooperation between producers will be imperative, yet challenging, as a cooperative strategy will be less effective in a carbon-constrained world. Although the global energy transition will influence diversification in Arab oil-exporting countries, the global transition itself will be influenced by the speed and success of diversification in these countries.