Investing in Syria is never purely about the financial or the technical. It is bound up with who governs, who commands local standing, and how power is shared between Damascus and the governorates. The essential entry points for any activity are a person and a place, not yet an institution — even as the new administration works to make decision-making less personal and more rules-based.

Whoever controls resources holds power, whether that power flows from personal standing or from public office; in Syria the two are difficult to separate. These are what we term “subjective interests”: the personal, regional and institutional stakes that individuals bring to a decision, distinct from the formal position they occupy. The logic runs both ways: a governorate that can attract investment becomes a more consequential partner for the centre, not merely a recipient of its instructions. This is the terrain an investor must read before committing capital — and it is read through people, not documents.

What this looks like on the ground: two live examples

The below investment opportunities illustrate the importance of local engagement.

Modernisation of the Tartus Cement Plant

The cement industry remains one of the most important industrial sectors in Syria. The Tartus plant, located in the coastal region, constitutes one of the most significant economic assets in the area. Several international companies have expressed interest in modernising the facility and making substantial investments under conditions that would grant them partial control over production.

The successful bidder will need political and social agreements, whether formal or informal, between influential actors at the central level, including government and industrial representatives, and the responsible authorities in Tartus Governorate, as well as notable local social figures.

For instance, representatives of both interest groups would have to agree on labour arrangements at the factory; the integration of local workers; the percentage of financial benefits allocated to the governorate; or environmental protection measures. Most importantly, such a dynamic would facilitate a balance between personal interests related to financial affairs and those related to political power. The central interests would be represented through officers and employees of the Ministry of Economy and Industry and the Syrian Investment Authority; the interests of the governorate would be represented by the office of the Governor and the Board of the Tartus Chamber of Commerce and Industry. These two governorate-level entities would also be the ones with whom the dialogue should be initiated and closed. Such a framework would prevent or minimise potential tensions between influential actors in Tartus and their counterparts in Damascus.

Replacement of the Homs Oil Refinery

In June 2026 the Syrian Petroleum Company tendered a new 210,000 b/d refinery at Al-Furqlus, some 50 km east of Homs city, with the existing Homs refinery slated for closure.

Any prospective investor in this project should first determine whether influential actors in Damascus genuinely consider the construction of a new refinery to be a national priority or whether they favour instead retaining and modernising the existing refinery in Homs or even the refinery north of Baniyas. The investor should also identify whether influential individuals have personal or regional ties to any of these locations and whether they possess specific political, economic, or personal interests in promoting one project over the others.

Investors should also examine whether financial interests attach to the existing Homs refinery or to Baniyas, given the latter’s coastal position and potential role as a transit refinery for Gulf oil. More important is a clear reading of the two distinct geographies in play. The current refinery directly employs many residents of Homs city and sustains many more indirectly; these workers, and their backers among influential figures in Homs and Damascus, form one local network of subjective interests. Al-Furqlus, where the new refinery is planned, is by contrast a predominantly tribal area whose stakeholders want local development, jobs, and rising living standards. Both sets of interests must be recognised.

The workforce question is where these interests meet. Investors should retain the existing refinery’s staff and expertise wherever possible: replacing local personnel wholesale with outside engineers and technicians would be a serious mistake, as would dismissing current employees — or denying them travel compensation — once operations shift to Al-Furqlus. The balanced approach creates jobs for the Al-Furqlus population, protects the Homs workforce, and still leaves room for qualified Syrians from elsewhere. That balance across local, regional and national subjective interests strengthens social acceptance and makes the investment durable.

It is therefore highly advisable for investors to engage directly with the Governorate Council and/or the Chamber of Commerce and Industry in Homs. In most cases, the individuals serving in these institutions represent the principal economic, political, and societal interests of the governorate and can provide valuable insights into local priorities, expectations, and potential sensitivities.

Way forward for investors

Ideally, Damascus would take the initiative and agree common rules with the governorates for how central and local interests are balanced on major projects, a political accommodation rather than a legal one, closer to how federal systems coordinate informally than to anything written into law. No investor should count on that framework being in place. The responsibility for balance therefore falls on the investor, and the governing assumption must be that nothing in Syria can be organised from Damascus alone.

Two groups have to be read correctly. The first is the powerholders in the capital who come from the governorates and keep their regional and social loyalties; handled well they become an investment’s guarantors, handled badly its obstacles. The second is influential local actors — in provincial politics, tribal structures, social and economic networks — who can act as spoilers or as a project’s strongest advocates.

Reading them takes real knowledge of the ground: local governance and security arrangements, social, religious and tribal dynamics, land-use patterns, the level of regional development, whether local actors feel sidelined by the centre, and how Damascus itself decides where investment should go. The instruments follow from that knowledge: trust built by showing the investor genuinely intends to balance competing interests, mixed ownership that creates commitments at both regional and national level, and a horizon long enough that every stakeholder has reason to keep the project stable.

The mechanism is dialogue: continuous, discreet, and begun before the first stone is laid rather than after problems surface. It is the first step of the investment. An investor need not disclose every intention at the outset, but must map the terrain, including stakeholders, tensions, interplay of centre and governorate, before committing.

Most investment failures in Syria will not come from a shortage of capital or technical skill. They will come from misreading local power. The market has no shortage of investment expertise; what it lacks is people who understand Syria’s culture and politics at every level and can speak to those who hold power at the centre and in the governorates: neutral, experienced figures, present on the ground, who can bridge competing interests and clear obstacles on all sides. In Syria, that is often the difference between a project that holds and one that does not.

Saudi Arabia is undergoing a massive energy transformation. Grid-supplied demand rose by 7.9% in 2025 to a record 349 TWh and continued growing in Q1 2026, driven by population growth, industrial expansion, desalination, large-scale infrastructure development and rising cooling requirements. Future AI data centre investment could add materially to that load. The IEA projects electricity demand across the MENA region to surge by 50% between 2023 and 2035, with Saudi Arabia at the centre of that growth curve.

The scale of that demand challenge makes the strategic logic behind the kingdom’s energy transition clear. Saudi Arabia is not pursuing renewables purely for the purpose of decarbonisation but is undertaking a structural redesign of its national power system. This policy is driven by the need to reduce the use of liquid fuels for power generation and maximise oil export revenues while building a power sector capable of supporting Vision 2030’s industrial diversification agenda. Every barrel of crude no longer burned domestically is a barrel available for export at prevailing market prices. With Saudi Arabia’s fiscal position closely linked to oil revenues, this calculation carries weight.

The strategy is geared to achieve a 50:50 balance between natural gas and renewables in the power sector by 2030, replacing a system historically dominated by crude and fuel oil burn. Saudi Aramco intends to boost sales gas production by 60% from 2021 levels by 2030.

Saudi Arabia is not simply pursuing renewables as a decarbonization gesture. It is undertaking a structural redesign of its national power system.

The Hormuz crisis of 2026 added a further dimension.  The shut-in by Saudi Aramco of more than 3mn b/d of crude production reduced associated gas availability and exposed residual dependence on oil-fired generation. Fuel oil imports surged in response as the energy system had to operate under severe stress due to the closure of the Strait of Hormuz, which forced production shutdowns and a rerouting of exports. This shift in the internal fuel balance, likely to be temporary, does not undermine the argument for the renewable transition but makes diversification an imperative.

The kingdom has had success in reducing the amount of oil used in power generation, despite strong electricity demand growth in 2025. Oil burn dropped for the first time in four years, dropping to a six-year low of 991,000 b/d, according to JODI data. This was thanks to a combination of record gas production from Saudi Aramco and the increase in installed renewables capacity.

Riyadh drew the same lesson from the crisis that Europe learned in 2022 that energy resilience requires diversification away from hydrocarbons, and that renewables are strategic assets as much as decarbonisation tools.

II. Saudi Arabia Is Moving at Scale Toward Execution

The kingdom’s two-track policy is embedded in the National Renewable Energy Program (NREP). Under this framework, 70% of projects are awarded directly to a consortium of the Public Investment Fund (PIF) and Acwa Power, enabling rapid simultaneous procurement, financing and construction without the delays inherent in fully competitive processes. The remaining 30% are tendered competitively, providing market price discovery and capping costs.

This approach has allowed Saudi Arabia to move rapidly from a relatively low base. Installed renewable capacity stood at just 12.3GW at the beginning of 2026 — to a trajectory that is expected to deliver 7.7GW of new capacity in 2026 alone, surpassing the 5.76GW added in 2025.

The most significant recent addition is the first 1GW phase of the 2GW Haden solar project, connected to the grid in Q1 2026, developed by a PIF, Acwa and Saudi Aramco consortium. The 500MW Waad al-Shamal and 600MW Al Ghat wind farms — both awarded under NREP Round 4 to a Marubeni and Ajlan & Bros consortium — were also connected last quarter. Al Ghat attracted global attention when its power purchase agreement set a world-record low levelized cost of electricity of US¢1.56/kWh, providing hard evidence that Saudi Arabia’s procurement model is delivering commercially competitive outcomes.

Additional projects due online later this year include the second 1GW phase of Haden, the 2GW Al Muwaih solar plant, the 1.5GW Khushaybi project, and the first NREP Round 5 projects, including the 400MW Al Henakiyah 2 and 300MW Rabigh 2 facilities. Solar PV dominates the current portfolio, accounting for around 13.3GW of installed capacity against roughly 1.5GW for wind, but wind is expected to become increasingly prominent in future tender rounds as the kingdom develops its wind resource zones.

Key Figures

Source: Ministry of Energy, NREP, MEES

III. Current Position and 2030 Trajectory

Saudi Arabia’s installed renewable capacity as of May 2026 has reached 14.8GW, representing approximately 17% of total installed generation capacity. The kingdom is targeting 20GW by year-end 2026, implying a further 5.2GW of additions over the remainder of the year. The 2030 target of 100–130GW represents a seven-to-nine-fold increase from the current base — one of the most ambitious renewable scale-up trajectories of any major economy with 20GW to be awarded each year between now and then.

The speed of the transformation allowed Saudi Arabia to overtake the UAE, which until recently was the Gulf’s uncontested renewables leader, establishing the kingdom as the regional benchmark for deployment speed and cost competitiveness. The IEA projects renewables capacity across the MENA region to reach nearly 300GW by 2035, up from just 6% of generation in 2024, with Saudi Arabia and the UAE expected to dominate investment in new generation, grid modernisation and battery storage.

Total power sector investment in MENA reached USD 44bn in 2024 and is projected to grow by 50% by 2035, with renewables and nuclear capturing an increasing share. Grid investment alone is projected to account for close to 40% of total power sector investment over the next decade — a figure that reflects the infrastructure demands of integrating large-scale intermittent generation into rapidly expanding systems.

Alongside renewables, Saudi Arabia is executing a gas-fired capacity expansion programme to provide the dispatchable baseload that intermittent solar and wind cannot deliver. The thermal expansion pipeline includes more than 20 plants in various stages of development or tender, with combined capacity additions of over 50GW planned through 2028 and beyond (see table in Appendix).

IV. Grid Integration, Storage and the Nuclear Layer

Battery Energy Storage

The transition to high levels of renewable penetration requires infrastructure investment on a scale that matches the generation buildout. Saudi Arabia has emerged as one of the world’s leading markets for utility-scale battery storage deployment. Installed BESS capacity now stands at around 8GWh; the kingdom is targeting 22GWh by end-2026 and 48GWh by 2030, which would position it as the world’s third-largest energy storage market after China and the United States.

Unlike many neighbouring countries that pair batteries with hybrid solar projects, Saudi Arabia is focusing on standalone BESS systems. This gives operators greater flexibility: batteries can be charged from the wider grid whenever surplus power is available, rather than being constrained to co-located renewable output. The approach reflects a sophisticated systems integration strategy rather than simple project-level optimisation.

The rapid pace of grid integration is not without operational complexity. Two major Acwa-developed solar plants — the 1.425GW Al Kahfah and 2GW Ar Rass 2 projects — had to operate under dispatch limitations imposed by National Grid SA in April because of concerns relating to reactive power fluctuations and local grid stability. This reflects the engineering rigour with which Saudi Arabia’s grid operator is managing the integration process. The discipline is evidence of mature grid management, not of systemic failure. Comparable teething issues have accompanied major renewable integration programs in Germany, the UK and Australia, all of which were resolved through a combination of technical adaptation and grid investment.

Grid Modernization

Around 40% of Saudi Arabia’s distribution grids have now been automated, with continued investment in advanced control centres, real-time monitoring systems and long-distance High-Voltage Direct Current (HVDC) corridors linking major demand centres and renewable development zones. Grid investment is central to the transition strategy, and the HVDC corridors will be essential to connecting the large solar and wind resources in the kingdom’s northern and central regions to the high-demand coastal and industrial zones.

Nuclear: The Post-2030 Baseload Layer

Completing the long-term picture is Saudi Arabia’s nuclear programme, which is beyond the 2030 horizon but is an important signal of the kingdom’s commitment to comprehensive decarbonisation of its power system. The Qurrayat program, which has yet to move to the development phase, envisions 16 reactors delivering 17.6GW of capacity by 2040. Partnership discussions with several potential supplier countries are active.

Nuclear fits naturally into the system architecture as the baseload complement to intermittent renewables. The 50:50 gas/renewables target is a 2030 objective. Nuclear provides reliable dispatchable capacity that reduces dependence on both gas and storage to firm up renewable supply.

V. The European Partnership Opportunity

The Hormuz crisis has led to a convergence of strategic thinking between Riyadh and the EU. It creates a meaningful basis for EU-Saudi energy partnership beyond commercial transactions.

Green Hydrogen and Ammonia

The most concrete and commercially significant bridge between Saudi Arabia’s energy transition and European clean energy priorities is green hydrogen and ammonia. Saudi Arabia is positioning itself as a long-term supplier to European markets precisely as the EU is formalising its import dependence on green molecules under REPowerEU and its successor frameworks.

The flagship signal of Saudi intent is the NEOM green hydrogen and ammonia project — developed under the Helios brand by a joint venture of Air Products, ACWA Power and NEOM — which targets production of up to 1.2 million mt/yr of green ammonia for export. Timelines have been revised and cost pressures are real, but the scale and the commitment signal a strategic direction that should be taken seriously.

Acwa Power has additional green hydrogen projects in various stages of development, and the broader Vision 2030 industrial strategy explicitly incorporates hydrogen as a future export commodity. The strategic intent is clear even if individual project timelines remain subject to revision.

What has made the NEOM green hydrogen viable is that it managed to secure an offtake agreement that allowed the project to proceed while Aramco’s blue hydrogen project has stalled, mainly because of cost. Saudi Aramco had targeted 11mn mt/yr of blue ammonia (as a carrier of hydrogen) by 2030, but CEO Amin Nasser said last August that the plan has been revised down to 2.5mn mt/yr and even that would not proceed if there was no firm offtake agreement.

CBAM Alignment and Certification

European officials engaged with the Saudi transition should be aware of the regulatory dimension. Saudi producers seeking to export green hydrogen and hydrogen derivatives — including ammonia — to European markets will need to comply with the EU’s Delegated Acts on renewable fuels of non-biological origin (RFNBOs). These regulations set requirements on the renewable electricity inputs used to produce green hydrogen, the additionality and temporal correlation of that electricity, and the geographic boundaries of grid accounting.

Saudi Arabia’s high-quality solar resources and the scale of its renewable buildout give it a structurally advantageous cost position for green hydrogen production relative to many alternative suppliers. The regulatory compliance challenge is real but the trajectory of engagement between Saudi producers and European certification bodies is moving in the right direction. CBAM alignment — ensuring that Saudi clean energy exports meet the criteria for exemption or reduced liability under the Carbon Border Adjustment Mechanism — is a policy conversation in Brussels that the Saudi energy sector will no doubt be tracking amid a push by some EU countries to accelerate reforms to CBAM and the ETF carbon trading mechanism. Saudi Arabia’s engagement with these frameworks goes beyond compliance, signalling that Riyadh has chosen to build regulatory convergence with Europe.

Saudi Arabia’s engagement with these frameworks goes beyond compliance, signaling that Riyadh has chosen to build regulatory convergence with Europe

Technology, Investment and the NREP Competitive Track

The 30% competitive track within the NREP structure creates direct entry points for European firms with relevant technology or financing capability. European companies with expertise in grid modernisation, advanced storage systems, HVDC technology and smart-grid infrastructure are naturally positioned to participate in Saudi Arabia’s grid investment program, which the IEA projects will account for close to 40% of total power sector investment across MENA over the next decade.

EU Commission President Ursula Von der Leyen’s engagement with Saudi Arabia on clean energy supply chains during 2024–2025, and the broader EU interest in diversifying green molecule import sources beyond North Africa, means EU-Saudi hydrogen cooperation is a live policy discussion in Brussels. Saudi Arabia’s ability to point not just to ambition but to a demonstrated execution record — world-record solar LCOE, 8GWh of installed storage, a functioning two-track procurement model — strengthens its credibility as a partner rather than simply an aspirant.

APPENDIX: Thermal Power Plant Capacity Expansion

* Rabigh Expansion currently operating in simple-cycle mode; effective capacity ~700MW pending combined-cycle conversion. Source: Ministry of Energy, MEES.

This report argues that in the current global monetary system underpinned by fiat currencies, Gulf-based oil exporters with Saudi Arabia at its helm could become the architects of a new digital currency backed by oil and governed by a regional multilateral institution (hereafter termed as MCDC for Multilateral Collateralized Digital Currency). The MCDC would provide major benefits to its sponsors, including facilitating trade, reducing financial risk and crucially conferring them more influence on the global stage. It would also enable them to chart a politically independent path which would look after their self-interest rather than accommodate the one of the United States or China. The combination of real collateralization and robust institutional governance would provide much needed credibility to the concept, in an era where alleged fiat-collateralized “stablecoins” have proven anything but stable, as illustrated by the collapse of the Terra blockchain in June 2022.

The MCDC could eventually play a significant role in global oil-trade: any country – including oil exporting countries with national currencies pegged to the dollar – would be able to hold the MCDC in its national accounts. Participating oil exporting countries would be able to sell a growing share of their oil in that currency, avoiding the global financial infrastructure linked to the USD, while the multilateral institution governing the digital currency could provide financial support to countries in need by extending international loans in that currency. In turn this would enhance the influence of the countries behind the multilateral institution. Given the independence of the institution governing
the MCDC, interest rates would not be tied to the interest rates of established global reserve currencies, enabling the institution to lend the MCDC at competitive rates compared to traditional international financing and lending institutions, with a potential use for development finance to other countries.

Like-minded oil exporters could we well served to design and test an end-to-end governance mechanism for the MCDC, including but not limited to robust mechanisms for collateralization, issuance and currency redemption.

Both countries should not, however, be considered through the same lens. India has a larger dependency on the Gulf and greater foreign policy proximity to the United States than China. India and the Gulf further have deeper cultural and historical ties that link their population together. While China does not have the same historic proximity to the Gulf, its larger financial clout, expertise in large-scale infrastructure deployment and growing technological edge make it an indispensable partner to the GCC countries. Yet China’s intensifying proximity to Iran may pose a conundrum to some GCC countries. Regional policymakers need to ensure that China’s and India’s antagonistic relationship is not projected in the Gulf. To achieve this, they should pursue a balanced relationship with each, avoid “picking sides”, and where possible, encourage them to cooperate rather than compete in the commercial and security realms.

From an optimistic perspective, while competition is inevitable in meeting economic, political and strategic objectives, there is nothing stopping the two countries from cooperating and avoiding confrontation to maximise not only mutual but also plurilateral benefits. The GCC countries, despite their differences on various issues, should exploit these openings by continuing their pragmatic and multi-aligned foreign policies.

However, in recent years the Gulf States have demonstrated that they have the ability to amplify the political discussion around existing tensions in the Mediterranean, and shift the strategic rules of the game. As historical rivals Greece and Turkey square off against each other, competing for maritime space, and increasingly adopting strategies of containment and encirclement, the Gulf states (particularly Qatar, Saudi Arabia and UAE) have lent their financial, military and diplomatic weight, thereby connecting two seemingly disparate parts of the world together in ways that have not been seen before.

While the scope and scale of the Gulf’s engagement with Europe is unprecedented, the debate is not necessarily new. The Gulf States as a collective have tried to engage with NATO on a number of occasions, and at times sought to build a strategic dialogue with its member states. The Istanbul Cooperation Initiative launched in June 2004 was the most serious and sustained diplomatic effort that drew in the GCC states into questions of regional security, and alignment with NATO. Times were of course different back then. The United States maintained a hegemonic grip on world affairs, Turkey had yet to turn its attentions toward the Arab world, and the Gulf States were largely consumed with mitigating the threat from Iraq’s descent into violence following the removal of Saddam Hussain. There was little need for a NATO-GCC alliance at that time and so, while much was promised, the Istanbul Cooperation Initiative never really delivered.

New dynamics at play

Fast forward fifteen years and the situation is quite different. A myriad of revolutions, and conflicts in the area have created a string of weakened and broken states that have become havens for non-state actors, all competing for power and seeking to gain advantage over their rivals. The US is no longer the only player in town, Russia has begun to push its influence into the Mediterranean, and Chinese economic influence has been solidified across the region as Chinese companies buy up infrastructure in Israel, Cyprus, Turkey and Greece.

In response to this shift in the global order the states of the Middle East have formed into distinct blocs, each with competing interests and goals. On the one hand, Saudi Arabia, the UAE and Israel, states with strong ties to the West, have largely sought to re-establish a sense of order in the Arab world, by propping up Sisi’s Egypt, and looking to push back against Iran wherever possible. In opposition to this stands the bilateral axis of Turkey and Qatar, again closely tied to the West (and Turkey through NATO). And lastly in opposition to the West, and both the other two axes is the axis of resistance led by Iran, with its mobilisation of non-state actors in Iraq, Syria, and Lebanon. In recent times there has been an attempt to close the gaps, Qatar’s reintegration into the GCC has cooled the tensions between Doha and its neighbours, and Turkey’s economic struggles have led it to seek a form of rapprochement with the wider Gulf as well. But tensions still remain, and the distrust and the regional encirclement of Turkey continues on apace, exemplified by recent Air Force exercises conducted jointly by Greece and Saudi Arabia.

Security interests

In the case of the Eastern Mediterranean the reason for this game of strategic chess is multifaceted. But its drivers stem primarily from the mutual antipathy that Abu Dhabi and Ankara hold for each other. Their political outlooks could not be more different. Ankara views political Islam as a crucial anchor of Arab politics and regional stability. Abu Dhabi on the other hand views political Islam as an existential threat, that could undo the vision for a prosperous (although apolitical) society that it has tried so hard to build. The reality is that between these two visions of regional order there is no middle ground.

And so, the two have sought to blunt each other at every turn. Turkey has sought to expand its influence into the Gulf by doubling down on its close ally Qatar, and expanded its influence on the western side of the Arabian Peninsula via basing and military infrastructure in Somalia. The UAE has had to respond in kind building bases in Socotra, Djibouti, and strengthening its military cooperation with Israel, Cyprus and Greece.

Both the UAE and Turkey have adopted a variation of “forward defence”, pushing their strategic interests further and further away from their own borders and into weaker states in the surrounding area. The idea being that if the strategic line can be held further away, then the homeland is relatively safe. This explains why both nations fought to an effective stalemate in Libya. Neither Turkey nor the UAE could afford to let their chosen proxies lose the fight for political control, for fear that it would lead to weaknesses being exposed closer to home.

Outside of Libya the UAE has chosen a more structured approach to its alliances, tying its interests to states surrounding Turkey’s periphery that seek common cause in containing Ankara’s influence. The recent normalisation process between the UAE and Israel is in part driven by their mutual frustration with Turkey, and distrust of Iran (amongst other things). But the UAE has also built strong relationships with Cyprus, Greece, and has also encouraged France, the Mediterranean’s pre-eminent power, to be more deeply involved in regional affairs.

The Emiratis and Israelis have been collectively showing support for Greece since as early as 2019, when the fighter jets of all three nations took part in the Iniohos 2019 strategic exercises. Israel maintains broad cooperation with the Greek Air Force and has participated in numerous military exercises of air, sea and ground forces with the Mediterranean country, but the addition of the UAE marked a clear shift in the political balance when viewed within the context of larger regional developments. Saudi Arabia is also increasing its military cooperation with Greece, as demonstrated by the arrival of the Saudi Royal Air Force’s 115th Batallion at the Souda base in Crete for joint exercises with the Greek Armed Forces earlier this month.

Energy and trade interests

Multilateral fora such as the ‘Philia Forum’, consisting of Greece, Cyprus, Bahrain, Egypt, Saudi Arabia, and the UAE – which last met on 11 February- and the Eastern Mediterranean Gas Forum (EMGF), created in 2020 have been areas in which the UAE and Saudi Arabia have been able to press their influence. Although the Palestinian Authority rejected the UAE’s observer status to the EMGF, there is little doubt that Abu Dhabi’s influence overhangs the organisation, and the very fact it even applied for observer status signals a conjoining of interests in which Abu Dhabi absolutely believes that oil and gas infrastructure in the area is directly connected to its own national security interests.

UAE interests are not just driven by a focus on Turkey but are reflective of changing global priorities as the geopolitical map shifts away from a Western led order and towards Beijing. As China’s Belt and Road initiative has gathered pace around the Red Sea and the Med, the UAE has complemented this by adopting an aggressive acquisition strategy which has secured its influence as a being at the heart of a number of critical logistics hubs which complement the BRI, forming as one Emirati commentator termed it the “buckle” in the Belt. DP World’s operation of port terminals stretch from Berbera in the Horn of Africa, to Jeddah’s South Container Terminal, to Sokhna in Egypt, Limassol in Cyprus, and Yarimca in Turkey forming a chain of logistic hubs that broadly maps that of Beijing’s. The UAE’s ports strategy may not have originally been designed with BRI in mind, but now it’s there they can hardly ignore that the two nations’ interests neatly overlap in an area that is crucial for global logistics and supply chains.

The Way Forward

The recent interest among the Gulf States, and primarily the UAE, in the Eastern Mediterranean is a product of systemic regional insecurity, economic vision, and changing patterns in geopolitics. Of these three factors only one (regional insecurity) is a temporary condition. Which means that the role of the Gulf States in the Eastern Med will be increasing in the short to medium term. This growing role nevertheless presents risks for Gulf States. While Emirati intentions in the Eastern Med are currently closely aligned with those of France and serve the interests of Greece, other EU States may be less forthcoming at the prospect of Abu Dhabi or Riyadh having an increased leverage on Southern European affairs. Additionally, as demonstrated in Libya, strategic overstretch can prove costly and ineffective. Finally, the Turks are unlikely to give up their battle so lightly, and although suffering economically from the result of bad central bank policy and the effects of the Coronavirus (primarily on their export markets and tourism industry), President Erdogan’s nationalist narrative to paint his nation as being strategically encircled by rivals and enemies remains a source of political strength and domestic popularity, despite his myriad of economic failings.

In the long term the UAE’s investments in civilian infrastructure and logistical hubs in the Eastern Med are likely to pay significant dividends. But both Abu Dhabi and Riyadh should be wary of attempting to do too much too soon in the strategic and political realm given the risk of blowback. For one, trade and investment partnerships with Greece have the potential to create strong commercial bonds, as opposed to military cooperation which risks escalating long-held regional rivalries with Turkey while potentially giving an impression of a security (over-) commitment. Rather than military aid, Israel, Cyprus and Greece require political assurance, investment and a steady hand that can assure the continued prosperity and development of the Eastern Mediterranean region.

There is much to gain by pursuing an economics first strategy at the present time. As the World waits to recover from Covid, those with first-mover advantage in logistics and trade hubs, will surely reap the most benefits. Cross pollinating these benefits with the strategic instability and insecurity of the area will however prove costly and undermine much of what good has been achieved in recent years.

The Biden Administration’s robust diplomatic engagement on Yemen is best understood as central to a broader effort to reassure the international community that the United States is prepared to return to its traditional leadership role on the global stage. The President himself has asserted that he will focus on “reclaiming our credibility and moral authority,” adding that “we must start with diplomacy rooted in America’s most cherished democratic values,” language designed to draw a sharp distinction with the transactional approach to foreign policy favored by the previous administration. The appointment of career diplomat Tim Lenderking as the State Department’s special envoy to the Yemen conflict is further evidence that Washington intends to employ a broad range of diplomatic tools in support of the United Nations-led efforts to achieve a ceasefire and bring the principal parties to the conflict into direct talks. American moral leadership is also being reinforced by the expected confirmation of Samantha Power as the administrator of the U.S. Agency for International Development (USAID). Ms. Power was a strong proponent of the “responsibility to protect” doctrine when she served as the U.S. Permanent Representative to the United Nations in the Obama administration, and USAID can be expected to ramp up its efforts in Yemen in support of U.S. diplomatic initiatives.

International diplomatic engagement will need to be followed by localized deconfliction efforts, and in parallel, reconstruction and economic development. According to the latest World Bank assessment, reconstruction needs are expected to be around $ 25 billion over the next five years, the bulk of it for housing followed by power and health infrastructure1. In addition to the capital requirements for infrastructure, funds will be needed to run the country until the economy can sustain itself: public sector salaries, social security benefits, and the import of basic commodities will all require outside support.

US national security interests in Yemen

The Biden administration’s re-engagement in Yemen flows from more than just a desire to return to a “values-based” foreign policy. It also reflects a very practical assessment of the extent to which fundamental U.S. national security interests are at stake in the country. These include ensuring the stability of neighboring Gulf Arab countries; maintaining the security of maritime lanes that are essential to global commerce; and preventing terrorist organizations from securing safe haven in Yemen.

The stability of Gulf Arab countries is an important American goal, particularly in the face of continued hostility from Iran. The outsized ability of Saudi Arabia to stabilize global oil markets, and long-standing trade relationships with GCC countries argue strongly for constructive ties, especially at a time when these countries are growing their commercial and security relations with China. President Biden has committed to continuing to support Saudi Arabia “defend its sovereignty and territorial integrity and its people” from the threat posed by the Houthi rebels. Continued close ties with the United Arab Emirates is also a priority for the Biden Administration. Abu Dhabi has broad support in Washington for its moves to normalize relations with Israel via the Abraham Accords, as demonstrated by the recent approval of a $23 Billion weapons sale to the UAE.

Maritime security is another key US concern in the region, and Yemen figures prominently in this regard, given that key international shipping lanes pass immediately to its south and west, via the Bab el Mandeb strait, and the Red Sea. The Bab el Mandeb is a particularly worrisome chokepoint: 18 miles across at its narrowest point, some six million barrels of oil pass through the strait every day, creating enormous potential for the disruption of global energy supplies. The Houthi rebels in Yemen already have conducted attacks against maritime traffic in this region, targeting a UAE vessel and a U.S. guided-missile destroyer in 2016. In 2018, they targeted two Saudi oil tankers, leading Saudi Arabia to temporarily halt oil shipments through the Bab El Mandeb. Attacks on tankers in the port of Jeddah in 2020 were also attributed to the Houthis.

Although weakened, the continued presence in Yemen of Al Qaeda in the Arabian Peninsula (AQAP) is another national-security concern for the United States, particularly given that AQAP has tried on multiple occasions to conduct attacks against American targets, including an attack against the American Embassy in September 2008 while I was serving as ambassador that left 18 people dead. Subsequently, AQAP engineered two unsuccessful attacks against targets in the United States. The first was on Christmas Day 2009, when a young Nigerian tried unsuccessfully to detonate explosives hidden in his clothing on board an airplane as it began its descent over Detroit, Michigan. The second occurred less than a year later, when toner cartridges filled with explosives were discovered in two airplanes headed for the United States. Since the war began in Yemen, the Yemeni government’s counter-terrorism programs have largely stalled. In 2015, UAE special forces deployed to areas of Yemen known to serve as safe havens for AQAP fighters, and they continue counter-terrorism operations to this day. A small number of U.S. special forces are also on the ground in Yemen, and the United States has conducted aerial attacks against AQAP fighters using armed drones and aircraft.

US position on the conflict and its resolution

The principal interest of the United States in Yemen is to ensure that it does not serve as a platform for destabilizing activities in the region or beyond. In this regard, as part of any peace negotiations, the Houthis will be expected to agree to cease hostile activity in the sea lanes around Yemen, and end missile and drone attacks and cross-border incursions against Saudi territory, in exchange for an end to Saudi airstrikes in Yemen. As government formation in Yemen gets underway, the United States – and the international community more broadly – will press for effective measures to neutralize the threat posed by AQAP; Washington will support these operations, as it has in the past.

The United States has no interest in trying to dictate the outcome of an internal Yemeni political process. In line with this approach, the U.S. will take no position on the future role of Yemeni President AbdRaboo Mansour Hadi, leaving that to the determination of the Yemeni electorate. UN Security Council Resolution 2216 which (ill-advisedly) enshrined Hadi as the legitimate authority in Yemen, is widely seen as an obstacle to a negotiated settlement to the conflict, and the United States will support an initiative in the Security Council to pass a new resolution that reflects the distinctly different situation on the ground that has evolved since 2015. Support from Saudi Arabia and the UAE for a new UNSCR will be important for the legitimacy of this effort.

U.S. thinking is largely aligned with that of the UN Special Envoy in terms of a national-unity government emerging that reflects the realities on the ground in Yemen. Thus, in addition to representatives of the Hadi government, the Houthi rebels, who exercise authority over virtually the entire northern highlands, are likely to receive key ministerial portfolios and, in accordance with the Riyadh Agreement of November 2019, the Aden-based Southern Transitional Council would also be represented in the government. A failure to integrate the Houthi movement in a new national unity government could lead to its continued existence as a heavily armed national militia with its own command-and-control structure, similar to Hezbollah in Lebanon, which would be unacceptable to Yemen’s neighbors, Saudi Arabia in particular.

The opportunity for joint diplomacy

From the beginning, Gulf Arab states – and critics of the JCPOA in the United States – complained that nuclear negotiations with Iran were too narrowly defined and failed to address the threat posed by Iran’s ballistic missiles and its interference in their internal affairs. It seems likely that the US will seek to eventually expand the agenda of this new round of negotiations to include these issues, in addition to those related to Iran’s nuclear weapons. In this regard, any concrete steps taken by Saudi Arabia and other GCC states to end their involvement in the conflict in Yemen will make it easier for the U.S. to insist that Iran do the same.

Reinvigorated US diplomacy in Yemen and a clear commitment to Saudi territorial integrity are strongly supportive of Saudi efforts to end its military involvement in the war and should present an opportunity for close coordination between Washington and Riyadh. The resumption of talks with Iran on a return to the JCPOA provides an opportunity to raise other issues of regional concern, including Iran’s ballistic missiles and its support for Shi’a militia and armed surrogates seeking to destabilize Arab states, including Yemen. Without derailing the nuclear negotiations, the United States should make it clear to Iran that there can be no normalization of relations if it continues to threaten the stability and security of neighboring states.

The Way Forward

The GCC with Saudi Arabia in the lead should make it clear to the Houthi leadership that a de-escalation can be rewarded with economic aid. As efforts towards peace gain momentum, the focus will shift to the long – and costly – process of reconstruction. In particular, Saudi Arabia and the UAE, because of their direct involvement in the war, will be expected to shoulder a substantial portion of the financial burden. The U.S. will also seek to enlist other Gulf Arab states in this effort. In the event a nationwide cease fire is negotiated, the rapid deployment of economic and humanitarian assistance on the ground in Yemen will be essential to prevent armed hostilities from re-igniting anew, extinguishing hopes for an end to the violence. Donor countries – in particular GCC states – should hold out the promise of long-term development aid to neglected regions such as the Saada governorate as an incentive, just as the U.S. is doing with Iran for economic relief. Additional funds could be made available to support projects linked to water, health and education infrastructure once the Houthis demonstrate a willingness to engage in a political process and cease their military campaign. While Saudi Arabia has been the largest donor to Yemen since the beginning of the war, its assistance has been largely constrained to areas not under Houthi control, for obvious reasons. A substantial portion of the reconstruction effort going forward will have to be focused in the north of the country, where 70% of the population lives and where civilian infrastructure has been most damaged. This should also theoretically stem grievances that have contributed to the Houthis’ rise to power, which has been ascribed to the lack of economic development in the governorate of Saada, in addition to resentment over the post-1960 disempowerment of the Sada (Sayyids), who claim descent from the Prophet Mohammed and who had historically ruled the region. Reconstruction of the northern highlands will require stringent monitoring mechanisms and have to be under a UN framework. GCC states should also start exploring additional aid mechanisms, beyond funds: integrating Yemen’s electricity grid with that of the GCC or admitting Yemeni workers could go a long way in supporting economic development in Yemen while benefiting GCC economies. Similarly, creating an economic free zone along Yemen’s northern border might help restore once-thriving cross-border trade and economic activity between Saada and southern Saudi Arabia.

Regarding Iran, Gulf Arab states should also expect the U.S. to encourage them to imagine ways in which they can accommodate greater integration of the Islamic republic into the region, a position not unlike that which underpinned the Obama administration’s nuclear deal with Iran. While some Gulf states already have fairly strong commercial ties with the regime in Tehran, there is still considerable anxiety among others regarding Iran’s revolutionary zeal and whether its theocratic leadership and Revolutionary Guard Corps can ever accept peaceful coexistence with their Arab neighbors. This anxiety is not always readily understood in Washington, and discussions between the U.S. and Gulf Arab states on this issue will need to be candid and clear in order to avoid misapprehensions on either side.

The views expressed in this document are those of the author and do not necessarily reflect the position of the US Government.

However, the past few years have witnessed major developments which could upend the status quo: GCC hydrocarbon exports are increasingly concentrated in Asia; doubts are growing on the sustainability of US monetary policy and by extension the dollar; and more importantly, barriers to RMB internationalization are being gradually lifted, through a combination of structural reforms and a change in China’s economic landscape. As GCC policymakers are increasingly finding themselves caught in the middle of a tug of war between the two major superpowers, they must tread carefully. Yet China’s insistence to pay for oil in RMB is likely to grow and hence, they should prepare for this eventuality. While this would likely upset the United States and potentially undermine the dollar to some extent, we argue that the US would nevertheless maintain its role as the Gulf’s security guarantor, given this serves first and foremost its own interests. As such, in the context of a waning security rationale for the continued existence of the petrodollar and a declining faith in the US dollar, GCC States may not have much to lose from switching to renminbi-denominated oil trade, provided the right risk-mitigation mechanisms are in place.

To prepare for such a scenario, GCC policymakers should:

• Review their foreign reserve strategy in light of expected global trade flows, in particular against global hydrocarbon demand scenarios.
• Closely monitor the pace of China’s financial reforms and measures taken to stimulate RMB internationaliza-tion, in particular with regards to relaxing barriers to capital flows and the
  development of cross-border financial regulations
• Develop hedging strategies to minimize impact of a potential USD devaluation that could be triggered by RMB-denominated oil trade
• Assess implications on the dollar-peg and determine how Gulf currencies could be realigned towards a basket of currencies beyond the dollar

At some point in the new millennium, the word “nudge” entered the policymaking lexicon, and by the time the godfather of nudges, Professor Richard Thaler, won the 2017 Nobel Prize in economics for his nudge-related work, most Western governments had integrated teams of nudge researchers into their policymaking organs.

A nudge is an alteration to the way choices are presented to individuals that affects their behavior in a predictable manner, but without removing options or altering the material incentives associated with any option in a significant way. Thus, for example, in a school cafeteria, placing healthy food options such as fruits in a convenient location, and placing unhealthy food options such as candy bars in an inconvenient location, counts as a nudge, as it makes people more likely to select healthy options. Banning candy bars or making them more expensive via a tax is not a nudge; the option must remain available at approximately the same material price.

Nudges have become popular among policymakers for two reasons. First, they can be an extremely cost-effective way of altering people’s behavior.  Second, their non-invasiveness makes for a welcome change from the heavy-handed alternatives that governments usually deploy, such as taxes on socially harmful activities, and outright bans in certain cases.

However nudges are no panacea. While they can be highly effective in certain contexts, in general, their impact is quite small, and so they should not be perceived as a substitute to traditional interventions that focus on the root causes of behavior. Including a picture of damaged lungs on a packet of cigarettes helps decrease consumption, but it must be complemented by educational programs, taxes, and other instruments.

Moreover, some find the tacitly manipulative nature of nudges to be quite distasteful, viewing it as a form of covert paternalism. Nevertheless, there is little doubt that they are a useful component of a diverse policy toolkit that governments use to influence behavior.

Nudging sustainable citizen-behaviour in the GCC

One of the key areas where governments are deploying nudges is sustainability, yielding rich insights that can benefit the Gulf Cooperation Council (GCC) countries. Today, the rising prominence of environmental problems has encouraged many researchers to experiment with sustainability nudges. An early example that has informed many subsequent nudge designs was conducted in the US state of Georgia during a drought. The researchers found that providing residents with technical information on how to save water, while also showing them on their bills how their water consumption compared to that of their neighbors, led to a 4.8% decrease in water usage[1]. People felt particularly uncomfortable when they found out that they were “over-consuming”, and felt motivated to take action without any substantive change to their material incentives. Similar results have been found with the consumption of other resources such as electricity. Another example of a green nudge was a 2015 experiment conducted in Canada, whereby the municipal government mandated the use of clear garbage bags rather than the conventional black ones. The fear of having their wastefulness exposed led people to use increase their recycling by 15%, and the total volume of municipal solid waste decreased by 27%[2].

These kinds of findings should be particularly exciting to GCC policymakers, as encouraging sustainability is a cornerstone of their economic visions. GCC countries have acute environmental challenges stemming from their large carbon footprints: in 2016, the average person in the world consumed 20 mWh of energy, while the average Saudi resident consumed 94 mWh, the average Emirati resident consumed 138 mWh, and the average Qatari consumed a world-leading 208 mWh[3].

While these high consumption levels can be partially attributed to the arid climate, which requires air conditioning, lack of environmental awareness is a chronic problem. For example, in a 2015 study, less than 50% of Saudis were aware of climate change, compared to well over 75% in Western countries[4]. Decades of fuel and power subsidies – in Qatar, citizens do not pay for electricity regardless of their consumption – have encouraged wasteful behavior, resulting in very low rankings for the Gulf countries in Yale University’s Environmental Performance Index[5].

Waste management is also ripe for interventions, as waste segregation and recycling efforts in the GCC are very low, especially in light of their high per capita income levels. Thus, as the governments upgrade their waste-management infrastructure, they also need to use nudges, awareness campaigns, and educational interventions to ensure that their citizens know how to economize on waste, and how to segregate it correctly.

Obesity is also an acute problem in the GCC stemming from insufficient awareness of how to maintain a healthy lifestyle. It depletes a considerable proportion of the GCC countries’ health resources in dealing with the cardiovascular, endocrinal and orthopedic problems that are associated with being overweight. Behavioral scientists have a large playbook ready for helping populations deal with unhealthy lifestyles, though again, it is essential to use nudges as part of a comprehensive strategy.

In this sense, the GCC countries need to deploy all the tools at their disposal, including nudges. This latter option has the added virtue of being extremely inexpensive at a time when falling oil prices have led to significant budgetary pressures on the GCC governments.

Context-awareness and local experience essential to success

GCC policymakers must note that the successful use of nudges depends critically on embedding the nudges in a deep, local partnership between the government and the research community. Unlike apples and pencils, nudges cannot be purchased “off the shelf” and instantly deployed. Their effectiveness is highly context-dependent and ensuring that they have the desired impact requires the cooperation of a team of homegrown researchers who are well-versed in the local culture.

As an illustration, consider the aforementioned water consumption nudge, which relied on people feeling a sense of shame upon discovering that they were high water consumers compared to their neighbors. Were the same design to be implemented in Kuwait, for example, it is likely that no effect would be detected, and one might even detect a perverse effect, i.e., the nudge encouraging more water consumption.

The reason is that social norms and mindsets in the Gulf differ considerably from those in Western countries. The Bedouin ancestry of people in the Gulf means that projecting strength to others is a social norm. A positive way in which this manifests itself is in the generosity Gulf people exhibit toward their guests; but this can also take the form of environmentally unfriendly behavior, such as possessing a large, gas-guzzling car, or having a large house where the lights are always on. Upon learning that they consume more water than their neighbors, a Kuwaiti might plausibly feel a sense of pride rather than shame, as the information confirms their status as the wealthiest household in the neighborhood. What works in the GCC – and almost certainly doesn’t work in Western countries – is nudging people with religious prompts. For example, the author and his colleagues ran an experiment in a Gulf country whereby they proved that charitable contributions could be increased by prompting people to read a Quranic passage before making a decision on how much money to donate to charity.

Homegrown researchers can play an important role in vetting existing nudge proposals via their knowledge of the local social norms and broader economic conditions. Moreover, they are usually better-placed than foreign nudge experts in leveraging their local knowledge in the genesis of new nudges. This is because many problems in the Gulf are unique to the region, such as food waste during Ramadan, or setting air conditions at unreasonably low temperatures such as 18℃.

Local researchers can also play an important role in the follow-up work associated with a nudge. There are certain scientific protocols that need to be followed to ensure that a nudge’s impact can be evaluated accurately, and the requisite skills are typically beyond those possessed by a non-specialist civil servant. By involving local researchers in the design and evaluation stages, and sharing the data with them, Gulf governments can ensure that their policies are evidence-based, rather than representing hunches or crude transplants from another country.

This argument is not specific to nudges. The effectiveness of interventions designed to encourage sustainable behavior – be they taxes, regulation, education, or nudges – are amplified when they are conducted in a scientific manner, and when the resultant data is analyzed by specialist researchers with expert knowledge of local conditions.

The way forward

Recently, several GCC countries have established behavioral insights units, reflecting awareness of the positive contribution that nudges can make in the sustainability domain and beyond. Their focus should be on the following selection of short- and long-term goals.

First, there is a pressing need to identify and integrate local experts. Many of these units have been set-up with the involvement of Western nudge heavyweights but have in general had low or non-existent linkages to the homegrown research community, which could limit these units’ effectiveness. A common riposte is that local researchers do not possess the requisite credentials, forcing the units to rely on foreign expertise. In that case, then in addition the above short-term goal, there needs to be a long-term goal of investing in building the necessary capacity, even if it takes several years. Bright young students should be given scholarships to study in elite universities, and they should follow this up with training in one of the numerous behavioral insights units operating in western countries.

Secondly, and in parallel to these efforts, GCC policymakers also need to use the existing behavioral insights infrastructure to identify and prioritize nudge campaigns on sustainability. Some of the most pressing areas to focus on are related to the Sustainable Development Goals, in particular energy and water consumption, since much of the high consumption in the GCC countries can be attributed to a mixture of bad habits and lack of information, both of which are ideally suited to nudge interventions.

Whether they focus on energy consumption, waste management, or obesity, GCC governments looking to get the best out of nudges must overcome their long-standing aversion to investing in and working with local research talent. Leo Tolstoy once quipped that: “Everyone thinks of changing the world, but no one thinks of changing himself,” and this is a remark that the GCC governments should reflect upon.

[1] Ferraro, P.J. and Price, M.K., 2013. Using nonpecuniary strategies to influence behavior: evidence from a large-scale field experiment. Review of Economics and Statistics, 95(1), pp.64-73.

[2] Akbulut-Yuksel, M. and Boulatoff, C., 2021. The effects of a green nudge on municipal solid waste: Evidence from a clear bag policy. Journal of Environmental Economics and Management, 106, p.102404.

[3] https://ourworldindata.org/grapher/per-capita-energy-use?tab=chart&country=OWID_WRL~BHR~KWT~OMN~QAT~SAU~ARE

[4] Lee, T.M., Markowitz, E.M., Howe, P.D., Ko, C.Y. and Leiserowitz, A.A., 2015. Predictors of public climate change awareness and risk perception around the world. Nature climate change, 5(11), pp.1014-1020.

[5] https://epi.yale.edu/epi-results/2020/component/epi

When Covid-19 started hitting in earnest during spring 2020, a major global concern was the potential disruption to food trade. GCC Economies in particular feared a re-run of the 2007/08 and 2010/11 food price spikes which had caused tremendous challenges on the world food markets and risky domestic social challenges in the Gulf. At that time, economies that had been historically able to rely on imports without much disruptions felt a crunch on the world markets through the physical scarcity of staple foods. One consequence of these food crises was the investment in overseas’ agricultural land (in particular in East Africa), which turned out to be too controversial and economically futile. Fortunately, and thanks to functioning global supply chains, the 2007/08 and 2010/11 scenarios were averted in the Covid-19 pandemic. In fact, global food trade has remained remarkably resilient so far.

Yet, the changing climate with more prolonged heat waves affecting the GCC and an environment which is unsuited to produce agricultural crops will only relegate the problem into the future with the exception of indoor farming, which although promising, is unlikely to address domestic needs. The GCC economies will continue to rely on high levels food imports to ensure food security. However, what is often missing is the careful assessment of supply chain sustainability in light of climate and environmental change.

Current trade patterns for key commodities

Unlike the relatively sudden onset of the Covid-19 pandemic, the slow-burn impact of climate change will allow more time for national economies to adapt and mitigate for the looming challenges. In the GCC context, this means a dual approach, leveraging technological innovation on one hand and securing resilient trade relations on the other. Sustainable seawater desalination being key to longterm water security, international partnerships in research and development are essential in addition to domestic initiatives. Food production can also theoretically benefit from less water intensive methods including hydroponics, although these are unlikely to scale sufficiently for growing domestic needs. Hence the bulk of governments’ efforts will be in establishing and reassessing trading relations, an activity which will form the cornerstone of their food security policy. In particular, this will require policymakers to model the long-term effects of climate change on crop yields in their food-supplier countries, and thus determine whether existing trade partnerships are addressing their needs.

At present, countries like Saudi Arabia and the UAE import their food requirements from various countries around the world. The figure below illustrates the trade picture in maize, wheat, meat and rice for the year 2018. Net-exporting countries such as the United States, Brazil, or India play an important role in both countries’ food security. The UAE displays a high dependency on the Russian Federation, its major provider of wheat. In Saudi Arabia, European countries such as France, Germany, Latvia and Lithuania are the key providers of wheat. Both KSA and the UAE are heavily dependent on specific countries for specific agricultural commodities. While this can seem expected upon a first view for instance in the case of rice, a deeper analysis of the top rice-exporting countries shows that while India does indeed lead with an export volume of 11.7 MMT (Million Metric Tons), Thailand is not far behind with 11.1 MMT of exports in 2018. As such, there appears to be an over-dependency on India, even if there may be fallback agreements with other countries.

Figure 1: KSA and UAE food import concentration for selected goods, based on price of goods traded. Source: Chatham House (Resource Trade 2018)

The picture is more worrying when climate risks are incorporated in food-exporting economies supplying the GCC. According to the latest Climate Risk Index, many of these economies are vulnerable to extreme weather events and their consequences. India, which supplies around three quarters of Saudi Arabia’s and the UAE’s rice imports was the fifth most
affected country globally by extreme events in 2018. The USA and to a lesser extent Argentina, key providers of Maize for the same countries, were also categorized as particularly vulnerable based on 2018 events. But beyond the extreme weather events, gradual temperature increase and water scarcity is likely to affect agricultural production in the key economies of India, Australia, Pakistan, France, Germany and even the United States. Water scarcity is now a fact in India’s leading export regions such as West Bengal, Uttar Pradesh and Punjab. Export controls would be the first measures to be applied if climate events limited production, hence India may not be a safe import option if the water and climate crisis further unfolds.

Figure 2: Climate risk ranking 2018. Countries with a lower score were at a higher risk of climate events. Source: Germanwatch.org

The Way Forward

GCC States need to do more than pool financial resources to adapt themselves to the future. What is more important is to understand and address the foreign policy dimension that particularly affects trade policies. In order to enhance the food resilience of GCC states, coordinated foreign policy efforts have to be made to address climate change in a way that serves their national and regional interests. This means the time is ripe to carefully assess future trading relations in light of climate and environmental change. For example, future trade with India may be reassessed on the basis of potential production shortages due to increasing water shortages in the North of India. Climate proofing of trade can be achieved through using state-of-the-art databases and models to understand where the GCC may have to diversify trading relations to avoid a climate crunch.

Shrinking natural resources such as food, water but also biodiversity will force GCC states to change not just their domestic but also foreign policies. While they have long been able to rely on safe food imports from other parts of the region, climate change will test the resilience of trade links. Covid-19 has provided a sudden experience of how global affairs can quickly change and what future challenges may be ahead of import-dependent countries. Covid-19 should serve as a wake-up call for GCC decision-makers to further invest in climate-proof trade policies and tools to understand climate risks that can lead to diversified supply chains to ensure undisrupted future food imports.

The peak in global oil demand may not be for tomorrow, and the decline past the peak may not be precipitous, but oil exporting countries with large untapped reserves should equally worry about the future value of oil or gas that they have in the ground. Oil exporters always needed to think strategically, but in the past the main concern was about the time when oil might run out, and production decline or cease. This led some of the major oil exporters, notably the ones that are members of the GCC, to deliberately slow down the pace of exploitation of their reserves. This attitude was in contrast with private oil companies, as well as national oil companies of a majority of other oil producers, that always aimed at maximizing short-term production and revenue.

The need for strategic thinking has not disappeared, but the concern is today for the possible loss of economic value of remaining reserves, which, according to one theory, run the risk of never being extracted from below ground. At first sight, this might encourage the holders of such reserves to shift strategy and aim at driving higher-cost competitors out of the market. But this approach has proven to be extremely costly, leading to excessively depressed oil prices. The alternative is defending the value of hydrocarbons in a decarbonising world, attempting to slow down the pace of substitution with moderate prices, but more importantly also aiming at the decarbonisation of hydrocarbons’ production and use.

Alternatives to decarbonisation

Decarbonising hydrocarbon production and use entails the systematic, if progressive, elimination of emissions from oil and gas:

• Scope 1 emissions: connected to the extraction of hydrocarbons and their transformation into final products
• Scope 2 emissions: connected to the generation of electricity used in the hydrocarbons industry
• Scope 3 emissions: related to the final use of the products derived from hydrocarbons.

With respect to scope 1 emissions, it is a well-recognized fact that not all oil and gas streams are the same, depending on conditions for extraction, or leakage of gases into the atmosphere. The GCC oil and gas producers are in favorable position in international comparison, because of the prolific nature of their fields, and the vast investment hat has been made to contain gas flaring or venting. Further decarbonisation is possible through the capture and utilization or sequestration (CCUS) of the CO2 generated in the extraction, transportation and refining processes.

Electricity generation (scope 2) in the GCC countries is today almost entirely based on oil or gas. The opportunity of developing renewable sources (solar and wind) or nuclear (also an almost zero-emissions source) has been discussed for years, and ambitious plans announced, but implementation is lagging behind. The UAE is leading the pack in this respect, but even there more could be done. It is unrealistic to think that oil and gas in power generation may be phased out anytime soon, but CCUS could be systematically implemented especially in newer plants to progressively reduce the emissions involved.

Finally, scope 3 emissions are the most important size-wise, but also the most difficult to tackle. There are fundamentally three strategies that oil producing countries can follow to be able to claim that they have eliminated scope 3 emissions:

• Turning hydrocarbons into intermediate products that are not destined to burning as fuel, by integrating downstream into the value chains, towards an increasingly diversified and sophisticated array of advanced intermediary or final consumer products;
• Use hydrocarbon locally in energy-intensive transformations coupled with CO2 capture and utilisation or sequestration
• Turning hydrocarbons into non-carbon, clean-burning fuels – which basically means hydrogen and its non-carbon composites, while also engaging in systematic CCUS.

Assessment

The first strategy has successfully been pursued for years with the development of the petrochemical industry and the progressive integration downstream into higher value-added products. This is sometimes treated as an inferior or insufficient solution, primarily by observers who are not fully aware of the bewildering array and the advanced technological content of products from the petrochemical industry. The demand for crude oil may well peak, but that for petrochemical products will certainly continue to grow both quantity and quality-wise. What is needed is the systematic implementation of carbon capture so as to break the association between petrochemicals and high carbon emissions.

The second strategy is also well present in the experience of the GCC countries, but little attention has been paid to presenting the products as low-carbon. This lack of attention risks damaging the future of the industries involved, such as steel or aluminum, in the face of likely recourse of some importing countries to compensatory measures to limit so-called carbon leakage. The EU is likely to impose a Carbon Border Mechanism to make sure that carbon-intensive imports cannot undermine European products that would be subjected to higher carbon prices. In the case of aluminum smelting, which requires large inputs of electricity, competition from Norway, whose electricity generation is almost completely clean because originating from hydropower, could be a significant problem. It is important to note that the only large carbon capture project in the region is that of Al Reyadah, which captures CO2 from a factory of Emirates Steel.

The third strategy is more speculative. Hydrogen is increasingly being recognized as the fuel of the future in the Far East, Europe and the United States. But most of the talk and attention is concentrated on so-called “green” hydrogen, derived from electrolysing water with electricity from renewables (in some versions, also nuclear). A scenario of predominant reliance on green hydrogen would in essence aim at solving the problem of discrepancy between the time profile of availability of supply from non-dispatchable renewables (wind and solar) and the time profile of demand. Green hydrogen, in other words, is essentially a tool for storing electricity from non-dispatchable sources. It would be coherent with a scenario of increasing penetration of electricity in all final uses, including mobility. It is far from ideal for hydrocarbon exporting countries.

The rationale for blue hydrogen paired with CCUS

The alternative is “blue” hydrogen, produced from hydrocarbons subjected to steam re-forming, with capture and use or sequestration of the CO2 which is the inevitable by-product of the process. Today, blue hydrogen is much less expensive and potentially much more abundant than the green variety, opening the door to the progressive transformation of gas networks into hydrogen distribution tools, and substituting for liquid fuels in mobility uses or power generation, either through clean burning in turbines, or through fuel cells. The birth of a full-fledged hydrogen economy necessitates both blue and green hydrogen, letting technology and production costs decide which of the two should prevail.

In this latter perspective, the opportunity for the hydrocarbon exporting countries is to progressively become producers and exporters of blue hydrogen (possibly also green, in a more distant future). This again entails emphasis on CCUS, as otherwise the production of hydrogen would add to emissions rather than subtract from them. As light hydrocarbon molecules contain more hydrogen than heavier ones, it is mostly the gaseous fractions that would be used to produce hydrogen. But these are the same molecules that are also cracked to produce petrochemicals; therefore, a choice may become necessary at some point between producing hydrogen or petrochemicals. Also, hydrogen is needed to crack the heavier molecules and improve the production of lighter cuts in the refining process. Hence the perspective of becoming hydrogen exporters impinges upon the composition of available hydrocarbon streams and may be relevant only for countries that have excess availability of natural gas.

What emerges clearly in this discussion is that a strategy for defending the long-term value of hydrocarbons must in any case be based on major efforts towards carbon capture, utilization or sequestration. This is a widely recognized conclusion, and CCUS has attracted growing attention in the GCC countries over the years. In 2017, Suhail Al Mazrouei, the UAE Minister of Energy and Industry, at the 7th ministerial meeting of the Carbon Sequestration Leadership Forum (CSLF) in Abu Dhabi stated that CCUS projects across the world should scale up 100 times to meet the challenge of decarbonisation: so far there is no signal that any dramatic upscaling is in the making at all. To the contrary, the lack of initiative and commitment to large-scale pilot projects undermines the very credibility of the technologies involved in CCUS. The latter is regarded as a maybe necessary solution in some cases, but still mostly a theoretical alternative, that has no practical implementation.

The major GCC oil exporters certainly are amongst the parties that have the strongest interest in demonstrating that CCUS is a valid and real alternative for decarbonisation. It is impossible to project a long-term future for hydrocarbons as valuable economic resources otherwise. International oil and gas companies are finding it difficult to justify investment in CCUS on a commercial basis, except for those situations in which CO2 is produced jointly with oil and gas and its capture and reinjection in the field is a prerequisite for the production of the hydrocarbons. As private companies are responsible for delivering value to their shareholders, it is understandable that they take the attitude of waiting for governments to adopt regulations that will justify investment in CCUS before taking the plunge. But governments of fossil fuel exporting countries (I now include major exporters of coal) have a strategic interest in demonstrating the viability of CCUS, and should take the plunge even if projects cannot today be proven to be commercially viable.

The way forward

The strategic defense of hydrocarbons’ economic value certainly requires massive investment: in CCUS projects, in clean power generation from renewables and nuclear, in the industrial transformation of hydrocarbons into non-fuel products, in other energy-intensive industries, and finally in the production and export of hydrogen and some of its non-carbon composites. This requires the mobilization of private as well as public, and national as well as international investment. Such mobilization is possible if a credible narrative is proposed. After all, there are huge vested interests in the preservation of the hydrocarbon industry globally, not just in the major oil and gas exporting countries. The potential is there, but its realization requires credible leadership and coherence to acquire legitimacy in the global drive towards decarbonisation.