Since the 1930s, the Arab Gulf states have been defined by their hydrocarbon wealth, which flows from the nearly one-third of proven world crude oil reserves and about one-fifth of world natural gas reserves in their region. Oil and gas export revenues have played a crucial role in shaping the Arab Gulf states’ political economies, which have strongly revolved around centralized government control. The central government generates the hydrocarbon wealth and the remainder of society is engaged in the distribution and utilization of the wealth created. Consensual legitimacy is the basis for government survival, with low taxation and high energy subsidies as part of political compromise. As such, any change or pressure to the energy regime can create economic and political instability. This factor is critical when it comes to addressing the impacts of climate change in the Arab Gulf states—especially when the changes involve constraints on fossil fuels.
Historically, oil price shocks have been a source of pressure on the Arab Gulf states’ energy regime. However, apart from the states’ focus to bring back a supply- demand balance to the international oil markets, oil prices historically have not put enough pressure on the political regime to cause a re-examination of its central source of income. Only since mid-2014 have oil prices seemed to pressure political regimes to consider domestic economic reforms along with efforts to restore balance in the international energy market. The post-2014 drop in oil prices—from as high as US$100 per barrel to as low as US$40 per barrel— has increased the urgency of economic diversification, which has been discussed for decades across the Gulf states. Among other measures, energy subsidy reforms, privatization, and even a value-added tax have been discussed and introduced. Such economic reforms offer the opportunity for the Gulf states to address the potential impacts of climate change. This is because climate change creates another source of uncertainty for the states’ main source of income—and hence, the states’ economic and political stability. But to what extent have they paid attention to the potential impacts of climate change and to what extent have the Gulf states considered tapping the opportunities offered by economic diversification to address such impacts?
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This report was originally published by Rice University’s Baker Institute for Public Policy.