Keywords

The final chapter of this book draws the main conclusions and key takeaways of the previous chapters, and addresses the still-open issues related to the energy transformation of the MENA region. These concluding remarks also include several considerations regarding the energy and geopolitical developments in 2021/22 that were not properly addressed in the previous chapters of the volume.

Since 2020, Covid-19 and the Ukraine war have had very incisive impacts on global energy markets. After the economic crisis following the health restrictions due to Covid-19 in 2020, and the subsequent economy recovery programmes launched by governments all over the world, economies of consumer countries have struggled with rising energy prices following years of low energy prices and low global investment in oil and gas projects. The energy price increases were initially motivated by market fundamentals (strongly rising demand not matched by a similar quick upward trend on the supply side) and then geopolitical factors (Russia’s war in Ukraine, Europe’s commitment to phase out Russia’s energy imports and Russia cutting off most of its gas supplies to Europe already since summer 2022). In light of this energy crisis, European governments have reiterated their climate commitments and attempted to reconcile them with security concerns. Opposite perspectives over the energy transition have emerged—especially between importing and producing countries. The Middle East and North Africa region has become even more relevant from an energy point of view as western countries are seeking to reduce Russia’s energy imports. The MENA region could become a key region in the European quest for non-Russian energy, given its vast hydrocarbon reserves, existing export infrastructure and energy relations, as well as proximity to the European energy markets. The region has always been a cornerstone of the existing European energy system, but it has now gained a newly found strategic value for Europe as it is one of the few world regions capable of filling the energy vacuum caused by the war.

Russia’s war in Ukraine has abruptly changed the energy order. The new order may result in a redrawing of global energy flows, with more US and MENA energy volumes coming to Europe compared to the past, and Russian energy volumes moving towards Asian markets. North African countries have always exported most of their hydrocarbons to Europe (about 58% for oil and 78% for gas in 2019), while the Gulf countries traditionally exported mainly to Asia (about 76% for oil and 82% for gas in 2019). The 2022 crisis has also reinvigorated the potential energy cooperation between the EU and the Gulf Cooperation Countries (GCC). The new emphasis on GCC has been illustrated by the recent European communication on “A Strategic Partnership with the Gulf” (EC and EEAS 2022). The Communication, combined with the REPowerEU (EC 2022), aims at forming a renewed partnership based on sustainable energy security. Compared to North African producers, these countries have traditionally been more focused on Asian rather than European markets. Now Europe is courting all MENA countries capable of exporting hydrocarbons to Europe, to increase their supplies to Europe.

Soaring commodity prices since 2021 have produced mixed results for MENA countries. Resource-rich countries in the region have experienced extraordinary windfall revenues—after an almost decade-long slump. The drop in oil prices in 2014 caused major budget and fiscal stress for most of MENA hydrocarbon producers as global oil prices fell below their fiscal breakeven prices. Countries had to reduce their spending and draw down their savings (e.g. foreign currency reserves). Since 2021, global fossil fuel prices have been surging allowing these countries to collect massive amounts of money. Saudi Arabia is expected to be one of the world’s fastest-growing economies (with an expected increase of GDP of 7.6% in 2022—the fastest growth in almost a decade) (Mati and Rehman 2022). Conversely, MENA hydrocarbon resource-poor countries (thus importing countries) are struggling with higher energy prices, which put their national budgets under pressure bringing them to the limit, and increasing current-account deficits.

MENA countries should use the hydrocarbon price spike in 2021–22 to boost reforms and prepare their economy, society and energy system to a lower-hydrocarbon demand world (see below).

This chapter is composed of three main sections, which outline the key conclusions related to the three parts of the book:

  • Sect. 7.1 presents the conclusions on the multiple challenges that drive (yet, simultaneously hinder) the great energy transformation in the MENA region (part 1 of the book, i.e. Chaps. 1 and 2).

  • Sect. 7.2 outlines the key takeaways for the energy sector of the MENA region (part 2 of the book, i.e. Chaps. 3 and 4),

  • Sect. 7.3 addresses the key conclusions related to the geopolitical dimension of both hydrocarbons and the energy transition (Part 3 of the book, i.e. Chapts. 5 and 6).

1 Multiple Challenges Entail Transformation?

All MENA countries are facing multiple challenges although to a different extent. Demographic growth, economic growth, localization of (energy-intensive) industries, projected increase in water demand and in energy/electricity demand contribute to threatening the economic and socio-political status quo. These developments have put under question the sustainability of the current social contract in place both in the rich and resource-poor countries, characterized by the distribution of wealth generated by the hydrocarbon industry through energy subsidies and employment in the public sector as well as lack of a significant fiscal policy. These factors weigh heavily on the government budget and public finances of the MENA region.

All MENA countries face rising domestic energy (and especially power) consumption which lead to several negative economic and energy consequences. For hydrocarbon-producing countries, the transformation into large consuming countries entails lower export potential. For instance, Algeria is able to export only half of its gas production while Saudi Arabia has to devote roughly one-third of all oil barrels produced for internal consumption. Given the projected growth in population, economy and localization of industries, this trend may worsen. Moreover, resource-rich countries (i.e. KSA, Kuwait) may not continue to depend on oil revenues in the long term to satisfy the implicit population’s demands underwritten in their social contract. Indeed, all main international energy agencies (IEA, IRENA, EIA) forecast a significantly lower global oil demand in the coming decades. Difficulties in satisfying the requests of the social contract, mostly translating into high budget deficit and government debt as well as socio-political relative dissatisfaction could be seen in Bahrain and Oman. Indeed, these two countries have considerably lower hydrocarbon reserves and production with respect to other GCC countries, and Bahrain has almost depleted its reserves.

In resource-poor countries, the common denominator regards highly indebted public utilities, which represent a heavy weight on government budget, for instance in Lebanon, Tunisia and Jordan. More broadly, economic hardships, saturation of the public sector, and an inefficient energy sector contribute to increasing socio-political dissatisfactions at various levels. Lastly, regardless of natural endowments, countries like Iran and Palestine show the negative impact of external constraints on economic prosperity and social satisfaction. In both cases, the full exploitation of natural resources (production for Palestine and export for Iran) is hampered or not possible.

A key driver of rising energy consumption is demographic growth. The MENA region has one of the world’s fastest growing populations in the world. In 2000, the region comprised 296 million inhabitants. Between 2000 and 2020, around 136 million people were added, almost the same figure (+ 125 million) is expected to be added in the next two decades (2020–2040). Despite slowing growth rates, MENA’s population is expected to more than double in size during the first half of the XXI century, passing from around 296 million in 2000 to 650 million in 2060 according to the United Nations’ median population scenario. Should demographic growth offset economic growth, it could determine domestic unrest and socioeconomic instability, which may in turn pose a threat to critical operations in the domestic hydrocarbon industry and energy transition in all MENA countries. Population growth influences per capita income and patterns of employment. Two of the largest producers, Iraq and Saudi Arabia, are expected to see an important population growth, + 20 million and + 7.7 million by 2040, respectively. Consequently, they could see a decline in net income from oil rents, calculated on a per-capita basis. By contrast, for producers with relatively smaller populations (e.g. UAE, Qatar and Kuwait) this is less of a concern. On the other hand, hydrocarbon-poor countries are expected to face challenges also from the energy and economic perspectives (i.e. rising energy demand—which is heavily subsidized—affects import bills). Furthermore, oil exporting countries may decide to prioritize the distribution of their oil rents within their borders (as occurred in the second oil supercycle between 2000 and 2014) hence limiting their regional investments, which could lead to higher regional inequality and exacerbate economic fragilities. This outlook could prompt regional instability as happened with the outbreak of the Arab Springs. Conversely, during the first oil supercycle in the 1970s the Gulf monarchies decided to distribute their hydrocarbon rents throughout the entire region, thus contributing to regional economic development, but at the same time encouraging the formation of the rentier mentality also in MENA hydrocarbon-poor countries.

Finally, climate change is adding another challenging layer to the complexity and fragility of the region. Climate change and depletion of natural resources is a threat multiplier in a context of precarious climate balance and high sociopolitical instability. Adverse climate events could drive forced displacement and exacerbate risks of violent conflict, thus further damaging ecosystems and enflaming social unrest due to economic and livelihood loss. The region already experienced rising temperatures, which are expected to become the norm and further increase in a world where global average warming is rising. This yields immediate consequences on precipitation variability, with droughts and floods likely to worsen due to climate change. The World Bank warns that the Mediterranean coasts will receive about 10–20% less rain in a 2 °C world and up to 50% less rain in a 4 °C world (World Bank 2022). MENA is the world’s most water-scarce region with 60% of people living in high or extremely high water stressed areas. Water scarcity generates an economic loss in terms of GDP and social unrest, already experienced in countries like Jordan and Iraq.

2 Transforming the Energy Sector

The energy transformation of MENA countries begins with the political commitment and transformation capabilities of each country. The region’s renewable energy potential is still largely untapped because of several obstacles and challenging features that slow the deployment of renewables. Therefore, this book has assessed the implementation gap for each country. One of the challenges on the financial/investment dimension of some countries (especially oil-importing countries) is their reliance on international investments compared to the hydrocarbon-rich countries in the Gulf. This dependence is substantially affected by the global macroeconomic outlooks.

2.1 Growing Ambition of Renewable Energy Targets

Given the urgency to address climate change domestically, coupled with rising international pressure, MENA countries have set different renewable energy targets, which reflect both external circumstances as well as intrinsic peculiarities related to the energy sector, the presence of hydrocarbons and broader economic conditions. Thus, the ambition of a country’s renewable target depends on the intersection of different, in some cases diverging, forces, with some prevailing over the rest given a country’s characteristics. Since 2021, there have been major developments on climate ambitions in the region, with the UAE announcing its net-zero target by 2050, shortly followed by Saudi Arabia and Bahrain with a net-zero target by 2060, and others likely to follow in the future. There are major differences between hydrocarbon-rich and hydrocarbon-poor countries.

Saudi Arabia has expressed a strong political commitment to transforming its energy sector with very ambitious updated targets with renewables accounting for 50% of power generation by 2030. The UAE’s ambitions and objectives are similar to those of Saudi Arabia, while other GCC countries have set lower renewable energy targets due to forces opposing high renewable penetration. For instance, in Kuwait, the political stalemate between the Government and the National Assembly is hindering the required transformation of the country’s energy sector. Qatar, being a gas-exporting country, feels less pressured to transform its energy sector, as it considers gas a key element of the global energy and electricity mix also in the medium and long run. Thus, Qatar did not set specific or particularly ambitious renewable targets, instead, it focuses on making the gas process “cleaner” by envisaging carbon capture and sequestration (CCS) technologies.

Similarly to hydrocarbon-rich countries, the renewable energy targets of hydrocarbon net importers (i.e. Jordan, Lebanon, Morocco and partly Tunisia) vary significantly. While a higher level of renewable energy adoption would decrease the high debt of public utilities and enhance energy security, only some countries (i.e. Morocco, Jordan) have set and are on the right track to considerably enhance their renewable installations. Other hydrocarbon-poor countries, instead, are falling considerably behind also in the willingness of stepping up efforts in renewable adoption due to intrinsic peculiarities (i.e. difficulty in finding political consensus in Lebanon).

2.2 Common Ambitions but Different Preferences on Low-Carbon Technologies and Solutions

Countries in the MENA region have envisaged a mix of renewable technologies, from solar PV to CSP to wind and hydro depending on their available renewable energy resources, geographic characteristics and the availability of land. Similar to the global trends, hydropower was the first source exploited already in the twentieth century in countries with available water flows (i.e. Iran, Egypt). Regarding the more recent renewable technologies uptake, most countries have primarily focused on solar energy, setting higher targets compared to wind. CSP technology is envisaged or operational in countries that are at the forefront of renewable energy commitment and efforts in the region, such as the UAE and Morocco. Moreover, regarding solar PV, most countries have primarily focused on large-scale projects, also driven by record-low electricity prices in auctions, rather than smaller-scale ones. Exception arises in the case of Bahrain and Palestine, which mostly aim at relying on small-scale solar PV (i.e. solar panels on rooftops). Indeed, land availability in Bahrain and Palestine is limited, plus restrictions in Palestine prevent it from exploiting area C (highest solar potential) and small-scale projects can have the highest potential in enhancing energy security.

Nuclear energy has also been recently adopted by the UAE, with the operationalization of the Barakah nuclear power plant, and it has been discussed in numerous countries, such as Saudi Arabia, Jordan and Egypt, with the possible introduction of Small Modular Reactors (SMRs). All in all, given the water scarcity throughout the MENA region, renewable energy technologies may be coupled with high-energy intensive desalination plants to ensure “cleaner” and higher water security.

2.3 Ambition Versus Reality

Most GCC countries have set very ambitious renewable targets. Given the state-of-art of renewable deployment in these countries and assuming a constant adoption rate, many countries may either attain their renewable targets a few years after the planned deadline or they may fall short of such goals. For instance, Saudi Arabia is likely to attain the renewable target set in 2016 in Vision 2030 by 2030 (9.5 GW by 2023, representing the generation of 10% of Saudi total production), whereas conspicuous investments would be needed to attain the updated renewable target (50% of power generation by 2030) in 2021. Similarly, the UAE has highly ambitious targets, however, an “acceleration” in the adoption of renewable capacity would be necessary to attain them. Other countries would need an “acceleration” in the deployment of renewable energy to attain their targets in time. For example, Iran would benefit of a potential ease in international relations and would thus attract new foreign investments in renewable technologies; Oman only needs 1 GW to attain it by 2025; and Kuwait’s situation is similar to that of Oman.

The countries which may be able to attain their targets are Bahrein, in the case of large-scale solar projects, and Qatar. The renewable targets set by Qatar, however, are not as ambitious as those of its neighboring countries, most likely because gas is widely considered a “transition” fuel. Thus, it feels righteously less pressured to widely deploy renewable technologies. Moreover, as gas is deemed a key element of the energy transition, diversification both of the economy and of the energy mix is considered less of a priority with respect to other countries.

Also East Mediterranean countries may find it rather challenging to attain their renewable targets, as the current pace of deployment and investments in the renewable field may not be sufficient. Countries such as Jordan and Egypt have set ambitious renewable targets, and have implemented concrete actions and changes in their regulatory and legislative frameworks.

Tunisia and Algeria would also need to step up their efforts to attain their renewable targets by 2030. However, their achievement could be quite challenging given the global macroeconomic contraction since 2020, and the political and regulatory challenges within the two countries. Overall, Morocco represents an exception, because it may be able to attain its 2020 objective as well as its 2030 goal, thanks to the variety of renewable projects commissioned, developed and/or operationalized. Thus, Morocco really seems to be willing to become a key player in renewable energy in North Africa and beyond.

2.4 Factors for Slower Implementation

Despite each country facing specific challenges, related to its economic, socio-political and energy characteristics, some obstacles are common to different countries. One of the main challenges regards the numerous bodies and authorities involved in the renewable and power sector, especially in GCC countries, sometimes blurring the responsibilities and the renewable trajectory. Thus, countries should boost cooperation and integration between agencies, companies in the renewable field, promoting synergies and a cohesive renewable strategy. Indeed, in some cases, such as in Kuwait, Saudi Arabia and Oman, different bodies have overlapping responsibilities and tasks. In other countries, such as in Qatar, the distinction between Qatar Petroleum’s strategy and the government’s strategy is not quite clear, as the former sets more specific targets than the latter and the CEO of the NOC is also the Minister of Energy. Lastly, in the case of the UAE, different Emirates had proposed rather diverging energy policies, also concerning the use of coal, hindering the full renewable potential. In early 2022, Dubai announced that its $3.4 billion coal-fired power plant (the Hassyan power plant) would be converted to use gas in line with the UAE wider pledge to have net-zero carbon emissions by 2050.

Another challenge is the insufficient use of cross-border electricity interconnections. Looking forward, it is thus essential to enhance cross-border power interconnections, especially in view of the possible attainment of the ambitious renewable energy targets set by the countries.

High fossil fuel-based energy subsidies are detrimental to the enhancement of renewable energy adoption because they conceal the potential cost advantage of renewables. The region is responsible for almost half of global energy consumption subsidies. Governments experienced major challenges to reform energy subsidies and they traditionally implemented pricing reforms only when fiscal pressure was high due to price volatility (exporting countries when prices are low, and importing countries when prices are high). Energy prices are a key component of the social contract and have underpinned the industrialization in several MENA countries. Nonetheless, they distort energy market and prices and discourage energy efficiency and the deployment of renewables. In order to truly reform energy prices in the region, countries need to pursue a holistic approach, considering several measures such as social safety nets in order to reduce the impact of the reform for the most vulnerable groups.

Moreover, many countries (especially those in North Africa) depend heavily on international investments for the uptake of renewable energy given their domestic financial constraints (compared to their peers in the Gulf). Countries with the largest and highest number of renewable projects—UAE, Egypt, Morocco and Jordan—mostly depend on international organizations (i.e. World Bank) or private investors (i.e. foreign power and energy companies), thanks to record-low power prices at auctions. Conversely, other MENA countries depend on the public sector for investments also in the renewable sector, as they do not quite manage to attract private and international investors, due to inadequate regulatory and/or on-the-ground policies and practices. In many cases, despite having updated and introduced a regulatory framework more favorable to private investments, many countries, such as Algeria and Kuwait, find it still challenging to attract investors.

Countries also face intrinsic economic and/or socio-political challenges that hinder the exploitation of the full renewable potential. For instance, Lebanon’s economic collapse and the major structural issues related to its public utility and energy sector represent, without comparison, the greatest obstacle to increasing renewable capacity. Nevertheless, renewable energy would substantially contribute to decreasing the utility’s public debt, enhancing energy security (decreasing blackouts), importing less fuel (given also the limited availability of dollars), reducing the population’s reliance on expensive, polluting and rather unreliable private diesel generators. In Palestine, renewable energy would considerably enhance energy security, decreasing its reliance on Israel, and the consequent restrictions also in the energy sector (i.e. Israel prevents the fuel from entering Gaza). Nevertheless, the full exploitation of renewable energy, especially solar PV, is possible only, also in this case, by easing the restrictions, allowing full access to area C of the West Bank. Algeria also has to face structural challenges in order to ramp up renewable energy adoption. The country has witnessed numerous protests since 2019, which may lead the government to offer short-term solutions to employment and the economy, instead of addressing structural challenges related to an environment not very conducive to attracting foreign and international investments. Issues related to the political status-quo are also present in Kuwait, with the National Assembly and the government often adopting different standpoints, hindering renewable energy development.

All in all, most countries in the MENA region have fast-paced the willingness and efforts in enhancing renewable energy capacity, with rather ambitious targets. Nevertheless, the attainment of these targets depends on the numerous challenges the countries have to face and overcome, depending on their intrinsic socio-economic and political conditions, the possible presence of hydrocarbons and external circumstances. The transformation of the energy sector in the MENA region is a key condition to remain at the forefront of the global energy system in the medium and long run, especially for hydrocarbon-rich countries, and to overcome numerous obstacles and inefficiencies in the energy and economic field for hydrocarbon-poor countries.

2.5 Energy Transformation Entails Substantial Social and Economic Transformation?

The energy transformation may entail a substantial social and economic transformation given the strong ties between the energy and sociopolitical spheres. For example, countries may need to implement reforms in order to boost renewable energies and remove barriers to their deployment. Yet, these reforms may change also the long-lasting socioeconomic and political features of the social contract. This is the case for (universal) fossil fuel subsidies, which incentivize inefficient energy consumption. A common social reform, spanning from Morocco to Iran, regards the energy subsidy reform. This scheme was carried out by most countries in the region, independently of natural endowment, with very few exceptions, such as Lebanon, due to a political stalemate. Energy subsidy reforms allow limiting unnecessary energy/electricity consumption as well as budget deficits. Obviously, each country carried out a specific reform, with different attainments (reduction of subsidies to complete phase out) and varying safety net mechanisms. For instance, Iran had one of the most comprehensive reforms, which also entailed cash transfers to the whole population when subsidies were reduced. Egypt also enacted cash transfers, but only to the most vulnerable families in order to limit the negative impact of subsidy reduction. In GCC countries, another social reform regarded the introduction and increase in value-added taxes in a few countries. This scheme was not widespread, as it may entail strong social opposition. The UAE and Saudi Arabia introduced VAT in 2018, with the latter increasing it to 15% in summer 2020. Oman also introduced VAT in Spring 2021. Moreover, diversification is also a key word in this context. It refers to two main situations: diversification of the energy/electricity mix for all countries in the region and economic diversification for mostly oil-rich countries. Economic diversification refers to the attempt and strategy of resource-rich countries to diversify their production, revenues and exports from hydrocarbons. This is why GCC countries, for instance, strive to become aviation, technology and tourism hubs, as clearly expressed in their Visions. Energy/electricity diversification is planned to be carried out mostly by introducing renewable energy sources, primarily solar, given the ideal geographic location of this region allowing the full exploitation of this energy source. Most MENA countries have published different documents with specific renewable targets.

Another key challenge regards the key role of the public sector in providing employment for the population, investments in renewables and so on. However, the public sector is currently saturated in most countries of the region. Thus, some countries have carried out legislative and regulatory reforms of, for example, the energy sector to attract foreign investments and international organizations in the renewable field (i.e. Jordan, Tunisia and Morocco). Other countries, especially resource-rich ones, view economic diversification as the solution of this challenge, as the localization of high-tech industries could enhance the competitiveness and attractiveness of the private sector also in the domestic labor market. However, in this case, the issue regarding the high reliance on cheap foreign labor should be addressed, as it hinders efforts to shift towards knowledge- and technology-based economies.

As countries need to address several socioeconomic aspects, a key factor in the successful achievement of the energy transformation will be the ability of MENA countries to govern such transformations through reforms. Many MENA countries have launched diversification strategies, but the ability and strength to implement such strategies vary significantly by country. Countries that are experiencing major domestic turmoil may not be able to pursue and implement the strategies required to transform the energy sector and to adapt and adjust to the changing energy landscape. Those countries may thus lag behind in the transition. For example, countries like Algeria, Libya, Iraq, Tunisia and Lebanon face significant domestic instability at different levels. These countries may be tempted to focus their energy policies on the maximization of their reserves, rather than addressing the reforms that will be needed to preserve geoeconomic and geopolitical influence, while countries with more stable and strong governance and institutions could pursue and implement reforms and boost energy transformation.

Another key factor is the ability of MENA countries to finance the transformation, while reducing the short-term negative economic effects of the clean energy transition. In this effort, countries with large foreign exchange reserves are better equipped to offset negative economic consequences in the short term, while financing economic transformation for the next generations. Two groups can be identified related to this issue. On one side, there are MENA oil and gas producers (mainly Gulf countries) with large foreign reserves, supported by other considerable assets that allow these countries to resist the economic crisis caused by decreasing oil prices and/or volumes. On the other side, countries with low levels of foreign reserves and higher debt levels (mainly North African countries) are in a more vulnerable position to preserve their geopolitical role, potentially representing a greater geopolitical risk. Since renewables projects entail high CAPEX (yet low OPEX), hydrocarbon importing countries with few financial reserves will need to rely more on external investors than hydrocarbon-exporting countries. To attract the required investments, hydrocarbon-importing countries will have to put in place favorable conditions and stable regulatory frameworks, removing market and infrastructure barriers.

3 Transforming Geopolitical Factors

Hydrocarbon reserves in the MENA region have significantly contributed to shaping energy geopolitics, attracting multiple external powers and interests. The general availability of vast and abundant hydrocarbon reserves makes the MENA region one of the main energy geopolitical blocs. The desire and need to ensure adequate supplies for their own economies have been a key reason in the global actors’ engagement with the MENA region. As a result, regional hydrocarbon reserves have been a key factor for several tensions and conflicts which in the past have erupted in the region, whereas in other regional hotspots (e.g. in the East Med gas saga as well as in Syria) hydrocarbons are only a factor of a broader geopolitical competition. Global energy markets have been going through major transformations, altering interests for, and relevance of, the region. For example, Western countries have over the past decade partially reduced their interests in MENA hydrocarbon reserves driven by the American shale oil and gas revolution and European climate policies. Whereas other countries (e.g. China and Russia) have increasingly engaged with key MENA hydrocarbon producers in order to either secure supply (in the case of China and other Asian countries) or enhance global oil policy coordination (in the case of Russia with the OPEC+ deal). The global energy transition will inevitably change energy geopolitics and the relevance of the MENA region. New players and strategies will be pursued by MENA countries to maintain or enhance their geopolitical relevance also in a low-carbon future.

3.1 Conflicts and Hydrocarbons

The MENA region has been the stage of several tensions and conflicts over the last decades. In 2011, the entire region was shocked by the Arab Springs, which resulted in the end of long-lasting rulers in North Africa (Libya, Tunisia, Egypt) as well as minor turmoil in the Gulf (e.g. Bahrain). Since 2011, several countries have been experiencing major internal conflicts, exacerbated by external players; the cases of Libya and Syria are particularly illustrative. Moreover, (geo)political tensions and competition have grown also in the Eastern Mediterranean as well as in Iraq and Iran. In some cases, such as Libya, hydrocarbons (mainly oil, but more recently also gas) have been the prize and a key driver of the duels. The two local factions have clashed over the control of hydrocarbon reserves, which are vital for the government’s revenues. Moreover, Haftar and his troops used natural resources as a way to undermine the Tripoli-based government legitimacy. On the other end, Syria’s conflict is not driven by control and exploitation of its hydrocarbon reserves. They are almost irrelevant in terms of size within the world’s hydrocarbons markets to validate this hypothesis, despite the US decision to leave some US troops in defense of Syria’s oil fields. The recent geopolitical competition in the East Mediterranean stands in the middle. The discovery of several offshore fields in the area has fueled regional competition and tensions. However, this competition is more related to the broader regional competition on other issues between key regional powers (Turkey, Egypt, Gulf monarchies). What mainly motivates the increasing tensions is maritime boundaries, legal status and regional ambitions, partially caused by the fading role of the US. In this case, energy shapes regional and international relations, consolidating the already existing trends and strategies.

3.2 Old and New Players—A Regional and International Realignment?

The region is going through fundamental changes as the world’s power, economy and energy balance is shifting. The traditional interest and role of the US in the region, which begun in the aftermath of World War II, has been questioned by a combination of some fatigue related to the engagement with the MENA region also prompted by the rise of the US domestic hydrocarbon production. Despite remaining a fundamental player in the region, the US is perceived as losing its leverages with MENA countries (especially in the Gulf) while new geopolitical powers, China and Russia, have with different approaches enhanced their relevance in the region’s affairs.

Throughout the past decades, China has increasingly dominated the fossil fuel demand side, becoming a major market for MENA hydrocarbon exports. Oil exporting countries are interested in strengthening their energy relations with China as well, because of China’s growing energy markets. In this sense, China represents a vital source of revenues for exporting countries like Iran and Iraq, while representing one of the major markets for Saudi Arabia’s oil exports. Furthermore, China proposes economic and technological partnerships which are crucial in the diversification strategies of several MENA countries. China has prioritized economic relations, without explicitly taking side in conflicts or tensions (e.g. Libya, Qatar embargo). China has proposed and granted significant investments across the region in key sectors, such as infrastructure, energy, telecommunications, as part of its broader strategy under China’s Belt and Road Initiative. Indeed, the MENA region is at the crossroads of Asia, Africa and Europe. Several MENA countries hold a strategic relevance within China’s Maritime Silk Road.

For Russia, two episodes have marked its return into Middle Eastern affairs. The military intervention in Syria in support of the Assad regime and the OPEC+ agreement in 2016. Russia has increased its presence in the region’s affairs, defending its traditional position (e.g. Russia’s only naval base in the Mediterranean is located in Syria) by exploiting the political vacuum (e.g. in the post-Qaddafi Libya) in order to restore its reputation as a global power and obtain strategic and tactical gains useful in other negotiations. Since 2016 (and especially after 2020), Russia has cemented its relations with large hydrocarbon producers in the Gulf, primarily Saudi Arabia and the UAE through policy coordination within the OPEC+ deal. These countries decided to preserve their relationship also during 2022, despite major political pressure from Western countries (mainly the US) to isolate Russia in light of Russia’s war in Ukraine. These developments highlighted the prioritization of national interests by Gulf countries over those of their traditional allies (the US first and foremost). While energy is a primary driver of cooperation with regional countries for both Russia and China, energy is also a means to strengthen cooperation by MENA countries and to adapt to the changing geopolitical landscape.

3.3 Evolving Geopolitics Alongside with the Energy Transition

Meanwhile, there has been a growing consensus on climate policies with an ever-growing number of countries having pledged to net-zero by and around midcentury. These pledges entail significant lower oil and gas demand (even though it will not mean zero demand). As we outlined in Chap. 2, the world’s future oil and gas demand is expected to decline albeit at a different pace. Global oil demand, which had reached its record level of 97.6 mb/d in 2019 is expected to reach by 2050 a level of 45 mb/d (− 54% compared to 2019) in the IEA’s 2021 Sustainable Development Scenario (SDS) and even down to 21 mb/d (− 78.5%, or compared to 2019) in its “Net Zero carbon Emissions by 2050” (NZE) scenario (IEA 2021). The sharp decline will be mainly driven by significant changes in the transport sector as electric vehicles will gain an increasing market share, especially in countries with net zero pledges. Natural gas demand has a different, yet also challenging, future. The IEA (2021) foresees that in decarbonization global natural gas demand remains roughly stable at around 3860 bcm (the 2020 level) up to 2030 as on the one side it will be challenged by increased energy efficiency in all sectors as well as the strong continuation of renewable energy penetration in the power sector, and on the other side it will partly replace coal for power generation and the industry. After 2030, the global demand for natural gas (in particular for unabated natural gas) should decline rapidly. By 2050, natural gas demand is expected to reach around 2367 bcm (minus 39% compared to 2020) in the SDS and 1686 bcm (− 56% compared to 2020) in the NZE (IEA 2021). In NZE, natural gas demand falls largely in all regions, except those that are currently heavily reliant on coal, where natural gas largely displaces coal. These scenarios may substantially change in light of the energy crisis started in 2021 as prolonged high gas prices may destroy consumption in several countries.

The future geopolitical role of MENA hydrocarbon exporters varies depending on the different outlook of oil and gas demand. Oil producers may encounter challenges and a loss of geopolitical influence earlier than gas producers. Energy demand will become an important feature of the geopolitical equation as countries will need to compete for smaller energy demand and rising energy markets (i.e. Asia). For these reasons, it will be crucial for MENA exporting countries to have a diversified export portfolio in order to be able to hedge declining demand due to climate regulations. Therefore, those countries that have secured contracts and market shares in growing energy markets like Asia are in a better position to be relevant in the long-term. Historically, Gulf countries export most of their hydrocarbons to Asia (about 76% for oil and 82% for gas in 2019), while North Africa relies more on European energy markets (about 58% for oil and 78% for gas in 2019). Those MENA producers that are more dependent on the energy markets that have higher decarbonization commitments, such as the European Union, will be more exposed to economic and geopolitical loss unless they adapt to the new context. The producers, such as the North African ones, which are unable to diversify their export portfolio, may suffer the most and more rapidly from the energy transition of their key markets. By contrast, those MENA oil and gas producers that export to growing energy markets, like Asian countries, should be able to preserve their geopolitical influence. For such reasons, the export portfolio composition and its diversification are increasingly crucial in the new energy transition. In the medium term, the Ukrainian war has reshaped the world’s energy map and flows. All MENA producing countries may increase their exports to Europe. Yet, the EU has reiterated its climate ambitions hence higher exports towards its markets could be temporary.

Future lower hydrocarbon demand may entail higher competition among the largest producers. This could undermine joint and coordinated actions aimed at stabilizing the oil prices, such as within the OPEC countries. Despite the rising energy prices in 2021/22, OPEC countries have managed to preserve the unity of the deal, extended to other non-OPEC countries including Russia. Nonetheless, several MENA countries announced their intention to ramp up production. For example, the UAE aims at increasing production to 5 mb/d before 2030 from 4 mb/d in 2021, while Saudi Arabia seeks to increase its production up to 13 mb/d. While these countries have the financial and natural resources to reach these targets compared to other countries, these plans may shake the unity of OPEC and the OPEC+ deal.

Alongside the decline of fossil fuels, the global energy transition will result in the expansion of clean-energy and low-carbon technologies and solutions, such as renewables, hydrogen, batteries. The geopolitics of energy will become more complex as industrial and technological capabilities will become key factors of the geopolitical equation. The risk for MENA countries (especially hydrocarbon-exporters) is to lose their geopolitical relevance in the energy markets. Therefore, MENA countries need to consider possible solutions to adapt and adjust to the evolving energy markets and the energy transition by strengthening their competitive advantages and investing in new solutions.

3.4 Net-Zero does not mean the end of Petrostates—Strengthening the Competitive Advantages

While the net-zero transition certainly puts substantial pressure on hydrocarbon producers’ economic and political stability, a net-zero scenario does not imply the end of all petrostates as often wrongly suggested and assumed. This is due to the fact that fossil fuels will not completely disappear from the world’s energy mix. Indeed, a net-zero scenario requires a huge decline in the use of fossil fuels, falling from almost 80% of total energy supply today to slightly over 20% by 2050, according to the IEA. However, their use will need to be coupled with technologies, such as carbon capture use and storage (CCUS), in order to be abated. Furthermore, since today’s energy transition is mainly a policy-driven process, it is expected to be pursued at different speed and pace across the world’s regions. For hydrocarbon-exporting countries, it will be therefore crucial to strengthen their competitive advantages in order to play some role in the future hydrocarbon supplies. In this sense, several players (Qatar, Saudi Arabia and the UAE) have announced their ambitions to develop and deploy CCS projects in order to reduce emissions of their hydrocarbon operations.

In a fossil fuel demand-constrained world, several MENA countries are expected to play the role of the last barrel standing as some Gulf countries can benefit from low-cost production. Until now, regional producers have behaved against market rules, leaving higher-cost producers in the market. One of the reasons is that MENA countries need to take into consideration not only production costs but also social costs given the overreliance on oil rents. However, several MENA countries are expected to remain geopolitically relevant along the transitional period and beyond because they can benefit from cheaper production. The key element for them will be to reduce their hydrocarbon consumption, which is expected to grow given rising population, and adapt their socioeconomic model to the upcoming scenario in order to maximize the valorization of their reserves. Another strategy undertaken by hydrocarbon producers is towards downstream segments of value chains both at home and abroad.

In a low-carbon future, hydrocarbon producers need to consider also other competitive advantages in order to preserve their geopolitical role, such as low carbon intensity of their oil and gas production, thanks to a combination of the nature of their reserve base, very low gas flaring rates per barrel and low water volume per unit of oil produced, and heavy investment in infrastructure and technology. Indeed, securing and defending market shares will not be enough as their products would still face climate issues. Production, transportation and use of oil and gas still produce carbon emissions. On this issue, some MENA oil and gas producers are well positioned, having the lowest production carbon intensity, which is set to become more relevant in a high-carbon prices scenario. At low levels of carbon prices, differences in carbon intensity have a relatively low impact on overall costs and competitiveness. Saudi Arabia and the UAE have one of the lowest carbon intensity rates in the world. Saudi Arabia is committed to further improving this condition. Saudi Aramco announced that it aims to reduce its upstream carbon intensity by 15% by 2035 against a 2018 baseline. On the other hand, other MENA oil producers, such as Algeria and Iraq, have higher carbon intensity rates, which could harm their competitiveness in the future energy system. This is also true for gas exporters like Qatar as they try to protect and enhance the role of natural gas within the energy transition. First, Qatar has decided to regain the leading role in the LNG industry by both expanding its production and export capacity (through North Field expansion and the Golden Pass LNG project in Texas, US) and benefiting from one of the world’s lowest carbon intensity rates in LNG supply chains. The small emirate is committed to further improving this condition as it announced to cut its LNG carbon intensity by 35% by 2035 thanks to the further deployment of CCS.

3.5 New Opportunities and Strategies for Geopolitical Relevance for All MENA Countries: Decarbonized Products and International Cooperation

Besides the key factors determining the future geopolitical role of MENA oil and gas exporters, all MENA countries need to find solutions to gain geopolitical relevance, ensure future revenues, and reduce total emissions in a net-zero scenario. Therefore, MENA countries could decide to focus on decarbonizing products with new, cleaner energy carriers, exploiting their strengths and competitive advantages. This solution becomes feasible also for MENA hydrocarbon importers as they share a similar renewable potential with MENA hydrocarbon exporting countries. North African countries are better positioned to export clean electricity to European markets as they benefit from geographical proximity. However, they will need to expand both domestic renewable generation and cross-border electricity interconnections as today the two shores of the Mediterranean Sea are poorly interlinked through only two cables (1400 MW combined) between Spain and Morocco.

Another strategy could be represented by the production and export of hydrogen. Firstly, a hydrogen economy could fit well in the hydrocarbon economy and management hence not requiring too many industrial structural changes in MENA countries. Then, as the international electricity trade faces several challenges from the efficiency and security standpoint, countries may prioritize hydrogen trade. Concerning large-scale long-distance energy transport, molecules can be transported more easily and cost efficiently than electrons. Hydrogen and its derivatives could play a pivotal role in decarbonizing those sectors where electricity is not feasible such as heavy industries, and the long haul maritime and aviation sectors. This option may forge a new EU-MENA energy cooperation as hydrogen can be transported by existing pipelines with some infrastructural adjustment (i.e. coating). Furthermore, new momentum to a renewed cooperation based on hydrogen is driven by the fact that Europe will not experience self-sufficiency in hydrogen even though in 2022 it updated targets for domestic hydrogen and biomethane production. Thus, the REPowerEU has also set a target of 10 Mt of renewable hydrogen imports by 2030 (EC 2022). Of these imports, 6 Mt are envisaged to be imported by pipeline in the form of hydrogen, while the rest in the form of ammonia or other hydrogen derivates, which can be more easily imported by ship.

The EU is certainly considering importing from least-cost producing regions, such as North Africa, through the support to major hydrogen import corridors. North Africa has the advantage of proximity to European markets and already existing gas pipelines. This, combined with the aspirations of some MENA countries to become lead exporters, will bring new avenues for the EU-MENA cooperation. For these reasons, the European Commission is working on a Mediterranean Green Hydrogen Partnership (MGHP) and will explore with Gulf countries opportunities for concluding Green Hydrogen Partnerships in order to create win–win solutions and establish a new sustainable energy cooperation. The MGHP will start with the EU-Egypt Hydrogen Partnership. Both oil-rich and oil-poor MENA countries, in particular Morocco, Saudi Arabia, the UAE and Oman, have been working on their hydrogen ambitions, considering both blue and green hydrogen projects. Morocco, a traditional energy-importing country, is among the leading hydrogen players in the region as it aims to use its great solar and wind potential to develop hydrogen for export. The country set an ambitious renewable target of 52% of installed electricity capacity by 2030 and has attempted to ensure partnership with European countries, notably Germany, for the development of hydrogen projects. The Gulf countries are committed to exploiting both their hydrocarbon and renewable resources to develop hydrogen. Compared to their peers in North Africa, Gulf countries have more domestic financial capabilities to invest in the development of a hydrogen economy.

Also the Gulf countries have expressed their interests in hydrogen—albeit at some different intensity. For example, Saudi Arabia has initiated major undertakings with no formal framework such as hydrogen strategy, while Oman is creating new structures and introducing various projects. The UAE has announced a policy framework and successfully realized its first ventures. On the other hand of the spectrum, Kuwait and Bahrain remain cautious, and Qatar prioritizes its LNG industry and blue hydrogen production. There are some differences also regarding the hydrogen’s color: the UAE and Saudi Arabia are balancing between green and blue, while Oman is focusing on green and Qatar stays with blue. Regarding hydrogen developments, a lack of coordination among Gulf countries is visible.

Despite the great enthusiasm on international hydrogen trade, the option faces several challenges from the economic and efficiency perspectives. Hydrogen is difficult and expensive to transport (especially in the long distances) and turning it into a more easily transportable non-carbon fuel entails further costs. Instead of focusing exclusively on hydrogen exports, MENA countries could develop clean hydrogen production in order to decarbonize (and expand) their domestic heavy industries including to export decarbonized products (steel, chemicals, etc.). It will always be more convenient to utilize renewable energy or blue/green hydrogen locally for the production of carbon-intensive intermediate or final products than to export hydrogen. In this way, MENA countries could overcome logistic and economic barriers and collect higher revenues, albeit lower compared to the oil and gas sector. Throughout the years, MENA countries have traditionally invested in carbon-intensive industries, such as steel, cement, aluminum and chemicals as well as fertilizers. The decision to decarbonize their domestic industrial output through hydrogen could protect a key economic/industrial pillar from potential and rising carbon prices at the borders of consuming countries. Moreover, it could become a competitive advantage vis-à-vis those industrial countries that do not hold a low-cost hydrogen potential. MENA could also pursue an intermediate strategy, which consists in using hydrocarbons locally in energy-intensive transformations coupled with CCUS. For example, in 2022 Emirates Steel Arkan announced its partnership with Japan’s ITOCHU Corp and JFE Steel Corporation to consider the construction of a ferrous raw material production facility in Abu Dhabi that would become an integral part of a global low carbon emission iron supply chain initially through natural gas and then through the adoption of renewable energy power sources as well as green hydrogen.