Battling for a Shrinking Market: Oil Producers, the Renewables Revolution, and the Risk of Stranded Assets

  • Thijs Van de GraafEmail author
Part of the Lecture Notes in Energy book series (LNEN, volume 61)


Oil and gas producers such as the OPEC countries and Russia are easily portrayed as the ‘losers’ of a transition to renewables. This chapter investigates their role in the new energy game and explores the strategies they could employ in a carbon-constrained world. After recounting how and why petroleum became the most important energy source in the global economy, this chapter discusses the likelihood of peak oil demand. It then looks at how private international oil companies and oil exporting countries would be affected by a global transition to renewable energy, and considers possible strategies that oil producers might follow in the face of dwindling demand and abundant reserves. The chapter concludes by arguing that the common wisdom about the geopolitics of oil needs to be revisited, as it will revolve around abundance rather than scarcity. Oil abundance creates winners (most notably the United States and import-dependent countries) but also losers (especially petrostates that are heavily dependent on oil revenues and have few competitive industries beyond fossil fuels).


Petroleum Peak oil demand OPEC and Russia Geopolitics Resource extraction 


  1. Agerholm, H. (2017). India to make every single car electric by 2030 in bid to tackle pollution that kills millions. The Independent, May 1.Google Scholar
  2. Al-Falih, K. (2017). Preparing for the future: The imperative of investment. Speech at CERAweek in Houston, Texas, March 7. Accessed June 14, 2017.
  3. Anderson, L. (1987). The state in the Middle East and North Africa. Comparative Politics, 20(1), 1–18.CrossRefGoogle Scholar
  4. Ayling, J., & Gunningham, N. (2017). Non-state governance and climate policy: The fossil fuel divestment movement. Climate Policy, 17(2), 131–149.CrossRefGoogle Scholar
  5. Barnett, J., Dessai, S., & Webber, M. (2004). Will OPEC lose from the Kyoto protocol? Energy Policy, 32(18), 2077–2088.CrossRefGoogle Scholar
  6. Barrett, P., & Philips, M. (2016). Can ExxonMobil be found liable for misleading the public on climate change. Bloomberg, September 7.Google Scholar
  7. Bartsch, U., & Müller, B. (2000). Fossil fuels in a changing climate. Oxford: Oxford University Press.Google Scholar
  8. Bauer, N., Mouratiadou, I., Luderer, G., Baumstark, L., Brecha, R. J., Edenhofer, O., et al. (2016). Global fossil energy markets and climate change mitigation—An analysis with REMIND. Climatic Change, 136(1), 69–82.CrossRefGoogle Scholar
  9. Bems, R., & de Carvalho Filho, I. (2011). The current account and precautionary savings for exporters of exhaustible resources. Journal of International Economics, 84(1), 48–64.CrossRefGoogle Scholar
  10. BP (2017). Statistical review of world energy. Accessed June 2017.
  11. Bridge, G., & Le Billon, P. (2013). Oil. Cambridge: Polity Press.Google Scholar
  12. Bridge, G., & Wood, A. (2010). Less is more: Spectres of scarcity and the politics of resource access in the upstream oil sector. Geoforum, 41(4), 565–576. CrossRefGoogle Scholar
  13. Cairns, R. D. (2014). The green paradox of the economics of exhaustible resources. Energy Policy, 65, 78–85.CrossRefGoogle Scholar
  14. Carbon Tracker. (2011). Unburnable carbon—Are the world’s financial markets carrying a carbon bubble.
  15. Christensen, C. M. (2013). The innovator’s dilemma: When new technologies cause great firms to fail. Harvard Business Review Press.Google Scholar
  16. Colgan, J. D. (2013). Fueling the fire: Pathways from oil to war. International Security, 38(2), 147–180.CrossRefGoogle Scholar
  17. Colgan, J. D. (2014). The emperor has no clothes: The limits of OPEC in the global oil market. International Organization, 68(3), 599–632.CrossRefGoogle Scholar
  18. Collier, P., & Hoeffler, A. (2004). Greed and grievance in civil war. Oxford Economic Papers, 56(4), 563–595.CrossRefGoogle Scholar
  19. Cordesman, A. H. (2003). Saudi Arabia enters the twenty-first century: The political, foreign policy, economic, and energy dimensions. Greenwood Publishing Group.Google Scholar
  20. Crooks, E., & Stacey, K. (2016). Big oil: From black to green. Financial Times, June 28.Google Scholar
  21. Dale, S. 2015. New economics of oil. In Society of Business Economists Annual Conference, Vol. 19. London.Google Scholar
  22. de Jong, S., Oosterveld, W., & Usanov, A. (2017). The geopolitical impact of climate mitigation policies: How hydrocarbon exporting rentier states and developing nations can prepare for a more sustainable future. The Hague: The Hague Centre for Strategic Studies.Google Scholar
  23. DiMuzio, T. (2012). Capitalizing a future unsustainable: Finance, energy and the fate of market civilization. Review of International Political Economy, 19(3), 363–388.CrossRefGoogle Scholar
  24. ExxonMobil. (2015). Energy outlook: A view to 2040.
  25. Fang, S., Jaffe, A. M., & Temzelides, T. (2012). New alignments? The geopolitics of gas and oil cartels and the changing Middle East. Houston: Rice University.Google Scholar
  26. Geels, F. W. (2014). Regime resistance against low-carbon transitions: Introducing politics and power into the multi-level perspective. Theory, Culture and Society, 31(5), 21–40.CrossRefGoogle Scholar
  27. Gelb, A. (1988). Oil windfalls: Blessing or curse?. New York: Oxford University Press.Google Scholar
  28. Gelb, A. 2010. Economic diversification in resource-rich countries. Paper presented at seminar on ‘Natural Resources, Finance and Development: Confronting Old and New Challenges’. Algiers, Algeria, November 4–5, 2010.
  29. Gray, M. (2011). A theory of ‘late rentierism’ in the Arab States of the Gulf. Occasional Paper No. 7. Georgetown University School of Foreign Service in Qatar.Google Scholar
  30. Hamilton, J. D. (2014). The changing face of world oil markets (No. w20355). National Bureau of Economic Research.Google Scholar
  31. Harvey, L. D. (2017). Implications for the floor price of oil of aggressive climate policies. Energy Policy, 108, 143–153.CrossRefGoogle Scholar
  32. Helm, D. (2017). Burn out: The endgame for fossil fuels. Yale University Press.Google Scholar
  33. Hertog, S. 2011. Princes, brokers, and bureaucrats: Oil and the state in Saudi Arabia. Cornell University Press.Google Scholar
  34. Hotelling, H. (1931). The economics of exhaustible resources. Journal of Political Economy, 39(2), 137–175.CrossRefGoogle Scholar
  35. International Energy Agency (IEA). (2013). World energy outlook 2013. Paris: OECD/IEA.Google Scholar
  36. International Energy Agency (IEA). (2015). World energy model documentation (2015th ed.). Paris: OECD/IEA.Google Scholar
  37. International Energy Agency (IEA). (2016). World energy outlook 2016. Paris: OECD/IEA.Google Scholar
  38. International Energy Agency (IEA). (2017). Oil 2017: Analyses and forecasts to 2022. Paris: OECD/IEA.Google Scholar
  39. International Energy Agency (IEA) and International Renewable Energy Agency (IRENA). (2017). Perspectives for the energy transition: Investment needs for a low-carbon energy system. OECD/IEA and IRENA.Google Scholar
  40. IHS CERA. (2009). Oil demand from developed countries has peaked.
  41. Johansson, D. J., Azar, C., Lindgren, K., & Persson, T. A. (2009). OPEC strategies and oil rent in a climate conscious world. The Energy Journal, 23–50.Google Scholar
  42. Karl, T. L. (1997). The paradox of plenty: Oil booms and petro-states. Berkeley: University of California Press.Google Scholar
  43. Katakey, R. (2016). Energy giant shell says oil demand could peak in just five years. Bloomberg, November 2.Google Scholar
  44. Klare, M. (2009). Rising powers, shrinking planet: The new geopolitics of energy. New York: Metropolitan Books.Google Scholar
  45. Klare, M. (2012). The race for what’s left: The global scramble for the world’s last resources. Macmillan.Google Scholar
  46. Klare, M. (2016). No blood for oil? Hydrocarbon abundance and international security. In The Palgrave handbook of the international political economy of energy (pp. 419–439). UK: Palgrave Macmillan.CrossRefGoogle Scholar
  47. Krane, J. (2015). A refined approach: Saudi Arabia moves beyond crude. Energy Policy, 82, 99–104.CrossRefGoogle Scholar
  48. Lederman, D., & Maloney, W. F. (2007). Trade structure and growth. In D. Lederman & W. F. Maloney (Eds.), Natural resources: Neither curse nor destiny (pp. 15–40). Washington, DC: Stanford University Press and the World Bank.Google Scholar
  49. Levy, D. L., & Kolk, A. (2002). Strategic responses to global climate change: Conflicting pressures on multinationals in the oil industry. Business and Politics, 4(3), 275–300.CrossRefGoogle Scholar
  50. Luciani, G., & Beblawi, H. (Eds.). (1987). The Rentier State. Croom Helm.Google Scholar
  51. Lund, H., Dudley, B., Descalzi, C., van Beurden, B., Sætre, E., & P. Pouyanné. (2015). Widespread carbon pricing is vital to tackling climate change. Financial Times, June 1.Google Scholar
  52. Mahdavy, H. (1970). The patterns and problems of economic development in rentier states: The case of Iran. In M. A. Cook (Ed.), Studies in the economic history of the Middle East from the rise of Islam to the present day (pp. 428–467). London: Oxford University Press.Google Scholar
  53. Magew, N. (2017). Dong Energy sells oil and gas business to INEOS. Financial Times, May 24.Google Scholar
  54. McGlade, C., & Ekins, P. (2015). The geographical distribution of fossil fuels unused when limiting global warming to 2 [deg] C. Nature, 517(7533), 187–190.CrossRefGoogle Scholar
  55. McKibbin, W. J., Ross, M. T., Shackleton, R., & Wilcoxen, P. J. (1999). Emissions trading, capital flows and the Kyoto Protocol. The Energy Journal, 287–333.Google Scholar
  56. Mcnally, R. (2017). Crude volatility. Columbia: Columbia University Press.Google Scholar
  57. Millar, R., Allen, M., Rogelj, J., & Friedlingstein, P. (2016). The cumulative carbon budget and its implications. Oxford Review of Economic Policy, 32(2), 323–342.CrossRefGoogle Scholar
  58. Mitchell, T. (2011). Carbon democracy: Political power in the age of oil. Verso Books.Google Scholar
  59. Morrison, K. M. (2009). Oil, nontax revenue, and the redistributional foundations of regime stability. International Organization, 63(1), 107–138.MathSciNetCrossRefGoogle Scholar
  60. Nasiritousi, N. (2017). Fossil fuel emitters and climate change: Unpacking the governance activities of large oil and gas companies. Environmental Politics, 1–27.Google Scholar
  61. Nussbaum, A., & Carroll, J. (2017). Exxon and Conoco reiterate support for Paris climate deal. Bloomberg, May 31.Google Scholar
  62. O’Hanlon, M. (2010). How much does the U.S. spend protecting Persian Gulf oil? In C. Pascual, & E. Zambetakis (Eds.), Energy security: Economics, politics, strategies and implications (pp. 59–72), Washington, DC: Brookings.Google Scholar
  63. Olszynski, M., Mascher, S., & Doelle, M. (2017). From smokes to smokestacks: Lessons from tobacco for the future of climate change liability. Georgetown Environmental Law Review, forthcoming.Google Scholar
  64. OPEC. (2017). Annual statistical bulletin. Vienna: OPEC.Google Scholar
  65. Oreskes, N., & Conway, E. M. (2011). Merchants of doubt: How a handful of scientists obscured the truth on issues from tobacco smoke to global warming. USA: Bloomsbury Publishing.Google Scholar
  66. Ostrowski, W. (2013). The political economy of global resources. In R. Dannreuther & W. Ostrowski (Eds.), Global resources: Conflict and cooperation (pp. 98–115). Basingstoke: Palgrave MacMillan.CrossRefGoogle Scholar
  67. Persson, T. A., Azar, C., Johansson, D., & Lindgren, K. (2007). Major oil exporters may profit rather than lose, in a carbon-constrained world. Energy Policy, 35(12), 6346–6353.CrossRefGoogle Scholar
  68. Reiche, D. (2010). Energy policies of Gulf Cooperation Council (GCC) countries—Possibilities and limitations of ecological modernization in rentier states. Energy Policy, 38(5), 2395–2403.CrossRefGoogle Scholar
  69. Ross, M. (2001). Does oil hinder democracy? World Politics, 53(3), 325–361.CrossRefGoogle Scholar
  70. Ross, M. (2012). The oil curse: How petroleum wealth shapes the development of nations. Princeton University Press.Google Scholar
  71. Sachs, J., & Warner, A. (1995). Natural resource abundance and economic growth (No. 5398). Washington, DC: National Bureau of Economic Research.Google Scholar
  72. Sachs, J. D., & Warner, A. M. (2001). The curse of natural resources. European Economic Review, 45(4), 827–838.CrossRefGoogle Scholar
  73. Schumpeter, J. A. (1942). Capitalism, socialism and democracy. New York: Harper.Google Scholar
  74. Schwarz, R. (2008). The political economy of state-formation in Arab Middle East: Rentier states, economic reform, and democratization. Review of International Political Economy, 15(4), 599–621.MathSciNetCrossRefGoogle Scholar
  75. Shahine, A. (2017). Saudi reserves dip below $500 billion as BofA sees headwinds. Bloomberg, May 28.Google Scholar
  76. Sinn, H. W. (2012). The green paradox: A supply-side approach to global warming. MIT press.Google Scholar
  77. Skjærseth, J. B., & Skodvin, T. (2001). Climate change and the oil industry: Common problems, different strategies. Global Environmental Politics, 1(4), 43–64.CrossRefGoogle Scholar
  78. Smith, B. (2012). Oil and politics in Southeast Asia. In R. E. Looney (Ed.), Handbook of oil politics (pp. 206–218). Abingdon: Routledge.Google Scholar
  79. Stern, R. J. (2016). Oil scarcity ideology in US foreign policy, 1908-1997. Security Studies, 25(2), 214–257.CrossRefGoogle Scholar
  80. Sultan, N. (2013). The challenge of shale to the post-oil dreams of the Arab Gulf. Energy policy, 60, 13–20.CrossRefGoogle Scholar
  81. Summers, L. H. (2014). Reflections on the ‘new secular stagnation hypothesis’. In C. Teulings & R. Baldwin (Eds.), Secular stagnation: Facts, causes and cures (pp. 27–40).Google Scholar
  82. Sussams, S., & Leaton, J. (2017). Expect the unexpected: The disruptive power of low-carbon technology. Grantham Institute Imperial College Report.
  83. UNEP. (2016). The emissions gap report 2016: A UNEP synthesis report. Nairobi: UNEP.Google Scholar
  84. UNEP and BNEF. (2016). Global trends in renewable energy investment 2016. Frankfurt: UNEP/BNEF.Google Scholar
  85. UNFCCC. (2015). Report on the structured expert dialogue on the 2013–2015 review. FCCC/SB/2015/INF.1. May 4, 2015. Bonn: UNFCCC.Google Scholar
  86. Unruh, G. C. (2000). Understanding carbon lock-in. Energy Policy, 28(12), 817–830.CrossRefGoogle Scholar
  87. Van de Graaf, T. (2013). The “oil weapon” reversed? Sanctions against Iran and US-EU structural power. Middle East Policy, 20(3), 145–163.CrossRefGoogle Scholar
  88. Van de Graaf, T. (2016). The new oil age is upending OPEC and its production politics. World Politics Review, March 1.Google Scholar
  89. Van de Graaf, T. (2017). Is OPEC dead? Oil exporters, the Paris agreement and the transition to a post-carbon world. Energy Research & Social Science, 23, 182–188.CrossRefGoogle Scholar
  90. Van de Graaf, T., & Colgan, J. D. (2017). Russian gas games or well-oiled conflict? Energy security and the 2014 Ukraine crisis. Energy Research & Social Science.Google Scholar
  91. Van de Graaf, T., Sovacool, B., Ghosh, A., Kern, F., & Klare, M. (2016). States, markets, and institutions: Integrating international political economy and global energy politics. In The Palgrave handbook of the international political economy of energy (pp. 3–44). UK: Palgrave Macmillan.Google Scholar
  92. Van de Graaf, T., & van Asselt, H. (2017). Introduction to the special issue: Energy subsidies at the intersection of climate, energy, and trade governance. International Environmental Agreements, 17(3), 313–326.CrossRefGoogle Scholar
  93. Van de Graaf, T., & Verbruggen, A. (2015). The oil endgame: Strategies of oil exporters in a carbon-constrained world. Environmental Science & Policy, 54, 456–462.CrossRefGoogle Scholar
  94. van der Ploeg, F., & Withagen, C. (2015). Global warming and the green paradox: A review of adverse effects of climate policies. Review of Environmental Economics and Policy, 9(2), 285–303.CrossRefGoogle Scholar
  95. Verbruggen, A., & Van de Graaf, T. (2013). Peak oil supply or oil not for sale? Futures, 53, 74–85.CrossRefGoogle Scholar
  96. Waisman, H., Rozenberg, J., & Hourcade, J. C. (2013). Monetary compensations in climate policy through the lens of a general equilibrium assessment: The case of oil-exporting countries. Energy Policy, 63, 951–961.CrossRefGoogle Scholar
  97. Weinberg, D. A. (2014). King crude: How Iraq’s ISIS crisis restores Saudi influence. Forbes, February 7.Google Scholar
  98. World Bank. (2017). World development indicators.
  99. Yergin, D. (1991). The prize: The epic quest for oil, money, and power. Simon & Schuster.Google Scholar

Copyright information

© Springer International Publishing AG 2018

Authors and Affiliations

  1. 1.Department of Political SciencesGhent UniversityGhentBelgium

Personalised recommendations