Mideast: The UAE’s Push To Diversify Beyond Oil
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Calls for more sustainable governance iIn one of the world’s top oil exporters are growing, a testament of the United Arab Emirates’ (UAE) commitment to diversifying its revenues from petroleum sales.
In recent years, the UAE has been doubling down on ambitious climate and economic diversification goals.
Although oil remains the backbone of the Emirati economy, the OPEC+ member has been increasingly investing in hydrogen and other types of renewables.
Amid an unprecedented climate crisis, the UAE, notably its two most powerful emirates Dubai and Abu Dhabi, has made significant progress in the field of renewable energy, aiming to achieve carbon neutrality by mid-century.
In 2023, the UAE hosted the 28th UN Framework Convention on Climate Change (COP28) at Expo City Dubai. As some 85,000 participants met in Dubai, the parties called on governments to speed up the transition away from fossil fuels toward renewable energy.
Yet the main question remains: Why would one of the world’s biggest oil exporters agree to distance itself from fossil fuels? Could the global push for a world free from fossil fuels really have reached the UAE – or is this green rebranding the latest addition to the glitz and glamor of the Emirates?
Crucial economic Diversification
The UAE’s economy heavily relies on oil, with the oil and gas industry directly contributing to 30 percent of the country’s GDP, and 13 percent of its total exports.
Yet, regional and international geopolitical instability is increasingly affecting oil prices, making oil export a less reliable source of revenue.
For instance, the Israel-Gaza war has caused significant volatility in oil prices, as fears of a broader conflict engulfing the region spread.
The current climate crisis is also drastically impacting the oil market. While oil remains the main source of energy across the world, many if not most countries are turning to more sustainable energy sources, a trend that if continued, will see the demand for oil drop.
According to the U.S. Energy Information Administration, global oil demand growth is slowing, with a forecast of approximately 700,000 barrels per day for 2025, marking a significant decrease from previous years. As the demand for oil decreases, the supply of oil increases, causing oil prices to drop as it becomes a less sought after commodity.
Yet, few commodities shape the UAE’s economy like oil. Indeed, a 2023 report from the Carbon Tracker Initiative forecast that the Emirati petrostate could lose over half of its expected oil and gas income by 2040, an estimated $8 trillion in lost revenue.
Moving towards renewable energy does not mean an immediate stop to the Emirates’ oil export, let alone to its oil production. The strategy adopted by the UAE is to use renewable energy to meet growing domestic needs, while simultaneously, continuing to export oil to maximize profit from existing oil stockpiles.
A Regional Trend
Among the world’s 10 largest exporters of oil, the UAE stands as a powerhouse in the international oil market, making the decision to diversify its energy sources interesting, yet not unique.
The UAE’s neighbors Qatar and Saudi Arabia are also bolstering their investments in green energies, such as solar and wind power.
The Gulf is particularly vulnerable to the effects of climate change, facing risks of severe droughts, heat waves, and rising sea levels.
It is in these countries’ best interest to address climate change and its causes, starting with oil.
Gulf countries’ push, including the UAE’s, to diversify their energy sources and exports is not only a testament to the growing international effort to prioritize renewable energy over fossil fuels but also an act of self-preservation for a region that is particularly vulnerable to the consequences of climate change.
Fighting Climate Change Beyond Oil
Divesting from an exclusively oil-based economy, the UAE is also amongst the leaders of “smart cities”, having heavily invested in Masdar City, an urban community based in Abu Dhabi, built to become “the world’s most sustainable eco-city.”
First envisioned to become the sustainable city of tomorrow, powered entirely by solar energy, Masdar City has been qualified as a “way of attracting publicity and attention,” by Columbia Business School Professor, Geoffrey M. Heal.
Indeed, started in 2006, the Masdar City project has been severely impacted by the 2008 recession, with the economic crisis significantly scaling back the dedicated budget.
Additionally, while Masdar City was meant to become the first carbon-neutral city in the world, it has failed to meet its net-zero goal, and has been forced to shift its aspirations from becoming a “zero-carbon” city to becoming a “low-carbon” city.
However, although Masdar City has failed to reach its population goal and its hope of becoming a fully carbon-neutral city, it continues to stand as an example for development and research in green technology, acting as a testbed for future sustainable cities.
For instance, the Emirates’ neighbor, Saudi Arabia, is currently attempting to build “The Line,” a sustainable and futuristic city modeled on Masdar City.
Carbon Neutrality In The UAE: A Utopia?
While the UAE is actively working towards reaching its carbon neutrality goal by 2050, the country’s transition to renewable energy still faces significant challenges.
Even as the country's revenue is increasingly relying on non-oil sectors, the government’s investments, aligned with its fiscal position, are still largely driven by oil revenues.
For instance, the state-owned Abu Dhabi Oil Company has committed $150 billion to a capital expenditure plan for 2023-2027 in order to significantly expand its oil production capacity, as oil and gas exports continue to provide the majority of government revenue.
Although the UAE can be deemed as a leading example of an oil-rich country making substantial diversification to its oil-based economy, the Emirates still have a long road ahead before becoming completely independent from the hydrocarbon sector.