Energy & the State

Summer 2016 A Publication based at St Antony’s College

Energy & the State: The Impact of Low Oil Prices

Featuring

H.E. Anas Al-Saleh Minister of Finance and Oil State of Kuwait

H.E. Abdalla Salem El-Badri Secretary General OPEC

Adnan Amin Director-General IRENA

Majid Jafar Chief Executive Officer Crescent Petroleum

Foreword by Roula Majdalani OxGAPS | Oxford Gulf & Arabian Peninsula Studies Forum

OxGAPS is a University of Oxford platform based at St Antony’s College promoting interdisciplinary research and dialogue on the pressing issues facing the region.

Senior Member: Dr. Eugene Rogan

Gulf Affairs Editorial Committee:

Chairman & Managing Editor: Suliman Al-Atiqi Vice Chairman & Partnerships: Adel Hamaizia Editor: Jamie Etheridge GCC Relations: Zaid Belbagi Copy Editor: Yasmina Abouzzohour Copy Editor: Jack Hoover Research Assistant: Matthew Greene

Gulf Affairs is an independent, non-partisan journal organized by OxGAPS, with the aim of bridging the voices of scholars, practitioners, and policy-makers to further knowledge and dialogue on pressing issues, challenges and opportunities facing the six member states of the Gulf Cooperation Council.

The views expressed in this publication are those of the author(s) and do not necessarily represent those of OxGAPS, St Antony’s College, or the Univer- sity of Oxford.

Contact Details: OxGAPS Forum 62 Woodstock Road Oxford, OX2 6JF, UK Fax: +44 (0)1865 595770 Email: [email protected] Web: www.oxgaps.org

Design and Layout by B’s Graphic Communication. Email: [email protected]

Cover: Oil pipeline in the desert of Qatar.

Photo Credits: Cover - Philipus/123RF; 2 - Yasser Al Zayyat/Kuwait Times; 5 - Herbert Pfarrhofer/EPA; 9 - Saudi Press Agency; 12 - Philipus/123RF; 32 - Zhang Jianshe; 36 - Foreign and Commonwealth Office’s Photostream. The Issue ‘Energy & The State: The Impact of Low Oil Prices’ was supported by: Table of Contents

Foreword iv

Roula Majdalani iv

I. Overview vi

Energy & the State: The Impact of Low Oil Prices vi Laura El-Katiri, Theme Editor

II. Analysis 1

Meaningful Change or False Dawn: Policymaking in an Age of Austerity 2 by Kristian Coates Ulrichsen

OPEC Relinquishes Control of the Oil Market 5 by Kate Dourian

The Obstacles Facing Renewables in the Gulf 9 by Faris Al Sulayman

Dubai: An Inspiration for Green Economy Transition in the Gulf 12 by Katarina Uherova Hasbani

III. Commentary 17

The Impact of Low Oil Prices on the Gulf 18 by Paul Stevens

The New Oil Normal Paradigm 20 by Nasser Saidi and Patricia McCall

Opening up the Decision-Making Process in Saudi Arabia 22 by Mark C. Thompson

The Gulf States and Oil Prices 24 by Giacomo Luciani

ii Gulf Affairs Table of Contents

IV. Interviews 27

H.E. Anas Al-Saleh 28 Minister of Finance, Minister of Oil State of Kuwait

H.E. Abdalla Salem El-Badri 32 Secretary General Organization of the Petroleum Exporting Countries (OPEC)

Adnan Amin 36 Director-General International Renewable Energy Agency (IRENA)

Majid Jafar 40 Chief Executive Office Crescent Petroleum

V. Featured Infographics and Timeline 44

Featured Infographics: GCC Renewable Energy Outlook 44 by IRENA

Timeline 46

Energy & the State: The Impact of Low Oil Prices |Summer 2016 iii Foreword

Foreword by Roula Majdalani

In the past several years, global economic activity has remained subdued, downside economic risks have persisted, fragile and slowing growth has been seen in many parts of the world, and high debts continue to loom large over global recovery. Oil prices have declined more than 70 percent compared with June 2014 levels, and uncertain predictions have created rising sources of concern, demonstrating a major fundamental alteration in the global energy system that has unavoidably affected the economies of the Gulf Cooperation Council (GCC) countries.

The GCC is located in one of the most energy-rich regions in the world. It is blessed with huge oil and conventional gas reserves constituting nearly a third of world oil and more than a fifth of global natural gas reserves, which are concentrated in Kuwait, Qatar, Saudi Arabia and the UAE. The recent fall in oil prices caused a number of sovereign credit-rating downgrades in the Gulf region. These affected Bahrain and Oman the most, whereas Kuwait, Qatar, Saudi Arabia and UAE fared better.

Energy and the GCC countries are inextricably intertwined, a fact made clear in this current period of vol- atile oil prices. The future of global energy demand and supply is highly dependent on the region’s energy resources, and any alteration of the Gulf’s customary position in the energy scene threatens the international stability of the energy supply as well as the region’s significance as the leading fossil fuels supplier. Oil and natural gas reserves also constitute the fundamental pillar of the GCC states’ growth and have powered the socio-economic development that transformed them, within a mere few decades, into some of the world’s richest nations.

Energy consumption within the region has risen sixfold since the 1980s, faster than in any other part of the world. GCC countries are primarily dependent on fossil fuels to meet their energy requirements. This is now a critical situation as demand skyrockets and their economies and populations continue to grow. Indeed, the GCC states’ incomparable economic growth together with their rapidly rising living standards have left their mark on the region’s domestic energy needs. Over the next decade, as the GCC population is expected to increase substantially, the region will see an increasing strain on its supplies of electricity, food, and water. The ways in which the region will face up to these challenges will significantly impact its prosperity and quality of life.

In the near term, however, the rate of economic growth may be threatened by diminishing oil revenues just when the needs of a burgeoning population are the greatest. Seen by some as a blessing in disguise, such low prices can serve as an opportunity for GCC countries to make productive changes in relation to their energy strategies and economic diversification.

With this in mind, concerted action on energy for sustainable development is essential for the GCC countries, which face unprecedented challenges in aligning the development agenda with their national priorities, capabilities, and circumstances. Thus, transitioning to a sustainable energy system is an opportunity for GCC countries to improve energy efficiency (EE) from source to use and minimize environmental impacts. This transition will enhance efficiency not only in consumer-level energy consumption, but also upstream in generation, transmission, and distribution.

iv Gulf Affairs Foreword

The Gulf region is not only home to some of the world’s leaders in oil and gas production, but it is also a potential powerhouse of renewable energy (RE). RE can also render development more sustainable and help reduce the carbon intensity of the energy sector. Despite existing RE and EE policies and institutional frameworks within the GCC countries, reform is still required to develop appropriate RE solutions and support EE measures. RE applications and EE measures still need to be promoted and synergized to produce a substantive impact on the ground. Levelling the playing field to attract private sector investment in both areas includes the adoption of supportive policies, strategies, incentives, and financing mechanisms.

Furthermore, in light of the current oil price decline, policy-makers in GCC countries should push for the reform of domestic energy pricing by reducing subsidies, in particular on petroleum products and electricity. This will lead to savings in government spending and avail budgets for investment on RE and EE. There is also an urgent need to adopt development policies for economic diversification. This should include a focus on employment-intensive economic activities in a range of sectors prioritized to promote sustainable economic development over economic growth.

Major uncertainties in the world energy market, geopolitical climate, and recovering global economy mean that it is ever more important for the GCC countries to build a sustainable energy system. This process would involve a substantial transition from what is in place today. Such a transition will call for bold strategies if the GCC region is to realize a more sustainable future.

Roula Majdalani is the Director of the ESCWA Sustainable Development Policies Division at UN-ESCWA. The division promotes cooperation among ESCWA countries on the sustainable management of natural resources with a focus on water, energy and green production. She joined ESCWA in 1989 and has served as a Human Settlements Officer, First Economic Affairs Officer on water resources, and Chief of the Technical Cooperation Section. Majdalani holds a master’s degree in Urban and Regional Planning from Syracuse University and previously worked with Dar Al-Handasah Consultants (London).

Energy & the State: The Impact of Low Oil Prices | Summer 2016 v I. Overview

Energy and the State: The Impact of Low Oil Prices Overview by Laura El-Katiri, Theme Editor

The GCC states form a historical core part of the world’s largest oil producing region, the Middle East. Com- bined, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) hold around 30 percent of proven world crude oil and around a fifth of global gas reserves. Saudi Arabia alone holds the world’s second largest oil reserves—with around 268 billion barrels—and is the world’s third largest producer of total petroleum liquids. Kuwait, Qatar, Saudi Arabia and the UAE also form an important backbone of the group of Arab producers within the Organization of the Petroleum Exporting Countries (OPEC), whose production policies continue to be important influencing factors on global oil markets.

In addition to oil, the Gulf region is also home to other significant energy sources. Qatar holds the world’s fourth largest dry gas reserves, and is its largest producer and exporter of liquefied natural gas (LNG). The region is rich in solar resources as well: with a hot and arid climate, the GCC enjoys a reliable supply of sunshine throughout the year. While the latter remains largely underutilized in the Gulf, oil and natural gas remain at the heart of the GCC states’ modern-day economies. Fossil fuel export revenues account for more than 90 percent of government revenue across the GCC, rendering the region exceptionally vulnerable to fluctuations in global oil prices.

The past few years have been an eventful time for Gulf energy producers. Not only were Europe and North America affected by one of the worst financial crises in post-World War history, reducing demand growth from these primary energy markets, but political crises in many parts of the Arab world also impacted several oil producers outside the Gulf, including Libya and Iraq. For several years, international sanctions against Iran also removed substantial volumes of oil from international markets. At the same time, thanks to new technologies, US unconventional (“shale”) oil and gas production skyrocketed, and America emerged as a new super producer of oil and gas, pouring large volumes onto international markets.

The international market dynamics that unfolded since the beginning of this decade include a period of exceptionally high and stable oil prices for over three years, stability which lasted until prices gradually began to collapse in the summer of 2014. GCC oil and gas producers have felt the impact of these changing global dynamics directly through record windfall export revenues followed by the worst decline since the oil price crisis of 1998.

The GCC states’ rising prosperity has meanwhile begun to confront the region’s policymakers with a paral- lel challenge: the GCC economies’ own surging energy demand. Having been a marginal energy consumer compared with other major world economic regions, the GCC has in recent years evolved as a major driver of regional demand growth for energy in its own right. Led by the region’s rapidly growing populations, highly energy-intensive industrialization, and high living standards, this trend is expected to continue well into the 2030s.

The GCC economies’ vulnerabilities to global oil price fluctuations and growing energy needs imply that regional policy makers face many challenges beyond just international oil and gas strategies. Decision

vi Gulf Affairs I. Overview makers must increasingly include questions about the long-term management of domestic energy markets, as well.

In search of strategies for a more sustainable energy future within the region, a number of GCC members have started to explore alternative energy sources such as solar power, a technology that is relatively new to the region and in the past held little attraction based on economic considerations. Another strategic line has been the more proactive management of domestic energy demand. This has included the reform of several GCC members’ domestic prices for energy, which have historically been among the lowest in the world.

This issue of Gulf Affairs explores some of the imminent questions facing the GCC economies’ energy markets. How have different energy producers in the Gulf reacted to the precipitous drop in oil prices since mid-2014, specifically in terms of their fiscal situations? Has the shale revolution really “changed the game” for energy producers in the Gulf? How are the role of energy subsidies and reforms evolving in the GCC? Do the new “price realities” call for a renegotiation of the social contract in GCC states? How is domestic energy consumption developing among GCC states? What can be done to alter this trajectory? And finally, “To cut or not to cut?” That is the question.

The articles are written by distinguished scholars, practitioners and officials of energy policy in the Gulf. They represent a broad range of opinions and perspectives and shed light on some of the contemporary challenges and prospects facing the GCC region amid low oil prices.

Laura El-Katiri is an Abu Dhabi-based analyst and consultant specializing in energy policy in the Middle East and North Africa with focus on the Gulf Cooperation Council (GCC) members. She was previously a Research Fellow at the Oxford Institute for Energy Studies and a Teaching Fellow at the School of Oriental African Studies (SOAS), University of London.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 vii

II. Analysis II. Analysis

Workers in Kuwait’s public oil sector went on strike for three days in April 2016 in opposition to government plans to reduce state spending by cutting employee benefits.

Meaningful Change or False Dawn: Policymaking in an Age of Austerity by Kristian Coates Ulrichsen

new generation is taking office in the Gulf as a cadre of ambitious, young ruling family members and technocrats have emerged in Qatar, Saudi Arabia, and the United Arab Emirates (UAE). Both the Emir and the newly-appointed Foreign Minister of Qatar are 35 years old, while the most talked-about figure in Saudi Arabia, Deputy Crown Prince Mohammad bin Salman, is 30 years old. Their rise to power is reminiscent of the early years of the Gulf states’ existence as independent sovereign countries, and the generation of ‘nation-builders’ such as Sheikh Zayed in the UAE. However, while that generation was tasked with overseeing the entrance of the GCC states into the oil era and cushioning the transformative impact of social and economic change, the task facing this generation is far harder and made more urgent by the recent collapse in world oil prices.

The speed with which budget surpluses have turned into deficits since 2014 has illustrated the scale of the economic volatility in GCC economies and their continuing vulnerability to oil price swings, notwithstanding the heavy emphasis on economic diversification since the early 2000s. The

2 Gulf Affairs II. Analysis

International Monetary Fund has projected that lower oil prices cost Arab oil exporters some $360 billion in lost revenues in 2015 and predicted that the six GCC states will face a cumulative fiscal deficit of as much as $1 trillion over the next five years.1 The situation is most acute in comparatively resource-poorer Bahrain, which was stripped of its investment grade credit rating by S&P in February 2016, and Oman, where GDP is estimated to have contracted by between fourteen and seventeen percent in 2015. 2 Howev- er, even in wealthier Abu Dhabi, nominal GDP is set to be 24 percent lower in 2016 than the peak year of 2014, while Saudi Arabia ran a budget deficit of $98 billion and burned through more than $100 billion in reserves in 2015. 3

Financial countermeasures

A raft of measures has been taken under consideration in response to these rising fiscal pressures—including spending cuts and culling jobs, raising debt, drawing down on savings, and selling assets, with reported sell-offs by multiple Gulf-based sovereign wealth funds in recent months. Among the most contentious policy responses has been the long overdue reform of subsidy programs that—in energy alone—were estimated to have cost Saudi Arabia $107 billion in 2015. 4 All GCC states bar Kuwait have taken action to scale back fuel subsidies, with the UAE being the first to do so in August 2015. Prices for gasoline have risen by as much as 56 percent in Bahrain and 50 percent in Saudi Arabia with double digit rises also in Qatar and Oman, albeit from very low starting points.5 Bahrain has also removed subsidies on meat prices, expressed its intent to phase out power and water subsidies, and has raised industrial gas use prices, as has Oman.6

And yet, Moody’s Investors Service has forecast that the spate of fuel price rises will only lead to savings equivalent to about one percent of GDP and, as such, do little more than dent the overall size of the fiscal deficits facing the GCC states.7 Moreover, the broader political sensitivity of tampering with one of the key mechanisms of wealth redistribution from the state to its citizenry has been evident most strongly in Ku- wait and Bahrain, the two Gulf states with the most vocal and activist parliamentary bodies. It will not be easy for GCC officials to make further and deeper cuts that really begin to impact on Gulf nationals rather than expatriates; Bahrain, for instance, softened the blow of the meat price rises by compensating citizens for the additional cost involved. In addition, the demographic imbalance in Gulf labor markets, where up to 80 percent of some labor forces consist of migrant workers, has enabled state-owned firms to lay off considerable numbers of higher-skilled foreigners in initial rounds of cost-cutting, particularly in Qatar. However, sooner or later, nationals will inevitably start to feel the pain, too.

The wider issue

The real challenge for officials in the Gulf is how to reformulate a ruling ‘bargain’ that has underpinned sociopolitical stability for decades but is no longer economically sustainable. Until 2014, the prevailing hope in the region was that this ‘moment of truth’ was more of a medium-term issue rather than an urgent short-term one, and that politically sensitive reductions in current spending could be avoided or minimized by cutbacks in capital expenditure instead. Moreover, the regional political upheaval of the past five years illustrat-

Energy & the State: The Impact of Low Oil Prices | Summer 2016 3 II. Analysis

ed how the instinctive response of many governments in the GCC was to intensify populist short-term measures intended to blunt or pre-empt the social and economic roots of potential or actual political ten- sion. Such policies succeeded in preserving political structures and stability (for the most part) in 2011 but had the unintended consequence of, as Steffen Hertog has noted, creating “a ratchet effect that demands ever larger outlays during every political crisis” because “expectations are easy to raise but difficult to curb.” 8

Whereas current spending on wages and subsidies largely tracked the increase in oil prices during the decade after 2003, it will be much harder, if not outright impossible, to cut public expenditure by anything that remotely matches the decline in oil revenues over the past eighteen months. There is, to be sure, a much more open political and even public acceptance of the realization that change must happen and that the status quo simply cannot continue, and such sentiments have clearly been articulated by figures such as Prince Mohammad bin Salman in Saudi Arabia and in the recent government reshuffle undertaken by Sheikhs Mohammed bin Zayed and Mohammed bin Rashid in the UAE. In addition, the years of plenty perhaps have dulled memories of previous downturns, but Gulf states have faced similarly difficult situations in the past and survived intact; most GCC states ran budget deficits for most of the 1980s and 1990s—Saudi debt reached nearly 100 percent of GDP in 1998 compared with about two percent today.9

Periods of change inevitably involve tradeoffs, and while recent months have seen senior public figures in the Gulf talk about the bigger picture and think creatively and outside of the box, the true test of their ‘Thatcherite’ tendencies will be whether they can push through and implement successfully major reforms in the face of opposition from vested political or economic interests. Recent announcements of further policy reform in Saudi Arabia and Kuwait have been noticeably short on actual detail, and the delay in announcing Saudi Arabia’s National Transformation Program, without which the expansive Saudi Vision 2030 cannot properly be assessed (or implemented), may turn out to be a harbinger of things to come.

Dr. Kristian Coates Ulrichsen is a Fellow for the Middle East at Rice University’s Baker Institute for Public Policy.

1 Simeon Kerr, “IMF Warns on Gulf States Growth amid Oil Price Fall and Conflict,”Financial Times, 21 October 2015. 2 Archane Narayanan, “Bahrain Cancels $750 Mln Bond Sale after S&P Downgrade,” Reuters, 18 February 2016; “Oman’s Nominal GDP Falls by 14.2% in First Half of 2015,” Oman Times, 13 January 2016. 3 “Abu Dhabi: Low Oil Prices Take their Toll on Economy,” Gulf States News, Volume 40, Issue 1010, 18 February 2016; Vivian Nereim and Glen Carey, “Saudi 2015 Budget Deficit is $98 Billion as Revenue Drops,” Bloomberg Business, 28 December 2015. 4 Simeon Kerr, “Saudi Arabia Looks to Reform Energy Subsidy Program,” Financial Times, 12 November 2015. 5 Tim Boersma and Steve Griffiths, Reforming Energy Subsidies: Initial Lessons from the United Arab Emirates, (Energy, Security and Climate Initiative, Brookings: January 2016), 6. 6 Ibid. 7 “Fuel Subsidy Reforms to Make Only a Modest Dent in GCC Deficits,” Gulf States News, Volume 40, Issue 1010, 18 February 2010. 8 Steffen Hertog, “The Costs of Counter-Revolution in the Gulf,” Foreign Policy, 31 May 2011. 9 Thomas Lippman, “New Saudi Budget: the Good, the Bad, and the Potentially Ugly,” Lobe Log, 29 December 2015.

4 Gulf Affairs II. Analysis

Oil ministers attend the start of the 166th OPEC Conference on 27 November 2014 in Vienna, Austria.

OPEC Relinquishes Control of the Oil Market by Kate Dourian

ovember 2014 was a turning point for OPEC, an organization in which four of the six GCC nations hold considerable sway. Oil prices, which had been trading above $100 per barrel at the start of the year, were in rapid decline; US light tight oil was eroding OPEC’s market share and the producer club’s main rival, Russia, was producing at full throttle. Markets were oversupplied and OPEC was consistently producing above its ceiling of 30 million barrels per day.

The general expectation amongst oil market pundits was that OPEC would take action to stabilize the market. However, not all 13 ministers during the 166th OPEC meeting in Vienna were of the same mind. OPEC lynchpin Saudi Arabia and its wealthy GCC allies Kuwait, Qatar, and the UAE were no longer willing to take on the burden of cutting their production only to see others, many of whom produce at higher cost, take their market share. The Saudis also let it be known that they would no longer reduce their oil output without the cooperation of other key producers like Mexico and Russia even though previous attempts at coordinated action by OPEC and non-OPEC producers had failed. By the end of December 2014, the price per barrel of oil had fallen by 70 percent compared to the previous June, from more than $100 to just over $32.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 5 II. Analysis

The GCC producers, with their huge reserves accumulated during four years of $100-plus oil, could afford to take what they assumed would be short-term pain for longer-term gain. Not so the less fiscally robust producers such as Algeria, Venezuela, and especially Iraq, which is grappling with its own set of challenges. With oil prices trading at their lowest level in more than a decade, the pain was not spread evenly amongst all members, and the clamor for action began no sooner than the ministers had returned to their respective capitals. 4

The battle for market share

Saudi Arabia has made clear since then that it would not shift its policy even if oil prices fell to $20 per barrel. The battle for market share had begun, and there were casualties on both sides of the OPEC, non- OPEC divide. Indeed, Ali Al-Naimi, the Saudi oil minister, said at a recent industry gathering in Houston that there was no point in pursuing a production cut agreement because few would adhere to it. 5

An additional factor is the re-entry to the market of Iran, which saw its oil exports fall by more than 1 million barrels per day after the imposition of EU sanctions on the import of Iranian oil in mid-2012, resulting in the loss of both market share and revenues. Back in the market after the lifting of EU and UN Security Council sanctions at the start of 2016, Iran is determined to restore its previous position as OPEC’s second largest producer, a ranking now held by Iraq. 6

In the meantime, OPEC’s oil export revenues continue to fall, slumping from a peak of $1.2 trillion in 2012 to just $500 billion in 2015, when demand grew at a very healthy 1.7 percent year-on-year. With oil prices at current levels—ranging between $30 and $40 per barrel since the start of 2016—the market balance and price correction that OPEC believed would come in 2015 has yet to materialize and has likely been postponed to 2017. The International Energy Agency (IEA), which represents the energy consumers of the industrialized world, forecasts annual average demand growth of 1.2 million barrels per day to 2021, which it says represents a very solid outlook in historical terms. However, it is difficult to predict at what price oil markets will balance.

The impact of low prices

OPEC’s policy of non-intervention has certainly had an impact on both producing and consuming nations. In the US, light tight oil production is in decline, though not to the extent or the speed anticipated by OPEC in November 2014.7 The IEA expects US light tight oil production to fall by nearly 600,000 barrels a day this year and by 200,000 b/d next year, reversing impressive gains since 2008, when oil prices hit their historic peak above $147 per barrel and encouraged the rush into shale. While OPEC output has held relatively steady since 2010, US production of light tight oil, extracted in a process called hydraulic fractur- ing or “fracking” as it’s commonly known in the industry, contributed to more than half of overall growth in global oil output.8 That led to a fall in US imports from foreign oil producers, which had to compete for a shrinking market elsewhere. Competition is particularly fierce in the Asian market, where demand growth is highest. This is the arena in which nearly all of OPEC’s Middle Eastern and African producers have to compete for market share, a situation that is likely to be exacerbated as Iran begins to boost its production and exports. The IEA expects Iran to pump an additional 500,000 barrels a day of crude in 2016, which, if attained, would be roughly equal to the expected loss of US light tight oil production.

6 Gulf Affairs II. Analysis

For oil importing nations, lower prices have brought welcome economic respite. The IEA calculates that every one dollar fall in the oil price is worth $15 billion in savings to importing countries. The weaker oil prices offer a chance for governments to introduce 3 price reforms and ease fuel subsidies, a particularly costly burden on developing countries that are heav- ily reliant on imported crude and refined products.

Yet there are risks associated with a protracted period of low oil prices, which if they persist could have an impact on security of future supply. Deferred investments now, which we are seeing, will have consequences several years down the line. Upstream investments fell by 20 percent in 2015 and are likely to fall by 17 percent this year. 9 This would be the first time in three decades that investment has fallen two years in a row. Given that an annual $630 billion in upstream oil and gas investment is needed just to compensate for declining production from existing fields and to keep future output at today’s levels, the magnitude of the challenge is evident. In the medium-term the incremental barrel will come not from US shale deposits, which are expected to go into decline sometime during the next decade, but from the Middle East and specifically from the GCC states, Iraq, and Iran. Indeed, the UAE, Iraq, and Iran are the three countries that are expected to be the main contributors to the 800,000 barrels a day of additional oil to be brought on by OPEC by 2021.10 That, of course, assumes a measure of wider political stability in the region.

Despite rapid growth in renewable energy such as wind, solar, and nuclear, between now and 2040 oil, gas, and coal will still dominate the energy landscape, each comprising roughly 25 percent of the market. Low oil prices may also complicate the transition to a low-carbon energy world, which has gained impetus following the successful climate summit known as COP21 in Paris last December.11 But the good news is that renewable energy costs, particularly costs of solar energy, are coming down to levels that are competitive with fossil fuels even without subsidies.

The respective governments of the GCC states have taken advantage of the lower oil price to start remov- ing energy subsidies and ease the burden on their budgets, which are already strained by falling revenues and the need to maintain social spending and create jobs for a youthful population. While the GCC oil producers still possess ample foreign reserves to tide them over until the market turns around, the UAE is the only country to have diversified its economy away from oil and gas over the years and is therefore less vulnerable to oil price fluctuations.

The other GCC states have taken heed. Subsidies, which encouraged rampant energy consumption and threatened to erode export volumes, are being dismantled across the region, even in Saudi Arabia, where the thought of raising the price of petrol would have been unthinkable a year ago. Yet the resulting price increases, the impact of which has been softened by the low international oil price, have not led to social unrest. If anything, they have forced the nations that were considered the typical rentier states to imagine a world beyond oil and take action to prepare for such a future. This may ultimately lead to stronger and more balanced economies and perhaps stave off the risk of relying on a single commodity over which they no longer have absolute control.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 7 II. Analysis

Kate Dourian is the Administrator of the Middle East and North Africa program at the International En- ergy Agency (IEA).

1 Goldman Sachs pre-OPEC comment in Myles Udland, “CANCEL THANKSGIVING: The Most Important OPEC Meeting In Years Is Happening On Thursday,” Business Insider, 24 November 2014. 2 “MEES Interview With Ali Naimi: ‘OPEC Will Never Plan To Cut’,” Middle East Economic Survey 57 Issue: 51/52, 22 December 2014. 3 International Energy Agency internal data 4 Aomar Ouali, “Algeria Calls for OPEC to Cut Oil Production,” PennEnergy, Associated Press, 29 December 2014. 5 Luc Cohen and Liz Hampton, “Saudi’s Naimi Rules out Production Cuts; Sees ‘freeze’ Expanding,” Reuters, 24 February 2016. 6 “OPEC Monthly Oil Market Report,” Organization of the Petroleum Exporting Countries, 10 February 2016, 56-57. 7 “Medium-Term Oil Market Report 2016: Market Analysis and Forecasts to 2021,” International Energy Agency, 22 February 2016. 8 IEA Executive Director Fatih Birol, “World Energy Outlook 2015,” London, November 10, 2015 9 “Medium-Term Oil Market Report 2016: Market Analysis and Forecasts to 2021,” International Energy Agency, 22 February 2016. 10 Ibid. 11 “World Energy Outlook 2016,” International Energy Agency, 16 November 2016.

8 Gulf Affairs II. Analysis

Saudi Arabia’s Deputy Crown Prince and President of the Council of Economic Affairs and Development Mohammed bin Salman bin Ab- dulaziz unveils the kingdom’s “Vision 2030”. In an interview with Al Arabiya News Channel he acknowledges the state’s “oil addiction” and emphasizes that the Vision’s roadmap includes raising non-oil revenue. 25 April 2016, Riyadh.

The Obstacles Facing Renewables in the Gulf by Faris Al Sulayman

he presumed economic logic underlying the prospects for renewables in the current oil environment suggests that the availability of cheaper oil resources should make it more difficult for renewable al- ternatives to compete, at least in the short and medium term. This logic has proved somewhat simplistic however, and there are in fact other barriers—including the role of the state and the regulatory environment—that continue to hamper the disruptive potential of renewables in the Gulf.

Examining the industry more globally, the correlation between oil prices and growth in the renewables sector is tenuous at best. After all, oil does not form a large part of the global economy’s electricity generation mix, and resource costs represent only one constituent part of the final electricity tariff faced by consumers, with other variables such as grid maintenance, transmission, and government levies all rising as a share of total cost in recent years. At the level of utilities, it is undoubtedly true that natural gas has become a more attractive generation option, but large utilities operate on long-term investment cycles and must confront a simple reality: while fossil fuel costs may fluctuate in coming years, renewable costs are only going in one direction, down.2

However, the calculus in the Gulf and other oil producing states is even more favorable for renewables, if one considers the added complexity of government finances and subsidy reform. The dramatic decreases

Energy & the State: The Impact of Low Oil Prices | Summer 2016 9 II. Analysis

in government revenues since the oil price decline have exerted strong pressures for fiscal reforms, with the slashing of wasteful energy subsidies high on the list of priorities. In addition to the obvious economic impetus to engage in price reforms, the low oil price environment has also provided a unique political opportunity to pub- licly justify and mask the removal of subsidies, allowing governments to deflect some blame, if and when prices do recover, on mar ket forces now far beyond their reach. There is indeed an argument to be made that such reforms could never have been considered in a stronger fiscal environment. With few exceptions among the “Super Rentiers,” the Gulf Cooperation Council (GCC) states have begun broaching this issue, focusing on non-residential subsidies first while avoiding the political sensitivities attached to more wide-reaching reforms.

Remaining hurdles

For renewables, the larger macro-economic trends finally seem to be dictating a favorable trajectory, and the long awaited boom should be at hand. As players on the ground note, however, other hurdles still loom large.3 Focusing on the region’s biggest energy market, Saudi Arabia, it is clear that the state can do more to promote and facilitate the growth of the domestic renewable sector. This argument is particularly sa- lient and urgent in the kingdom, where the proportion of oil production consumed domestically has, and continues to, increase at an alarming rate, leaving fewer barrels for much needed export revenue.4

The most debilitating obstacle is the regulatory vacuum that currently exists in the Kingdom. Electricity tariffs will continue to increase, but as we expect the forthcoming National Transformation Plan (NTP) to elucidate, small and medium sized enterprises (SMEs) and larger entities looking to enter the independent power producer (IPP) space are in desperate need of regulatory clarity. This is necessary not only to increase their appetite for risk, but also to strengthen their credibility to consumers and financiers alike.

On the proactive policy front, and in lieu of a more rapid slashing of subsidies that may prove inflationary and politically divisive, the state could find ways of supporting renewable technologies directly, as Dubai has done with its Shams Dubai program. A healthy feed in tariff rate by the Water and Electricity Compa- ny (WEC)5 with a long-term guarantee by the state alongside a net-metering 6 structure for residential consumers, would truly mark the start of a new era for solar in the Gulf without excessive amounts of capital spending by the state. Though Saudi Arabia’s Electricity & Cogeneration Regulatory Authority (ECRA), the Ministry of Economy and Planning, and the newly created Ministry of Energy (which absorbed the Ministry of Water and Electricity) seem to be taking steps in this direction, signs of hesitation and reluc- tance take a toll on the investment climate, particularly among entrepreneurs and SMEs looking to enter the market.

Another crucial area where the state can provide structure is in the realm of project finance. As we enter what may be a prolonged period of decreased liquidity, state and quasi-governmental institutions such as ARAMCO, TAQNIA, and potentially the Saudi Electric Company could be arbiters of trust, acting as project guarantors and financiers in a largely barren and untested economic landscape. Power purchasing agreements (PPAs), often lasting 20 years or more in the OECD, require large and increasingly private capital investments, which in turn need robust institutional and financial support, particularly in an in-

10 Gulf Affairs II. Analysis dustry with high barriers to entry and devoid of long-established norms and networks of trust.

More broadly, as the kingdom enters a period of austerity, where the state is drastically shrinking its capital expenditure, radical and innovative solutions need to be implemented to entice the private sector to fill the investment void. Without a concerted effort and a well-designed institutional framework, the Saudi market will continue to be underdeveloped and uncompetitive, with a handful of large players dominating another protected and oligopolistic industry.

A new kind of energy industry

The renewables boom that beckons is not just an opportunity to build a new industry, but to build a new kind of industry. It would be one that is more local, diverse, socially responsible, and ultimately more sustainable. And on the fiscal front, the government’s ability to stimulate long-term investment in the renewables sector will in many ways be a gauge of its ability to attract and retain private capital in the face of increasing capital flight and current account pressures.

Finally, but perhaps most crucially, a deeper paradigm shift away from largesse and towards efficiency must take place. This shift is in many ways a deeper behavioral transition that cannot easily be hastened. Convincing a commercial or industrial energy consumer, accustomed to increasing profits by increasing revenue, to invest in efficiency and cost reductions does not come as naturally as one might think. Here the state must lead the way too, not only in its role as the dominant economic player, but also because it faces a more acute financial strain than that faced by private capital. More generally, the state’s adoption of a more present and transparent institutional role will in the long term facilitate such a shift. But perhaps on a more psychological level, the public perception of the depth and potential resilience of the oil crisis, and by proxy the permanence of price reforms, will also help in this effort.

The state’s ability to rise to the occasion and confront this distinct set of problems and opportunities will be a litmus test of its capacity to meet the broader set of economic challenges it is likely to face in the coming years. Unlike some of the other economic tests facing the region, the incentive structures inherent in the regional political economy are well aligned in the case of renewables, with little standing in the way of progress politically. More broadly, it remains clear that the biggest obstacle facing renewables in the region is not a low oil price, which has proven to be an opportunity in disguise, but rather the ability of states to create and regulate a diverse, competitive, and local market for a new breed of energy providers.

Faris Al Sulayman is a writer and analyst focusing on the political economy of the GCC, he is also a co-found- er of the renewable energy startup Haala Energy, based in Jeddah, Saudi Arabia.

1 A sharp decrease in liquefied natural gas (LNG) prices preceded low oil prices by half a decade, giving markets time to adjust to the new realities. 2 Peck Yean Gan and ZhiDong Li, “Quantitative study on long term global solar photovoltaic market,” Renewable and Sustainable Energy Reviews Vol. 46 (2015): 88-99. 3 Middle East Solar Outlook for 2016 (Middle East Solar Industry Association: 2016). 4 Yukari Hino, “Saudi Arabia field report: Another potential oil crisis in the Middle East,” Brookings Middle East Politics and Policy, 2 July, 2015. 5 Water and Electricity Company, to be the price setting single buyer once feed in tariffs are unveiled. 6 A billing arrangement with a utility where customers get credit for any excess renewable electricity delivered to the grid.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 11 II. Analysis

Solar panel in the city of Dubai.

Dubai: An Inspiration for Green Economy Transition in the Gulf by Katarina Uherova Hasbani

n the new reality of low oil prices, the Gulf region is again looking for inspiration to transition to a more sustainable economic model. New paths to growth in traditionally fossil-fuels based economies seek to address the continuing challenges of increasing energy demand and, consequently, structure of energy mix in the Gulf countries. The Emirate of Dubai offers an interesting case study on strategizing for a future beyond fossil fuels in the Gulf. Dubai’s approach to building a green economy is pragmatic and rooted in the practical challenges of its rapidly developing economy. While Dubai, as a city-state, is distinctly different from its Gulf Cooperation Council (GCC) neighbors, it also shares many of their challenges, which makes it an example to watch.

Dubai’s green push

Dubai desires to achieve green competitiveness on the back of three strategic challenges facing the emirate in the medium to long term, two of which are shared with the rest of the GCC countries. The first one is

12 Gulf Affairs II. Analysis availability of resources to fuel Dubai’s continuing growth. During the period of 2000–2013, Dubai’s GDP grew by nine percent on average compared to a GCC average of 5.6 percent.2 Yet, Dubai’s economy depends on its capability to produce electricity to cool its hot climate and make it livable throughout the year. The emirate is almost 100 percent dependent on production of water through desalination for drinking, irriga- tion and other uses by its residents and companies.3 Satisfying the underlying energy demand emanating from growth in electricity and water demand is key to preserving Dubai’s global competitiveness given that its energy intensity, similar to its Gulf neighbors’, is among the highest in the world.4

The second challenge is economic diversification to sustain Dubai’s attractiveness. Dubai’s economic growth initially relied on its fossil fuel reserves, similarly to its neighbors in the Gulf region.5 However, the emirate benefited from forward looking leadership that soon came to realize the short-lived nature of an oil revenues-based economy. From the early 1960s, Dubai eyed a transition to a diversified mix of economic activities focused on its role as a trading and logistics hub centered around the construction of its international port and airport infrastructure. 6 Dubai’s airport is one of the busiest in the world today. Yet, the successful expansion of its infrastructure—airport capacity has been augmented to 90 million passengers per year at the beginning of 2016—places additional strain on its energy supply strategy. 7

The third challenge is self-imposed rather than emanating from external circumstances, and this is where Dubai differs from other GCC members. While other cities in the Gulf remain focused on regional competition, Dubai aspires to become a truly global leader as a tourism, trading, and transport hub. The global competition is pushing Dubai to go green. Other “global cities” such as New York or Singapore seek to display an image of green, environment-friendly urban centers with a focus on quality of life for their residents. Ranking of cities takes place on the basis of factors such as environment and quality of life along with sustainability criteria under the Economist’s “Global Liveability Ranking” 8 or the new emergent ISO standard for Smart City. 9 Against this background, Dubai is challenged to strategize green competitiveness in order to keep up with the international competition to attract talent and other global resources.

What makes Dubai different

Dubai is already at the forefront of creating an energy efficient and sustainable society which offers an edge when compared with other GCC countries. First, the Emirate’s energy and environmental pressures are driving forces in Dubai’s strategy. While other Gulf countries are on the defensive, looking for ad-hoc solutions in periods of low oil prices, Dubai uses its resource challenge as a driver to improve the green competitiveness of its economy.

The challenge of meeting Dubai’s future energy supply has already provided a concrete push for increased use of solar energy and better energy efficiency. The emirate is working on a tender for an 800MW solar project on the top of 200 MW under development, making it the largest solar generation capacity in the development, in the Gulf. 10

Moreover, the projected share of solar in Dubai’s energy mix was increased to seven percent by 2020 and to 15 percent by 2030, up from one and five percent, respectively.11 Dubai is actively pursuing its goal to reduce energy demand by 30% in the horizon 2030 through more energy efficient standards and energy pricing to incentivize energy savings.12 Dubai needs to manage its waste given its limited land availability—the

Energy & the State: The Impact of Low Oil Prices | Summer 2016 13 II. Analysis emirate occupies only around five percent share of the entire land area of the UAE.13 This challenge is driving projects such as the pilot for waste to energy in Dubai’s Al-Qusais landfill and plans for a more sizable waste-to-energy project that will address the Emirate’s waste treatment and energy production issues at one go.

As a result, Dubai already has a well-defined strategy to build its “greener” energy sector accompanied by nascent policy and regulatory frameworks. Dubai has produced the “Integrated Energy Strategy 2030,” which is accompanied by a regulatory framework for solar energy development.14 The emirate has also set up institutions and processes to ensure its implementation structured around the Supreme Council of Energy, equivalent of Dubai’s energy ministry. Dubai has also put in place a Green Economy Partnership, which is tasked to combine public and private funding in support of new initiatives.15 Its impact is yet to be seen, though the launch of innovative initiatives such as the Green Deal Dubai crowdsourcing platform for green products and services proves promising. 16

The second factor playing in Dubai’s favor is the ease of carrying out business. In 2015, the United Arab Emirates (UAE) ranked 22nd in the World Bank’s “Doing Business” list, 17 which measures the regulations affecting business activity. Going beyond the general environment of the UAE, Dubai’s model of free zones offers advantageous conditions for business creation and administration. Reduced complexity for doing business, unparalleled in other GCC countries, favors small and medium sized enterprises, which play central roles in the value chain of green services and products. Bearing in mind its role as a global hub, the emirate offers infrastructure enabling connectivity with Africa, Asia, and Europe. Dubai already stated its ambition to become a hub for green economy in the Gulf with businesses serving surrounding countries from their base in Dubai.18 The government of Dubai actively creates conditions for new business opportunities to arise within the green economy. A good example is the creation of a regulatory framework for energy service companies, the first one in the Gulf region.19

What especially distinguishes Dubai from its neighbors is its flexibility, the third factor positively affecting Dubai’s positioning as a green economy. Dubai has comparative advantage in terms of positive reception of transformations in the Emirate’s economic and social landscape as its citizens are more open to change. Dubai is no stranger to transformations. The emirate has undergone a major conversion from a small pearl fishing port in the 1950s into one of the world’s top cities today. Dubai’s leadership actively seeks transformations that take Dubai further into new business opportunities. Indeed, Dubai has already succeeded in the most important transition from an oil-based economy into a more diversified economic model. Dubai’s government projects that oil will represent only six percent of its revenues in 2016.20 More recently, Dubai has been venturing into the culture and design sectors with planned development of an opera and museum of modern arts. These experiences make Dubai well positioned to continue its economic transformation into a green economy.

Among all the cities within GCC countries, Dubai is the one best positioned to deliver a green economy that could serve as an inspiration for the rest of the region.

14 Gulf Affairs II. Analysis

Katarina Uherova Hasbani specializes in policy advising on energy transitions and is currently leading business development for Revelle Group, a sustainable energy consultancy, from Singapore.

1 Michael Matly and Laura Dillon, “Dubai Strategy: Past, Present, Future,” Harvard Business School, 27 February, 2007. 2 Tim Callen, Reda Cherif, Fuad Hasanov, Amgad Hegazy, and Padamja Khandelwal, “Economic Diversification in the GCC: Past, Pres- ent, and Future”, IMF Staff Discussion Note, SDN/14/12, December 2014. 3 Annual Statistics 2014, Dubai Electricity and Water Authority, https://www.dewa.gov.ae/images/aboutus/statistics/thumb/stats_2014. pdf [accessed 24 March 2016]. 4 Glada Lahn, Paul Stevens and Felix Preston, “Saving Oil and Gas in the Gulf,” Chatham House Report, August 2013. 5 Laura El Katiri, State-Business Relations in Dubai, Thesis, Faculty of Oriental Studies, University of Oxford, May 2009, 28. 6 Ibid., 30. 7 Shereen El Gazzar, “Concourse D opens at Dubai International Airport boosting capacity to 90 million,” The National, 24 February 2016. 8 “Global Liveability Ranking 2015,” Economist Intelligence Unit, accessed 24 March 2016. 9 “Smart Cities, Preliminary Report 2014,” ISO/IEC JTC 1, [accessed 24 March 2016]. 10 “Dubai’s DEWA to tender third phase of solar park in 6 weeks,” Reuters, 9 February 2016. 11 “Dubai triples renewable energy target to 15% by 2030,” Gulf News, 21 January 2015. 12 Faisal Ali Rashid and Katarina Uherova Hasbani, “Dubai’s energy efficiency drive,” Oxford Energy Forum, Issue 96, May 2014. 13 Dubai 2020 Urban Master Plan, Dubai Municipality, July 2011. 14 “Renewable energy prospects: United Arab Emirates,” International Renewable Energy Agency, April 2015. 15 “Dubai Green Economy Partnership unveils green strategy to support Dubai Plan 2021,” Emirates News Agency, 5 May 2015. 16 Green Deal Dubai, http://greendeal.ae/about-us/, [accessed 24 March 2016]. 17 “Doing Business 2015: Going Beyond Efficiency,” World Bank, October 2014. 18 Andre Schneider and Waleed Salman, “The First World Green Economy Summit: Strong on Outcomes,” in “UAE State of Green Econ- omy Report 2015,” World Green Economy Summit, April 2015. 19 Nivine Issa and Phillipa Grant, “Climate change and green policy in the UAE,” Oxford Energy Forum N.102, November 2015. 20 “Mohammed bin Rashid approves Dubai’s budget for 2016,” Department of Finance, Government of Dubai, 27 December 2015.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 15

III. Commentary

GCC Security Amid Regional Crises | Spring 2016 23 III. Commentary

Following the Arab uprisings that began at the start of 2011, the Arab oil producers needed higher revenues to manage political discontent. This needed higher prices, which they were able to secure in large part because Saudi Arabia quietly resumed its “swing role” in the oil market. Thus it manipulated production to achieve a price target of around $100 per barrel. However, such high prices produce market feedback loops. These led to lower demand for oil and increased supply. Supply greatly exceeded demand and oil invento- ries grew to record levels. By the summer of 2014, this led to weakening oil prices. In September 2014, Saudi Arabia refused to continue its swing role and reduce production, and prices collapsed.

On the domestic side

The immediate impact has been to create serious macroeconomic consequences as oil rev- The Impact of Low Oil Prices enues fell dramatically. Some of the Gulf Coop- eration Council (GCC) countries had room for on the Gulf maneuver given existing financial reserves. For example, Saudi Arabia in September 2014 had by Paul Stevens reserves amounting to $745 billion. To put this in perspective, their official budget deficit at the Economic uncertainty dominates start of the fiscal year 2015 was $45 billion and region amid oil price plummet the actual outcome was a deficit of $98 billion. Similarly, Kuwait, Abu Dhabi and Qatar also had a significant financial cushion. However, ince June 2014, oil prices have fallen by other MENA producers had no such reserves some 60 percent, and currently Brent is and were forced to face serious budget deficits. priced around $45 per barrel. Historically this is not a “low” price. Between 1986 and 2004, Brent Estimates made in the summer of 2014 by API- averaged $33 per barrel in real terms. It is only in CORP suggest that the weighted average oil price relation to prices over the last 10 years that they to meet the budget needs of OPEC averaged $102 might be seen as low. Between 2011 and 2014, per barrel. At the current oil price of some $45 per oil prices averaged $112 per barrel. Today how- barrel, every OPEC producer will be forced either ever, lower prices are having a significant impact to borrow or reduce expenditure. Already, many on the Gulf oil producers and indeed in the wider producers are trying to cut expenditure and im- Middle East and North African (MENA) region prove the efficiency of spending. A good example both economically and politically. The explana- is Saudi Arabia’s recent set of economic reforms, tion for the price collapse is simple economics. officially designed to reduce oil dependence. How-

18 Gulf Affairs III. Commentary

ever, such economic reforms will not be easy and in many countries may produce a political back- lash domestically as subsidies are removed and public sector employment opportunities are reduced. Again, Saudi Arabia provides a good example with recently increased water and electricity charges causing some unrest leading to the dismissal of the Water and Electricity minister.

On the international side Iran is already deeply frustrated by what it Another immediate impact of lower oil prices sees (with some justification) as the US reneg- concerns geopolitics and a deterioration of re- ing on the nuclear deal. Thus there are threats lations between Saudi Arabia and Iran. Iran, of heavy fines by the US Office of Foreign As- coming out of a sanctions regime following the sets Control on banks operating in the USA JCPOA agreement on their nuclear program (which covers virtually all major banks, Amer- is determined to restore their crude exports to ican or otherwise) and continued sanctions for pre-sanctions levels and beyond. This directly dealing with the IRGC that could be involved conflicts with Saudi Arabia’s determination not in almost any Iranian business operation. With to cede market share. It was this determination the US presidential election looming, rhetoric that caused Saudi Arabia to cease its swing role against Iran by both candidates will stretch the and protect market share. This was linked into patience of the reformist elements in Tehran. a general perception of “Shia encirclement” with- If Iran’s frustration is not assuaged, might they in the Kingdom in 2015 with Assad in Syria ap- jump before they are pushed and abrogate the pearing to secure his position, Iran developing a JCPOA nuclear deal? Given their ability to cause détente with the United States, and the grow- significant mischief in the region, this could well ing Houthi involvement in Yemen. This sense of prove dangerous. It is necessary to go back to threat, real or otherwise, encouraged the new re- 1918—the end of World War I and the collapse gime of King Salman, fronted by his son Moham- of the Ottoman Empire—to find a period of sim- mad, to adopt a more aggressive foreign policy. ilar uncertainty in the region compared to today.

One consequence has been that attempts to ac- Professor Paul Stevens is a Distinguished Fellow of commodate Iran’s return to the oil market (that Energy, Environment and Resources at Chatham initially appeared acceptable) are no longer an House, the Royal Institute of International Affairs in option. The agreement at the Doha meeting on London. 17 April 2016 between OPEC and Non-OPEC to cap production but exclude Iran from such restrictions (which had been agreed weeks before the actual meeting) was suddenly no longer acceptable to Saudi Arabia. On the morning of the actual meeting it was announced that without Iranian compliance there could be no deal.

This could be dangerous politically for MENA.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 19 III. Commentary

ever, are able to finance the high deficits by drawing on accumulated fiscal buffers and substantial international reserves or by borrowing to offset the negative effects on economic growth. But this is a short-term palliative and cannot be sustained given the unfavorable prospects for oil prices.

Addressing the challenges

To address the challenges of lower oil prices, the GCC should undertake fiscal reforms and develop programs and incentives for greater private sector participation, including privatization of public sector activities (e.g. health, education, transportation) and public-private partnerships (PPP).

Nasser Saidi Patricia McCall Phasing out of unsustainable subsidies (as done by the UAE) should be accompanied by increasing the prices of public utilities alongside increased revenue diversification policies via the introduction of broad-based taxes like VAT; The New Oil Normal property and corporate profit taxes; excise taxes on commodities like cigarettes, sugary drinks, Paradigm alcohol, luxury cars; and others. These necessary fiscal reforms would improve fiscal out- by Nasser Saidi comes and, by reducing the size of government, and Patricia McCall promise a new developmental model based on the private sector, leading to an improved invest- Economic and investment reform needed ment climate and improved growth prospects. for growth The UAE is a successful case of economic diver- he prospect of sustained lower oil prices over sification. Non-oil revenues in the UAE topped the next decade will have profound implica- AED 200 billion ($54 billion) in 2015, repre- tions for the oil-dependent economies of the Gulf senting 52.6 percent of UAE consolidated gov- Cooperation Council (GCC). However, this era of ernment revenue. The growth in these revenue low prices offers an unprecedented opportunity to streams is supported in particular by Dubai, implement economic diversification strategies and which has led the region in greater economic reform policies that will underpin more sustainable diversification by focusing on developing alter- and resilient economies. native sources of income from trade, finance, tourism, transportation, logistics, and manufac- With oil prices ranging between $35-45 per barrel, turing. However, implementing policies to diver- the GCC economies have to revise their fiscal plans sify GCC economies away from hydrocarbon de- and budgets to reflect significantly lower revenues. pendence requires structural reforms, industrial Oil comprises 85 percent of revenue for GCC gov- policy design, and a holistic approach that in- ernments, and the 70 percent decline in oil prices cludes investment climate reform to attract for- since June 2014 has had a huge impact on budgets: eign investment and support business start-ups. GCC budget deficits are expected to run to about 13 These reforms are imperative for the over- arch- percent of GDP in 2016. The GCC countries, how- ing policy objective of job creation. Governance

20 Gulf Affairs III. Commentary and transparency tend to be less emphasized in resource-rich economies, as the major firms are The kingdom has significant domestic de- few, government-owned, and opaque. But creat- mands, including employment and wage ing a more diverse and competitive economy will growth expectations from Saudi youth. require legal and regulatory reform and commitment by government and public institutions to be more transparent in order to avoid private sector With a conservative estimate of $1.4 trillion re- capture and crowding-out. quired to rebuild Syria, Iraq, Yemen, and Libya and to support growth and infrastructure devel- The largest Arab economy, Saudi Arabia, will be opment, the region needs a new growth and de- the hardest hit by lower oil prices—the IMF esti- velopment paradigm underpinned by sustainable mates the country’s budget deficit at $106 billion revenues. These resources should be invested in in 2015, a tad higher than the official figure of rebuilding devastated regional economies in or- $98 billion. Additionally, the April 2016 revision der to reduce unemployment and counter one of of the IMF’s World Economic Outlook cut the ex- the main sources of extremism. Infrastructure pected 2016 growth rate of Saudi Arabia by a full investment is key to recovery, reconstruction, percentage point, down to 1.2 percent. The king- and future growth prospects. The economic ra- dom has significant domestic demands, including tionale is strong: every $10 billion investment in employment and wage growth expectations from infrastructure can create around 2.5 million di- Saudi youth, who account for over 60 percent rect, indirect, and induced infrastructure jobs in of the population. The oil crisis has resulted in the MENA region by boosting growth by roughly growing strains on job creation. The Saudi gov- three percent among oil exporters and about 1.5 ernment added 93,000 new employees to the pub- percent among oil importers in the region in the lic payroll in 2015 compared to 103,000 in 2014. short-term. In the private sector, expansion slowed to its lowest rate since 2009—companies hired 43,000 But funding will not be so ample and forthcoming fewer Saudis than they did the previous year. given oil crisis-hit budgets and growing domestic demands. For the region to meet the increased Providing jobs and opportunities to qualified demands it will need to both ensure strong eco- graduates will require a vibrant and internation- nomic growth in stable GCC countries and devel- ally competitive private sector able to compete op institutions regionally that can support recon- with the public sector for employees. Given Sau- struction. Several regional initiatives have been di’s budget constraints, government will no longer advanced to meet these challenges: The Arab be able to subsidize high salaries and must look Bank for Reconstruction and Development and increasingly to the private sector to provide job the Arab Stabilization Plan. These organizations growth. The private sector should be incentivized not only highlight the need for reconstruction fi- by ‘education-for-employment’ programs, mar- nance, they emphasize the need for private sec- ket-skills building, and subsidized private sector tor participation, job creation, and development on-the-job training coupled with education re- of the financial sector in the region. These are all form. requisites to promote greater economic and revenue diversification, which is important both in Regional rebuilding the GCC and the broader region to underpin sustainable and sufficient economic activity. The oil price tsunami and collapse of government revenues comes at a difficult time, especially as Dr. Nasser Saidi is President of Nasser Saidi & the need for GCC financing in the region is grow- Associates. Patricia McCall is the Executive Direc- ing. Unemployment, low economic growth, and tor of the Centre for Economic Growth at INSEAD conflicts have led to soaring reconstruction costs. in Abu Dhabi, UAE.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 21 III. Commentary

CEO Khaled Al-Falih, who now heads the newly created Ministry of Energy, Industry and Nat- ural Resources. Other notable appointments included the popular Minister of Health Taw- fiq Al-Rabiah (formerly Minister of Commerce and Industry), Majed Al-Qusaibi who heads the newly created Commerce and Investment Min- istry, and Ahmed Al-Kholifey, governor of Saudi Arabia’s Central Bank (SAMA).

But it is not just policy input from individuals within the ministries we need to consider. A growing chorus of input from key economic corporations and institutions such as the research-oriented King Abdullah Petroleum Studies and Research Center (KAPSARC), Sau- di Basic Industries Corporation (SABIC) and King Abdulaziz City for Science and Technology (KACST) are making their points of view heard. Opening up the Decision-Making Thus, an understanding of the changing nature Process in Saudi Arabia of overall government policy-making is necessary, in particular since the elevation of King by Mark C. Thompson Salman’s increasingly influential son Deputy Crown Prince and Defense Minister Moham- Greater transparency in Saudi deci- med bin Salman Al-Saud. sion-making and the emergence of influential technocrats Al-Saud ‘vertical’ decision-making lthough Saudi Arabia has always been a ‘tech- nocrat run’ state, transparency in policy and Certainly, it is necessary to ask whether Saudi decision-making appears to be growing due to the Arabia’s ‘opening up’ of decision-making is possi- involvement and convergence of increasing num- ble, especially as government decision-making is bers of government and independent actors in the usually categorized in ‘top-down’ terms with the Saudi political and economic fields. As a result of Al-Saud princes formulating and implement- the low oil price, the Saudi government is trying ing policy. Nevertheless, it seems relevant to to respond to socio-economic pressures by intro- consider the extent to which technocrats within ducing new policies and establishing a variety of formal and informal institutions may be able to new bodies such as the Council of Economic and influence decision-making processes either via Development Affairs (CEDA) in order to deal with ‘bottom-up’ interactions or by having ‘horizontal’ the contemporary economic environment. In ad- access to the traditional Al-Saud decision-mak- dition, on 7 May 2016, as a part of Saudi Vision ing processes. The question is whether the par- 2030, the government introduced a major restruc- ticipation of these individuals and institutions, turing of key ministries, including the Saudi oil either in formal or informal capacities, can play ministry. Ali Al-Naimi, in charge of Saudi Arabia’s a long-term constructive role in influencing Sau- energy policy since 1995, was replaced by Aramco di policy-making.

22 Gulf Affairs III. Commentary

Challenging the ‘top-down’ approach

Contemporary Saudi policy-making comprises different strands: economic, political and socie- tal. The overlap and complexity of these strands means that specialist input is required from technocrats within a variety of ministries and institutions. Moreover, the Al-Saud have always been willing to relinquish administrative responsibility Consequences for national development to individuals based on merit, in particular when senior princes lack the necessary expertise. Despite the limitations placed on technocrats by the existing political system, their elevation to major The emergence of technocrats who are able to in- decision-making positions appears to signify an at- fluence policy-making is a result of the creation tempt at increased inclusiveness in policy-making. of an intermediate stratum within the political In a report issued by the McKinsey Global Institute structure that did not exist until fairly recently. entitled Saudi Arabia Beyond Oil, the consultancy In consequence, the visibility of this new line-up firm argues that all stakeholders, including the pri- of technocrats is being interpreted as the first vate sector, foreign investors, and households, will signs of a shift in power away from the practices need to be involved in national development. The of the ‘old-style’ Al-Saud policy formulation. The key issue here is whether the Saudi government is mission of this (non-royal) technocratic elite is to willing to open the national decision-making pro- overhaul government policy-making at a time cesses further, including in the energy sector, to when the economic realities of the low oil price those stakeholders who are qualified and prepared impact dramatically on government expenditure. to contribute to the Kingdom’s overall national de- At a time of ‘austerity’ the incorporation of high- velopment. Finally, could the growing influence of ly qualified and often western-educated Saudi this technocratic elite weaken, or indeed eventually technocrats into the national decision-making replace, the traditional Al-Saud princely monopo- process has meant that hopes have been raised ly on decision-making? As the impact of the low oil that voices from outside the traditional elite cir- price starts to hurt the individual Saudi’s pocket, cles will now have the opportunity to participate the issue of who makes the major decisions is being in a meaningful way. widely discussed in Saudi society.

Mark C. Thompson is Assistant Professor of Middle In November 2015, as head of CEDA, Prince Mo- East Studies at King Fahd University of Petroleum hammed bin Salman outlined reform plans for and Minerals (KFUPM), Dhahran, Saudi Arabia. increasing the role of the private sector and the way Saudi Arabia is governed. Since Prince Mo- hammed’s advancement, the Ministry of Econo- my and Planning (MEP) under the supervision of Adel Fakeih has gained significant influence on policy-making. It is understood that the days of the ‘five-year plans that everyone ignored’ are over, as nowadays, it is the MEP that is formulating policy and feeding this up to CEDA.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 23 III. Commentary

this is not a valid enough argument to dismiss the policy as a mistake.

Maintaining high prices would have supported continuing production increases from other countries—some within OPEC (the Organi- zation of the Petroleum Exporting Countries), some outside, including American shale oil producers. A cutback in Gulf production would have supported prices for a few months, then new cuts would have been necessary until such low production levels were reached that the policy would perforce be abandoned. This is, so to say, an old movie: we saw it already in the first half of the 1980s.

It is important to recognize that prices came down because they were too high and supply systematically exceeded demand. Furthermore, prices will remain low until the market reaches equilibrium and the huge stocks that have been The Gulf States and accumulated since 2011 can be liquidated. This Oil Prices will take time—some hope that we will reach this point towards the end of 2017. Thereafter, prices may recover somewhat, but they will not by Giacomo Luciani climb back to $100 a barrel or above. Lower prices will not necessarily result in greater instability Massive rainy day funds

t is common these days to read that Gulf There are multiple reasons why low oil prices, states have got their oil production policy per se, are not likely to cause political instability completely wrong. The simplistic argument main- in the Gulf states. Gulf countries have accumu- tains that, because they are the largest oil ex- lated large financial reserves, have essentially porters and have the most to lose out of low pric- no debt, have quite a flexible structure of expen- es, their November 2014 decision not to reduce diture that allows for large incremental cuts, production and exports was a notable mistake. and own large real assets which can be divest- Because domestic stability of the Gulf regimes is ed. The financial room for maneuver that Gulf said to be based on an immutable bargain with governments enjoy relative to any other govern- their people, whereby acquiescence to patrimonial ment in the world is significant. monarchies’ monopoly on power is exchanged for income and material benefits, political instabili- Other producers are suffering far more than the ty is to be expected if oil prices do not recover fast. Gulf countries. They all must cut back on expenditure and/or (as many have done) allow their It is probably correct to say that the Gulf’s major currencies to depreciate in order to reduce the exporters (Saudi Arabia, Abu Dhabi, and Kuwait) budget deficit (oil revenue is in dollars, expendi- did not expect prices to fall as low as they have, nor ture in the national currency), thus shifting the that they could remain low for quite some time; yet pain of adjustment to all earners of incomes in

24 Gulf Affairs III. Commentary national currency.

In contrast, the purchasing power of salaries paid in national Gulf currencies is protected by the dollar peg—indeed, it may increase due to other currencies losing value relative to the dollar. We may see governments losing legitimacy and facing political turmoil, but the Gulf governments will not be first on the list. It is clear that the period of very high prices led to greater regional instability rather than the oppo- High oil prices = instability site. It enhanced the income gap between the major oil exporters and the rest of the region, as well That said, what is even more important to un- as income concentration within each country. In derstand is that high oil prices, far from being an the major oil exporting countries, governments element of stabilization in domestic and regional again relied on old and ineffective redistribution Middle East politics, have been a key determinant policies, which further benefitted the haves with- of rapidly growing instability throughout the re- out offering significant improvement in the lot gion. Since 2004, the Middle East progressively of the have-nots. Low prices for energy products precipitated into a regional civil war, engulfing all have regressive impact on income distribution. countries and all political forces. The war is ac- Infrastructure expenditure benefits local contrac- tively fought in four counties (Iraq, Syria, Yemen tors; increased spending leads to higher prices and Libya) but in fact all countries are involved, for housing, benefitting real estate investors and and all will be affected by the eventual outcome. damaging the poorer nationals for whom cheap housing is not provided; even the very generous Since the turn of the century, political instability schemes to support nationals studying abroad and high oil prices have fed each other in an explo- only accrue to a minority, while the majority of sive vicious cycle. There is a close connection be- adolescents get only mediocre education and are tween regime change in Iraq and the onset of the not ready for gainful employment. Youth unem- oil price cycle that began in 2004. In the run-up ployment climbed, as nationals were squeezed to the allied intervention in Iraq, the expectation out of the market by excessively low wages paid was that the demise of the Saddam regime would to unqualified expatriates from South Asian open the country to international oil companies’ countries (the bottom wages showed no signifi- investment, and oil production would rapidly in- cant tendency to increase, notwithstanding the crease. In contrast, it soon became apparent that spending boom, because the supply of expatriates the outcome was entirely different, and oil prices is essentially infinite). started increasing gradually. The upward trend found little immediate resistance. The market, In the non-rentier states, the development model influenced primarily by the peak oil narrative, of Dubai and the other Gulf countries became he- became convinced that prices could grow much gemonic: political elites nurtured cronies whose higher, and eventually a bubble was created. The role was to attract investment from the Gulf, financial crisis led to a collapse in prices inthe offering opportunities to invest in real estate, latter part of 2008—but this proved temporary. high-level tourism, and financial speculation. Prices recovered quite rapidly and kept climbing The economies of the non-rentier countries ex- until 2011. The outbreak of the Arab Spring sup- perienced satisfactory growth in the 2000-2010 ported the fear that oil supplies from the Middle decade, but the quality of increased investment East might be seriously disrupted, although this and value added did not allow for trickle-down to was in fact not the case. occur.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 25 III. Commentary

Looking forward

The Arab Spring and its regional dimension Giacomo Luciani leads the Master in Interna- cannot be easily explained unless we take into tional Energy at the Paris School of Internation- account the dynamics of income distribution at al Affairs of Sciences Po and is an adjunct pro- the regional level, not just within each country fessor at the Graduate Institute of International in the region. Although national statistics tell and Development Studies in Geneva; he special- us that income distribution did not appreciably izes in the political economy of MENA and inter- worsen, the extreme concentration of income national oil and gas. and wealth in the hands of the top one percent of the distribution is underestimated. Further- more, income inequality is extremely large if considered at the regional level. It is the perception of such growing inequality, further fuelled by the growing role of regional media, and the constant image of Dubai-style success that they project, that ignited the resentment and revolt against the incumbent authoritarian regimes.

Now that the tide of oil prices has turned, will tensions decrease? Unfortunately, history cannot be run in reverse, omelets cannot be turned back to eggs. The reduced financial means may possibly encourage a speedier resolution of the regional civil war, but political stabilization will require creating a regional economic order that promises opportunities for all and allows for reducing economic disparities.

In the meantime, and for as long as direct involvement in hostilities will be minimized, the citizens of the Gulf will certainly appreciate the benefit of relative security and stability, in contrast to the chaos and destruction in neighboring countries. I expect that the vast majority will accept a reduction in material benefits received from the state in line with reduced oil revenue. At the same time, Gulf governments must learn how to make better use of the available revenue and get more political bang for each buck of oil money: there is ample potential for succeeding in this respect.

26 Gulf Affairs IV. Interviews IV. Interviews

H.E. Anas Al-Saleh Minister of Finance, Minister of Oil State of Kuwait

Gulf Affairs: How has Kuwait’s energy sector adjusted to this lower oil price environment?

Anas Al-Saleh: The Kuwait oil sector has focused on: (1) optimization of operations’ activities across the barrel, (2) rationalization of costs, and (3) execution of all major projects. Accordingly, Kuwait Petroleum Corporation (KPC) and its affiliates have developed more than 100 initiatives as a means to move the sector into a better position and effectively survive current weak oil prices and achieve sustainability.

Furthermore, Kuwait is devoting extra effort to reduce its operational costs without affecting its overall strategic plan. Measures include re-negotiation of contracts related to operations and maintenance and training outside Kuwait. Other measures include applying technology, adopting digital management of fields, and liaising with IOCs to better enable more efficient operations and developments. We are evaluat- ing all existing activities and ongoing investments to continue with those activities that are profitable and commercially viable while exiting unprofitable ones. As you are aware, we have already sold a refinery in Europe, and a decision was made to exit the fertilizer business in Kuwait.

28 Gulf Affairs IV. Interviews

We are seeking to implement a new project finance policy that would require executing some of the main projects via loans from international markets and banks. This would ensure better project management and may improve overall economics. These projects include the Clean Fuel Project, Vietnam Refinery, LNG import facilities, KUFPEC upstream projects outside Kuwait, and expansion in petrochemical activities inside and outside Kuwait.

We are pushing forward with the concept of Value Chain Optimization as an effective and efficient mecha- nism to manage operations. This would drive cost reduction and result in the highest added value that can be attained throughout all activities including upstream, logistics, operations, refining, petrochemicals, marketing and sales, human resources, technological development as well as HSSE. One of the aspects where we have achieved the highest operational optimization is the expansion of LNG imports for power generation locally. We are also using the Kuwait Integrated Digital Field, where every well is instrument- ed with state-of-the-art technology and connected to Collaboration Centers which allow engineers from all disciplines across upstream in Kuwait to work together and take decisions on how to optimize production in a collaborative environment.

Gulf Affairs: What are the key projects in place that will help Kuwait reach its target of pump- ing four million barrels of oil per day by 2020? In addition, what is the status of those projects? Are they likely to reach completion in time?

Al-Saleh: Kuwait is producing 3 million barrels of oil per day today. By 2020, we should be able to produce 4 million barrels per day. All major upstream projects to boost production and achieve this target have been signed and are in the process of implementation. These include an aggressive drilling program in all areas during the next five years and the development of heavy oil. The fourth gathering center (GC32) is in the contractual tendering process. We have already completed three gathering centers and two booster stations.

Gulf Affairs: Can we expect to see new privatization efforts in the downstream sector in the short-to-mid-term?

Al-Saleh: Initiatives have been launched to implement the local content’s 2 strategic program through partnerships with the private sector to support the local economy and enhance its role to become a dynamic partner in Kuwait’s development. These initiatives will encourage and facilitate the transfer of knowledge and modern technologies to the local private sector. This process will assist in developing Kuwaiti talent and support the establishment of manufacturing industries in Kuwait. Possible activities will be identified and evaluated carefully before deciding if any unit or company will be privatized. This will need more time.

Gulf Affairs: Is it likely that Kuwait will raise gasoline, diesel and fuel oil prices shortly? If so, on what basis? Is this going to help the fiscal balance?

Al-Saleh: The Kuwait government has proposed a plan to raise gasoline prices at retail stations, which will be implemented once approvals are completed. This step follows the raising of diesel prices in 2015. The reduction of subsidies to bring local fuel prices more in line with international price levels will help

1 Health, Safety, Security, and Environment 2 ‘local content’ refers to added value brought to a host nation.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 29 IV. Interviews rationalization of consumption and is crucial in the face of the sharp decline in oil revenues and the im- pending budget deficit.

Gulf Affairs: In light of the agreement reached at the Paris Climate Conference (COP21), what role do you see for renewable energy in Kuwait and the wider GCC region? What renewable energy projects has Kuwait initiated and what are the plans for the future?

Al-Saleh: As a directive to meet the State of Kuwait’s current and future energy demand by providing an economically and environmentally optimal mix of fuels, as well as strategic backup, the 2030 KPC Stra- tegic Directions encouraged the pursuit of alternative and renewable energy sources and conservation efforts. We are identifying improvement opportunities relevant to solar energy technologies within Kuwait’s oil sector and ways to enable KPC and its subsidiaries to play a more active role in energy saving by developing an effective action plan for utilizing solar energy technologies in K-Companies’ facilities. 3 This will complement the vision of His Highness the Emir of Kuwait Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah for a practical action plan to produce 15 percent of the country’s total energy needs from renewable energy sources by 2030.

Renewable energy technology will play an important role in addressing both issues—air pollution and carbon emissions—and it is more relevant to the 2015 UN climate conference in Paris (COP21). The investments into renewable energy technology can be viewed as a long-term solution to the surging energy demand globally as well as locally, and hence, limiting pollution as well as emissions levels. Renewable energy is a promising growing industry that can generate more jobs, improve overall productivity, and ensure the involvement of different parties including the private sector in addition to contributing effectively to the diversification of the economy and to Kuwait’s energy efficiency. Renewables, especially solar photovoltaic (PV), have seen costs fall markedly in recent years, spurring rapid growth. Costs continue to fall, and the range of renewables’ cost neutrality with thermal generation continues to expand.

The Shagaya project is part of Kuwait’s Innovative Renewable Energy plan. This will be comprised of three main facilities: a concentrated solar power plant and two facilities for wind and PV research. The project sponsor is the Kuwait Institute for Scientific Research (KISR). This project is in the early stages and will be done in phases with the help of the oil industry. Kuwait National Petroleum Company (KNPC) leads a team whose aim is to evaluate and assess the installment, operation and maintenance of PV. The charge and electricity generated will be distributed among all K-Companies proportionally depending on their electricity consumption. Proposed solar projects include installations of solar water heaters, LED solar light fixtures, and solar reflective paint in Petrochemical Industries Company (PIC) headquarters and the fertilizer plant.

In addition to utilizing solar energy applications, PIC has approved two capital projects to optimize energy, resulting in additional savings per year including the replacement of lights from incandescent to LED type at its headquarters and replacement and installation of energy-saving equipment in the fertilizer plant’s offices and factory. Moreover, KPC plans to have more than 20 solar energy based gas stations by 2017. We have already commissioned two in 2015.

3 K-Company is shorthand for KPC affiliates.

30 Gulf Affairs IV. Interviews

Kuwait plans to transform all government buildings to be fully green along with a comprehensive study to assess the possibility of converting Kuwait oil sector buildings to green buildings and utilizing solar energy applications by 2020. The Kuwait Foundation for the Advancement of Sciences also has plans to transform a growing number of housing into green buildings.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 31 IV. Interviews

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H.E. Abdalla Salem El-Badri Secretary General Organization of the Petroleum Exporting Countries (OPEC)

Gulf Affairs: What is the role of OPEC and how does it support its member states?

Abdalla Salem El-Badri: Since OPEC was founded in 1960, its overall goal has been oil market stability. It is not only the best type of market for OPEC, but for all stakeholders. This includes producers, contractors, investors, and consumers. This will continue to be the organization’s goal on a daily, weekly, monthly, and yearly basis. We will constantly review the market, looking for movements and trends as we seek stability with a balance between supply and demand. It is not always easy to attain, as events over the past 20 months or so have shown have shown, but market stability remains central to everything we do.

The OPEC Secretariat’s support to its member countries comes in various forms. OPEC, as a research-focused organization, provides its member countries with data, analysis, and advice regarding all aspects of the global oil industry, in both the upstream and downstream sectors. It is then for member countries to utilize this information as they deem appropriate. It has provided support to its member countries throughout the ongoing process related to the meetings of the United Nations Framework Convention on Climate Change. It enables member countries to come together to discuss, debate, and determine various policies and initiatives. It also provides a platform for dialogue and cooperation, such as with the European

32 Gulf Affairs IV. Interviews

Union, Russia, China, India, the International Energy Agency, the International Energy Forum, and non- OPEC producers, for example, through the two OPEC and non-OPEC technical meetings that took place in 2015. This is not an exhaustive list, but it gives an idea as to the scope of the OPEC Secretariat’s role in helping its member countries.

Gulf Affairs: Oil prices have declined notably over the past few years. In the current context, what are the Organization’s priorities? What are the lessons of previous oil price drops and how relevant are they this time around?

El-Badri: As per my response to your previous question, the Organization’s goal remains market stability. This is paramount.

In terms of the lessons learned from previous oil price drops, I think a key one relates to investments. It is important to highlight that the previous high oil-price cycle was the outcome of a lack of investment in more supply when prices were low. And on the flip side, the low oil-price environment we find ourselves in today is the result of too much investment in high-cost production during the high oil-price period.

Today, we are already seeing the impact of lower prices on production and investments. For example, global exploration and production spending fell by over 20 percent in 2015, and this year expectations are for a further fall of around 15 percent. However, the world will need more oil in the future. Oil demand is expected to be close to 110 million barrels a day (mb/d) by 2040, an increase of 18 mb/d between 2014 and then, and oil-related investments over this period are anticipated to be around $10 trillion. Major investments are required. We need to recognize the importance of a price that allows the industry to invest to meet future demand; otherwise we may find ourselves with a supply shortage in the future.

In addition, I believe another important lesson is that no producer or country can detach itself from the global oil market. All producers are part of this. It is essential that everyone understands the possible knock-on effects of their actions. Producers should not act blindly to the global oil market situation.

Gulf Affairs: Some observers have suggested that OPEC no longer holds the same influence over global oil prices as it has in the past. Do you agree with this and what are the key achievements of OPEC over the past few years?

El-Badri: It is important to stress that OPEC does not set prices. We do not have a price target. We believe the oil price should be based on market supply and demand fundamentals. Prices need to be at a level that allows investors to invest for the future benefit of producers and consumers, provides producers with a fair income for their resources, and enables healthy growth in the global economy. Our goal at OPEC is market stability, something I have already touched upon in your first two questions.

With regards to OPEC’s achievements, I feel it is important to look back over the history of the Organiza- tion. There are many to name. These include the founding of OPEC back in 1960 and the expansion of the Organization in the years since, providing a voice to producing countries, the continuing commitment to the stabilization of oil markets, and evolving various dialogues and cooperative efforts to help the industry meet the challenges and opportunities it has faced.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 33 IV. Interviews

Gulf Affairs: So much has been said about the shale revolution and how it is impacting petroleum exporting countries. What is your view on the short, medium, and long term impact of shale?

El-Badri: Many commentators have suggested that OPEC’s decisions have targeted US shale (tight oil) producers. This is not true. OPEC is not stopping any producer producing. And as I have said on many occasions, we have welcomed the efficient production of tight oil. It has added diversity to the global oil production mix. There is no doubt that US tight oil will continue to be part of the market. In the years ahead, the global oil market will need new production growth.

Nevertheless, in the short-term we expect to see a contraction of 740,000 b/d in non-OPEC supply in 2016, of which more than 400,000 b/d will come from the US alone. It is also important to recognize that the main contributor to crude supply growth after 2020 is OPEC. In the 20-year period between 2020 and 2040, OPEC crude is expected to expand by 10 mb/d to a level over 40 mb/d. By then, the share of OPEC crude in total liquids supply is projected to increase to 37 percent, compared to current levels of around 33 percent.

Gulf Affairs: What do you foresee as the impact of sanction-free Iran resuming full production and its impact on the global oil market, both short and long term?

El-Badri: Iran’s full return to the oil market is a welcome one. Iran is an important country, a founding member of OPEC and a key participant in the global oil market. It has vast hydrocarbons potential, ex- cellent manpower, and its production and exports remain integral to the future stability of the oil market.

In terms of the impact on the market, it is perhaps too early to say, although it is evident that Iran has been increasing its production in recent months. As for the longer term, this will no doubt depend on the cooperation between Iran and the international oil companies. I hope they are able to reach an agreement that satisfies all parties, one that enables Iran to expand its production and exports.

Gulf Affairs: What is OPEC’s view on the “Paris Agreement” reached at the Paris Climate Con- ference (COP21) in December 2015?

El-Badri: OPEC welcomes the agreement made in Paris last December. The environment and climate change is a concern for us all, and all our member countries were part of the “Paris Agreement,” submitting their Intended Nationally Determined Contributions (INDCs). However, we do need to be realistic about our energy future. Can renewables meet the energy needs of the world? No, they cannot. Do we need all energy sources? Yes, we do. Are fossil fuels going to remain the mainstay in the coming decades? Yes, we believe they are.

It is important to stress that environmental protection and the use of oil and gas are not mutually exclu- sive. We can still use oil and gas and have a cleaner environment. This means focusing on technologies. At OPEC, we recognize the importance of continually looking to advance the environmental credentials of oil, both in production and use.

For example, in OPEC member countries, research, development, and deployment of cleaner technologies is taking place every day. This includes investing in carbon capture and storage, reducing gas flaring, developing hybrid solar-gas power stations and solar-powered desalination units, and producing cleaner petroleum products.

34 Gulf Affairs IV. Interviews

In addition, we should not forget that today around 2.7 billion people or more still rely on biomass, such as wood fuel, for their basic needs, and 1.3 billion have no access to electricity. These people need access to reliable, safe, and secure modern energy services to live and prosper.

We need to keep in mind that the three pillars of sustainable development—“economic, environmental, and social objectives”—mean different things to different people.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 35 IV. Interviews

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Adnan Amin Director-General International Renewable Energy Agency (IRENA)

Gulf Affairs: What is the role of IRENA within the Gulf Cooperation Council (GCC) countries? What are some of the achievements and deliverables that it has produced so far?

Adnan Amin: IRENA provides support to all of its member countries, including those in the GCC, in transitioning towards a future of sustainable energy. The fact that IRENA is headquartered in an oil producing region, while being the only international organization dedicated to renewable energy, is a testament to the determination of countries in the region to diversify their energy systems.

Earlier this year, we launched the Renewable Energy Market Analysis: The GCC Region that highlights best practices in policymaking and project development in the region and provides recommendations for accelerated uptake of renewables.

IRENA has collaborated in the GCC at the national level as well, for example with the UAE’s Direc- torate of Energy and Climate Change and Masdar Institute to produce Renewable Energy Prospects: United Arab Emirates, which shows that renewable energy can affordably produce 25 percent of electricity generation by 2030. In Oman, IRENA has contributed to driving early progress towards renewable

36 Gulf Affairs IV. Interviews energy planning by conducting a renewable readiness assessment with extensive stakeholder engage- ment. The assessment indicated that Oman can leverage vast renewable resources to address rising energy demands and recommended key actions to drive the transition towards more renewables.

Gulf Affairs: What do you think will be the impact of the current oil price collapse on renewables investment in the GCC? Do you see renewables competing head-to-head with fossil fuels in the GCC in the coming decade?

Amin: There is limited direct competition between oil and renewable energy across the end-use sectors. While oil primarily caters to the transportation sector, most of the renewable energy deployment has been concentrated in power generation and heating (the non-transportation sectors). Therefore, the decline in oil prices should not have a strong impact on the uptake of solar and other renewables.

The long-term economics of renewables in the GCC remain positive, given that solar photovoltaic (PV) power in the region is comparable to the levelized cost of electricity from oil priced at $20 per barrel. In a “low-price” environment of around $30 per barrel in February 2016, this cost advantage still offers plenty of economic opportunity for renewable energy deployment.

In addition, we see that falling oil prices and rising energy needs have inspired the governments in the GCC to adopt strategies that conserve natural resources, improve energy efficiency, and in some cases diversify the energy mix to include more renewables. Recently, an $82 billion plan was set in motion by the UAE government with the aim of building a sustainable economy for future generations. Renewable energy will receive around $20 billion under this plan.

Elsewhere in the GCC, Saudi Arabia has already increased diesel prices while countries such as Kuwait and Oman have outlined plans to increase prices in the near future. These reforms are likely to create opportunities for decentralized renewables in diesel replacement applications.

Gulf Affairs: What are the prospects for renewables in the Gulf?

Amin: As costs continue to decline and policy frameworks develop, we expect to see a significant scale up of renewables in the region. Evidence is already pointing towards an upswing in project implementation. The UAE alone is expected to auction more than 1,150 megawatts (MW) of solar PV capacity in 2016, which compares to an existing installed capacity of just 135 MW in 2015. The Emirate of Dubai, in particular, has increased its renewable energy target five-fold and declared an ambition to have “solar panels on every roof by 2030.”

Oman has started the construction of a one gigawatt thermal solar-assisted Enhanced Oil Recovery plant and plans to auction 200 MW in 2016. In Saudi Arabia, the marked increase in diesel prices is creating opportunities for decentralized solar.

The GCC countries are well placed to capitalize on their abundant renewable resources to fuel their economic growth and to reap significant socio-economic benefits, including job creation and reductions in fossil fuel consumption, CO2 emissions, and water withdrawals in the power sector.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 37 IV. Interviews

Gulf Affairs: What is the potential for solar power usage with regards to water desalination in the Gulf?

Amin: Desalination provides a substantial share of the fresh water needs in the GCC—ranging from 27 percent in Oman to 87 percent in Qatar. This share is likely to increase in the future. The rising demand for water continues to outstrip limited naturally available water resources. Desalination is an expensive and energy-intensive process that accounts for up to 30 percent of the energy consumption in the power sector in Qatar and the UAE. Continued reliance on fossil fuel-based desalination raises concerns about energy security and environmental degradation.

A transition towards more efficient desalination technologies and greater use of renewables for desalination offer viable solutions for sustainable desalination in the country. Recently, PV-based desalination has been gaining prominence because PV technology costs have been declining and reverse osmosis technology is being adopted in the region. The technology can be easily powered by PV as it only requires electricity as an input.

Several prototype renewable energy-based desalination projects have been initiated across the GCC. These projects are an essential step in enhancing the cost competitiveness of renewable desalination technologies and can lead the way for broader commercialization.

Gulf Affairs: How do you think the challenges pertaining to renewable energy integration in the GCC can be best addressed and overcome?

Amin: The countries of the GCC have abundant solar resources and boast some of the highest solar irra- diances in the world.

Realizing the full potential of these abundant solar resources will depend on the removal of barriers such as institutional inertia faced with new markets, lack of clarity in institutional roles and responsibilities, and lack of dedicated policies and regulations.

To push past some of these road blocks, IRENA’s recent report, Renewable Energy Market Analysis: The GCC Region, recommends that:

• Renewable energy targets must be backed by dedicated policies and regulatory frameworks. • Auctions can continue to play a key role in large-scale deployment. • Feed-in tariffs and net-metering can foster small-scale projects in roof-top settings. • In addition to the power sector, policy makers can also focus on other applications such as heating/ cooling and renewables-based desalination.

Deployment policies need to be part of a broad range of cross-cutting policy instruments, which focus on building institutional capacity, promoting R&D, strengthening domestic industry, and creating an investment-friendly environment.

Gulf Affairs: What opportunities do you see in renewable energy in the GCC in terms of industrial development and job creation? Can renewables offer the Gulf’s young educated population feasible job prospects for the future?

38 Gulf Affairs IV. Interviews

Amin: Renewable energy can contribute to national plans for economic development by creating local industries and generating job opportunities along the value chain. IRENA estimates that achieving GCC renewable energy targets and plans could create an average of 140,000 direct jobs every year. In 2030 alone, close to 210,000 people could be employed in renewables.

In fact, deployment in the GCC and the broader MENA region has already resulted in a flourishing renewable energy industry that includes project developers, EPC1 contractors, manufacturers, and financiers. While most jobs have initially been created by project developers in the construction and installation seg- ment of the value chain, employment in the manufacturing and O&M 2 segments will increase as the industry matures, installed capacities increase, and equipment manufacturing facilities are localized.

Going forward, maximizing the job creation potential for national populations demands the establishment of an overall enabling policy framework. This framework will constitute policies that encourage deployment, strengthen firm-level capabilities, enable investment and technology transfer, and promote education and training.

1 Engineering, Procurement and Construction 2 Operations and maintenance

Energy & the State: The Impact of Low Oil Prices | Summer 2016 39 IV. Interviews

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Majid Jafar Chief Executive Office Crescent Petroleum

Gulf Affairs: What is Crescent Petroleum’s vision and business strategy?

Majid Jafar: We at Crescent Petroleum are proud to be the oldest private oil and gas company in the region. We have been operating for about 45 years now across the wider Middle East and worldwide from our headquarters in the UAE and also from offices in Iraq, Egypt, the UK, and elsewhere. Our strategy is really focused on where we have our advantages, which are the ability to move quickly, putting deals together, partnering with national or foreign oil companies, project management implementation, and a keen understanding of the commercial drivers, realities and socio-economic needs of the markets in which we operate. So for example, whereas oil majors may be focused on just export out of the region, whether it is oil or gas through LNG, we are very focused on what the local market and community needs and how we can leverage energy resources to meet these needs in a value-adding manner, whether it is power generation or industry. So by being local in our understanding and focus but global in our perspective and experience, we differentiate ourselves while adding value to our host economies.

Gulf Affairs: How is Crescent Petroleum adapting to the current oil price realities? Does this new environment provide opportunities as well as challenges?

40 Gulf Affairs IV. Interviews

Jafar: In the 45 years that we have been around, we have seen several oil cycles. We’re on about $40 per barrel now, which is not low by historical standards. I remember, even in the late 1990s, oil was at $9 per barrel. We were screening projects at $6 per barrel when I was at Shell. But what has been impactful was the sudden decline by over 70 percent after four years of stable oil prices above $100 to $110. So that has obviously had an impact on government budgets, spending plans, and indeed on investment across the oil and gas sector.

Looking worldwide we’ve seen bankruptcies in places like the North Sea or the US, but also we’ve seen some companies in those basins that are able to adjust their cost base, tighten their belts, and still be sustainable, or at least weather the storm. In our part of the world, it is not a cost of production issue. Most of the oil and gas basins with few exceptions—such as if it is really sour or complex—still make money for the governments at these oil prices. Our challenges tend to be above the ground: changing deal terms or not respecting contracts, or late payments, or sometimes security issues—but sometimes that gets exagger- ated. So you know, sometimes the basic business risks can be more important than the external security and other risks. Also, we have the challenges of underperforming even though we have half of the world’s oil and gas resources. We have less than one-third of the world’s oil exports and one-sixth of the world’s gas exports, and that’s because of subsidies, and because of insufficient investment. We have national oil companies, monopolies that are focused on oil production, but there has not been as much investment in downstream refining, exploration and gas. Compare our region, which should be number one, to the US: Nobody thought it would be a new big producer and exporter, but thanks to the power of its private sector and market-based policies, it is now competing with our region again in both oil and now gas. So, I firmly believe that our region can do so much more, but it will take some economic reforms to get us there.

Gulf Affairs: Amid low oil prices, it is widely reported that GCC countries are in disagreement with other oil exporting countries on cutting back production to recover from the decline. What is your view on this?

Jafar: You know we mentioned that $110 was amazingly stable for four to five years despite all the changes that were going on, and that’s because we had a surge of new supply of about 10 million barrels a day in additional supply over a five to six year period. Half of that was from North America, mainly the US, and then about two million from Saudi Arabia, two million from Iraq, and about 1 million from Russia.

But at the same time, we lost production from Iran because of sanctions, and from Syria and so on, while China was growing in demand, so it remained remarkably in balance. In many ways, the US was taking up the slack and acting as the swing producer, or the US private sector was. And then we had a slowdown, particularly from China, and in many ways I think the supply gets too much focus in OPEC politics whereas we actually should be looking more at the demand. China’s GDP growth—official growth—is now below seven percent after having been north of 11 percent for years, and some people think that the true number is four or five percent, plus the energy intensity of that growth is about half of what it was 10 or 15 years ago. So that’s like going from 11 percent down to one or two percent in terms of the effective growth rate, in terms of energy intensity. That’s a huge change. The nature of China’s growth is changing. And we know that the growth in energy demand is not really from the West anymore (from the OECD), it’s from countries like China and India, and from the Middle East itself—we are actually one of the biggest growing markets in terms of energy.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 41 IV. Interviews

The challenge for Gulf states is on the budget side. The oil is still very profitable, but obviously it is not earning as much as it was when oil was $110 and spending plans had been getting used to $80 and $90 and higher in terms of oil price. Now, my reading of the decision of OPEC two years ago, particularly the Gulf states, not to cut is that it wasn’t really so political, it was really driven by economics. There was a memory of what happened in the 1980s, when Saudi Arabia in particular chased down the oil price and cut down to two million barrels per day and the price collapsed anyway. Now this time around the attitude was more “we’re the low cost producer and rationally speaking we should be the last out of the market” and we should really see how resilient this shale oil and other higher cost producers are. And of course the Gulf states by and large, particularly the big energy producers, have savings in the hundreds of billions that can be sustained for many years. I think people underestimated how far the oil price would go, but I think you’re seeing it has come back a lot from $26-27 in January; we are already at close to $50. So, the oil price will recover. The question is how far and how fast.

Gulf Affairs: How do you see energy relations between the GCC states and Iran evolving over the coming decade?

Jafar: Obviously there are geopolitical tensions at the moment between Iran and the GCC, but they are also neighbors that share an important waterway for energy and energy producers. In terms of inter-regional gas and electricity trade, there should be opportunities for that because there is counter-cyclical demand. The GCC states have a surge of demand in the summer for air conditioning and less in the winter, whereas Iran being mountainous and cold has a demand in the winter for heating, so you would think that there would be opportunities for collaboration, since Iran has the world’s highest gas reserves according to BP. And there is a deficit, as we know, in every Gulf state with the exception of Qatar. Having said that, you need trust. And the trust is just not political trust, it’s the commercial and legal trust.

In addition, Iran has not managed to really get enough investment because of sanctions but also because it is a national oil company monopoly, and there is sort of an aversion to private sector investment in Iran. The constitution doesn’t allow for the private ownership of oil and gas in Iran. As a result, despite having the world’s highest gas reserves, they are actually a net importer of gas today and have massive investment needs even to get to the oil production that they had a few years ago, let alone what they were back in the 1970s before the revolution. So, there is an economic logic, but I don’t think it’s going to be an easy path.

Gulf Affairs: What are your views on both planned and realized developments linked to the fiscal challenges facing GCC states (e.g. energy price reforms, privatization, VAT inter alia)? In your view, are they prompting a reconfiguration of the social contract?

Jafar: What we see historically in our region is that economic reforms always come through necessity. I suppose this is worldwide to some extent. The necessity comes when oil prices are lower and budgets are tightened. In one sense, if we can get through a period of lower oil prices and take advantage of it to enact some of these reforms we’re going to have much more competitive and sustainable economies. In many ways $110 oil, while it earned a lot of revenues, was creating some distorted effects on the economies. Sal- aries and housing prices were going up. It was becoming hard for companies to operate in the region and it was crowding out other sectors of the economy. This gives an opportunity for diversification and energy subsidy reform because the gap between the subsidized price and the actual price is less. So in many ways it can be a big opportunity. In terms of the social contract, I think that it is continuously evolving. Technol- ogy is probably even a bigger part of that than the oil price, such as social media, which has deep penetra- tion. And you’re seeing a new generation of leaders who are able to use that, like e-government services that you’re seeing in Dubai and elsewhere. Competition within the region you know, governments taking

42 Gulf Affairs IV. Interviews the best innovations from each other to improve is great. It leads to an improvement in services across the board.

Gulf Affairs: Following the agreement reached at the Paris Climate Conference (COP21), what role do you see for renewable energy and the drive toward more energy effiiny i te GC region in the coming years?

Jafar: Renewables have their part to play, particularly with the cost of solar coming down, and we’ve seen some very competitive bids in Dubai, for example. But worldwide, let’s be clear, still over 80 percent of the world’s energy comes from fossil fuels. You wouldn’t think it when you look at some of the ads that oil companies put out there, but that’s the reality. And the other 20 percent of it is mostly things like nuclear and hydro, and not new renewables like wind and solar which actually just make up a few percent. There is a lot of money going into it but it’s still small in terms of the actual output. So, fossil fuels are going to remain a big part of the energy mix for decades to come, and that means the importance of the Middle East and the GCC in particular is going to continue.

When it comes to the GCC and sustainable energy policy and diversification, including other sources of energy on the supply side is important. But even more important is controlling the demand side. We have the fastest growing energy demand in some countries in the region, which also means the most inefficient. Countries like the UAE and Qatar see large per capita energy demands because of huge air conditioning needs and fast growing populations. And there is a lot of waste of energy because of the subsidies.

The IMF, when oil prices were high, estimated that nearly half of the world’s energy subsidies—$225 billion out of $500 billion—were in our region. So tackling the demand is important—and you’re seeing that with new green building codes, information, and educating the next generation. But above all, the subsidies have to be dealt with. If you alter the price, people turn air conditioning off when they go out, or lights off, and the government doesn’t waste so much energy. You know, using less energy is the only totally clean form of energy. And then the move from coal to gas. That’s how the US, going from over 50 percent coal to about one-third now thanks to the shale gas revolution, has the lowest emissions in over 20 years, the lowest energy costs in over 20 years, and a competitive industrial economy that is bringing back investment in petrochemicals because of moving from coal to gas. We don’t have that many countries in the region that burn coal, but we have countries that burn crude oil for power. So developing and utilizing our natural gas for power generation is, I think, a key area where our region can improve the climate change agenda for ourselves and the world while increasing our economic competitiveness. This is why natural gas is a key focus for Crescent Petroleum, has been for decades, and is continuing to grow.

Gulf Affairs: Is there in your view a role for unconventional oil and gas as a game-changer for the industry, including in the Gulf?

Jafar: There is potential for that in many countries across the region. Jordan is one where there isn’t much conventional, but there may be unconventional. At $40 it may not make much sense, but when oil prices go back up, and I’m sure they will, it may make more sense. We are already active in this space, and we’re doing a study with the government of Sharjah. But our region has a lot of conventional oil and gas to be developed too. The reason the US went for unconventional is because it produced most of the conventional. We still have a lot of conventional—countries like Iraq haven’t even been properly explored. It’s just a few thousand wells compared to ten times as many in Saudi Arabia or a million wells just in the state of Texas. There is still a lot of conventional oil and gas to be produced in our region. However, in tandem we should certainly be looking at using the latest technology to tap some of the unconventional and other sources of energy that we have.

Energy & the State: The Impact of Low Oil Prices | Spring 2016 43

V. Timeline

Select Developments in GCC Energy since 2008 2008 North America and Europe experience one of the most severe financial crises post-World War II. A slowdown in global energy demand begins.

March 23: Gulf states announce that they will reinvest $500 billion into the hydrocarbon sector over the following five years, aiming to develop refining capacity and to create new oil and gas industries.

July: After several years of oil price growth over the second half of the 2000s, oil prices collapse in the second half of 2008, leaving oil markets puzzled. Prices gradually recover in 2009.

2009 June 4: Oman and Russia sign a memorandum of understanding to increase nuclear energy cooperation.

December 17: The United Arab Emirates and the United States sign an agreement for peaceful nuclear cooperation.

December 22: Kuwait discovers a new oil field that will provide an estimated 80,000 barrels per day of light crude and 110 million cubic feet of natural gas.

2010 2010 to mid-2014: Oil prices rise, partly in response to a series of unplanned shutdowns, market concerns over more shut-ins in the Middle East and North Africa following the Arab Spring, sanctions against Iran, escalating domestic violence in Iraq, and continued strong demand from global markets. Oil prices oscillate on average between $100 and $110 per barrel. Saudi Arabia and US producers compensate for the greatest share in production losses.

December 13: Qatar becomes the world’s largest producer of liquefied natural gas (LNG).

2011 April: Abu Dhabi is announced as the permanent seat of the International Renewable Energy Agency (IRENA).

June 1: Saudi Arabia announces plans to construct 16 nuclear power reactors over the next 20 years at a cost of more than $80 billion, with the first reactor on line in 2022.

July 19: GCC intends to increase investment in renewable energy, projecting to invest more than $300 billion in some 20 projects by 2020.

July 26: Bahrain, Kuwait, Qatar, and Saudi Arabia connect their electricity grids as part of the first phase of the GCC power grid project. The UAE follows up a few days later, and Oman in May 2013.

Mid-2012: European and American sanctions target Iranian oil exports, significantly reducing the OPEC member’s official crude oil sales and complicating Iran’s business relations with neighboring Gulf states

2012 December 2: Qatar plans to invest up to $20 billion in solar energy.

46 Gulf Affairs V. Timeline

2013 March 17: Shams I, at the time the world’s largest Concentrated Solar Power (CSP) plant, starts operating in Abu Dhabi.

August 27: Oman and Iran sign a memorandum of understanding for Iran to export gas to Oman.

September 26: The UAE gives $100 million to Morocco for renewable energy projects.

November 7: Oman states that the government will explore renewable energy options to meet future power demand.

2014 June: The US overtakes Russia and Saudi Arabia as the world’s biggest oil and natural gas producer.

July: Oil prices begin a historic fall after nearly three years of relative price stability at around $105 per barrel

September 5: GCC officials explore the possibility of unifying the price of petroleum products in the region.

October 23: Abu Dhabi renewable energy company Masdar announces plans to build the first large-scale wind farm in the GCC.

November 18: Qatar’s state electricity and water company Kahramaa announces that it will open Qatar’s first solar power plant in 2016.

November 27: OPEC’s November meeting decides against a response to falling oil prices, pushing oil prices down further.

2015 January: Dubai’s Mohammed bin Rashid Al Maktoum Solar Park’s winning consortium sets a record with the world’s lowest-cost offer for photovoltaic power.

January 20: Saudi Arabia announces that it aims to produce one-third of its electricity from solar energy by 2040.

May 5: Kuwait Oil Company announces that the company will build the country’s largest solar power plant.

July: The UAE announces the liberalization of domestic fuel prices starting 1 August 2015.

July 8: Oman plans to build a giant solar facility to help extract oil.

July 14: Negotiators from Iran, the P5+1 countries, and the EU, announce completion of a comprehensive nuclear agreement with Iran, paving the way for sanctions relief and the re-introduction of Iranian oil to international markets.

September 17: Bahrain and Saudi Arabia sign contracts to build a new $330 million oil pipeline between the two countries.

Energy & the State: The Impact of Low Oil Prices | Summer 2016 47 V. Timeline

November 29: Dubai launches a $13.6 billion plan to produce 75% of its energy from renewable sources by 2050.

November 30 to December 12: GCC members participate at the 21st United Nations Climate Change Conference (COP21), having previously submitted their first round of climate change targeting policies, the Intended Nationally Determined Contributions (INDCs).

December 3: Bahrain awards a $400 million contract to construct a floating LNG terminal.

December 4: OPEC’s December meeting ends with the decision to continue allowing uncapped oil output.

December 24: Saudi Arabia and Iraq seek to reopen a crude oil export pipeline that was closed in 1990 after Iraq’s invasion of Kuwait.

December 28: Saudi Arabia announces plans to cut government spending after running a nearly $98 billion budget deficit (15% of GDP) due to low oil prices. The cuts will see the kingdom’s largest economic policy reforms in over a decade.

2016 January 3: Abu Dhabi company Masdar plans to double its renewables portfolio with projects in Egypt, Jordan, and Morocco.

January 12: Oman and Bahrain cut gas subsidies as oil prices hit a 12-year low.

January 31: Bahrain says that it will gradually remove energy subsidies over the next four years to help overcome its budget deficit.

February 4: Bahrain announces that it will open the country’s first solar panel plant in September.

February 18: International credit rating agency Standard & Poor’s lowers the ratings of Saudi Arabia, Oman, and Bahrain citing the long-term effects of low oil prices.

March 31: Saudi Arabia says it has discovered large volumes of shale gas near its oil field in Ghawar.

March 31: Kuwait submits a new draft law that could raise electricity prices by as much as seven and a half times.

April 17: Kuwait’s oil workers’ union strikes for three days over government plans to privatize parts of the oil sector and cut wages, benefits, and privileges for employees.

April 17: OPEC meeting in Doha ends without an agreement on oil production cuts, with Saudi Arabia insisting that all members should agree to the freeze—including Iran which did not attend the meeting.

May 6: After 20 years, Saudi Arabia’s Oil Minister Ali Al-Naimi is replaced with Khalid Al-Falih, Chairman of Saudi Aramco.

June 2: OPEC meeting in Vienna ends without an agreement on a production limit.

48 Gulf Affairs Call for Articles Identity and Culture in the 21st Century Gulf Submission due date: Friday, August 5, 2016 Word limit: 800 – 1,300 words Gulf Affairs invites scholars to submit original analytical articles for its upcoming issue entitled “Identity and Culture in the 21st Century Gulf.” Gulf Affairs is a journal founded by OxGAPS | Oxford Gulf & Arabian Peninsula Studies Forum, a University of Ox- ford-based platform. The journal is exclusively dedicated to furthering knowledge and dialogue on the pressing issues and challenges facing the six member states of the Gulf Cooperation Council—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. Each issue is dedicated to a particular theme, allowing for a comprehensive coverage from various analytical perspectives and fields of study. Accepted articles are submitted to reviewers for comment prior to publication.

To capture the complexity of the various issues and challenges around this topic, articles are encouraged from a wide range of disciplinary lenses including: Economics, Politics/Political Economy, International Relations, Law, Psychol- ogy, Sociology, Geography, Media and Communication, Area Studies, Cultural Studies, and History. Balanced articles supported by sufficient and credible sources which offer a unique perspective on the theme will likely be accepted for publication.1

Gulf Affairs welcomes analytical articles shedding light on one or more (though not limited to) of the following areas: • How do we define khaleeji identity in the 21st century? What is its relation to national, ethnic, religious, etc. identities in the GCC? • To what extent have GCC-wide political, economic, and social projects, carried out by various institutions, contributed to a shared khaleeji identity and culture? • What has become of nationalist agendas and narratives in the Gulf countries? Are national identities uni- fied or fragmented/contested? • Is social media an agent of change in the creation and/or recreation of identities? • What is the impact of expatriates and their cultures on local communities? • What is the influence of globalization on identity and culture in the GCC region? Haskhaleeji culture also been exported through international exchanges? • How are GCC cities—by way of architecture or infrastructure—vectors of cultural identity? • What are the undertakings towards preservation of culture and identity in the Gulf? How has heritage been preserved and (re)created, and how have museums and other cultural institutions contributed to this end? • How are gender roles, especially female, reinvented as part of national projects? • How do various forms of artistic expression, whether traditional or modern, embody and strengthen culture?

Submission Guidelines: Please send articles to [email protected] by Friday, August 5, 2016. Authors whose articles have been accepted for review will be notified within two weeks after the submission dead- line.

1 For citing and referencing, use Chicago Manual of Style endnotes.

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